1
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 Quarter Ended Commission File Number
March 31, 1995 0-10581
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TRIMEDYNE, INC.
(Exact name of Registrant as specified in its charter)
NEVADA 36-3094439
(State or other jurisdiction (IRS Employer Identification Number)
of incorporation or organization)
2801 BARRANCA ROAD, IRVINE, CA 92714
(Address of principal executive offices) (Zip Code)
(714/559-5300)
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last
report).
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), (2) has been subject to such
filing requirements for the past 90 days.
Yes x No
-------
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the last practicable date.
Class Outstanding at May 2, 1995
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Common Stock, $.01 par value 9,451,701 shares (excluding
101,609 shares held as
Treasury Shares)
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TRIMEDYNE, INC.
Page Number
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PART I. Financial Information
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
PART II. Other Information 9
SIGNATURE PAGE 10
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TRIMEDYNE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
MARCH 31, SEPTEMBER 30,
1995 1994
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Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,714,000 $ 3,183,000
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,503,000 5,478,000
Trade accounts receivable, net of allowance for doubtful
accounts of $287,000 and $335,000 . . . . . . . . . . . . . . . . . . . . 1,719,000 2,608,000
Inventories (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,248,000 5,730,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,277,000 1,134,000
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Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . . 15,461,000 18,133,000
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Net Properties (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,562,000 1,628,000
Prepaid royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 397,000 439,000
Intangible assets, net of accumulated amortization of
$277,000 and $246,000 . . . . . . . . . . . . . . . . . . . . . . . . 306,000 298,000
----------- -----------
$17,726,000 $20,498,000
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 656,000 $ 1,297,000
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,726,000 1,825,000
Deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158,000 182,000
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Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . 2,540,000 3,304,000
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Minority Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121,000 113,000
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Stockholders' Equity:
Common stock - .01 par value; 15,000,000 shares authorized,
9,553,310 and 9,548,310 shares issued . . . . . . . . . . . . . . . . . 96,000 96,000
Capital in excess of par value . . . . . . . . . . . . . . . . . . . . . . 34,946,000 34,932,000
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . (18,196,000) (16,156,000)
Notes receivable under stock option plans . . . . . . . . . . . . . . . . . (982,000) (982,000)
Unrealized loss on securities available for sale (Note 5) . . . . . . . . . (86,000) (96,000)
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15,778,000 17,794,000
Less shares of common stock in treasury,
at cost; 101,609 and 101,609 shares . . . . . . . . . . . . . . . . . . . . (713,000) (713,000)
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Total Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . 15,065,000 17,081,000
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$17,726,000 $20,498,000
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See accompanying notes to condensed consolidated financial statements
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TRIMEDYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
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1995 1994 1995 1994
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Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . $3,206,000 $3,666,000 $6,286,000 $6,915,000
Costs and Expenses:
Cost of goods sold . . . . . . . . . . . . . . . . . . . 2,041,000 1,808,000 3,802,000 3,698,000
Selling, general and administrative . . . . . . . . . . . 1,680,000 1,644,000 3,325,000 3,084,000
Research and development . . . . . . . . . . . . . . . . 734,000 678,000 1,356,000 1,220,000
----------- ----------- ----------- ---------
Total Costs and Operating Expenses . . . . . . . . . 4,455,000 4,130,000 8,483,000 8,002,000
----------- ----------- ----------- ---------
Loss from Operations . . . . . . . . . . . . . . . . . . . (1,249,000) (464,000) (2,197,000) (1,087,000)
Other Income (expense):
Interest income . . . . . . . . . . . . . . . . . . . . 92,000 125,000 184,000 201,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . (3,000) (6,000) (12,000) (2,000)
Minority interest in consolidated subsidiary company . . (8,000) (7,000) (15,000) (9,000)
----------- ----------- ----------- ---------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . ($1,168,000) ($ 352,000) ($2,040,000) ($897,000)
=========== =========== =========== =========
Net loss per Share (Note 3) . . . . . . . . . . . . . . . ($0.12) ($0.04) ($0.22) ($0.10)
=========== =========== =========== =========
Weighted average number of shares outstanding . . . . . . . 9,447,479 9,024,448 9,447,086 8,998,749
=========== =========== =========== =========
See accompanying notes to condensed consolidated financial statements.
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TRIMEDYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
SIX MONTHS ENDED,
MARCH 31,
-------------------------------
1995 1994
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Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(2,040,000) $ (897,000)
Adjustment to reconcile net loss to net cash used for operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . 268,000 247,000
Provision for excess and obsolete inventory . . . . . . . . . . . . . . . 26,000 (87,000)
Minority interest in earnings of subsidiary . . . . . . . . . . . . . . . 8,000 9,000
Changes in operating assets and liabilities:
Decrease in trade accounts receivable, net . . . . . . . . . . . . . . . . 889,000 221,000
(Increase) decrease in inventories . . . . . . . . . . . . . . . . . . . . (544,000) 89,000
(Increase) decrease in other current assets . . . . . . . . . . . . . . . (143,000) 87,000
Decrease in prepaid royalties . . . . . . . . . . . . . . . . . . . . . . 42,000
Decrease in accounts payable . . . . . . . . . . . . . . . . . . . . . . . (641,000) (38,000)
(Decrease) increase in accrued expenses . . . . . . . . . . . . . . . . . (99,000) 20,000
Decrease in deferred income . . . . . . . . . . . . . . . . . . . . . . . (24,000) (6,000)
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Net cash used for operating activities . . . . . . . . . . . . . . . . . . . (2,258,000) (355,000)
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Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . (171,000) (118,000)
Patent expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . (26,000) (44,000)
Payments received on note receivable from sale of subsidiary . . . . . . . 38,000
Sale of (investment in) marketable securities . . . . . . . . . . . . . . 985,000 (2,514,000)
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Net cash (used for) provided by investing activities . . . . . . . . . . . 788,000 (2,638,000)
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Cash flows from financing activities:
Proceeds from exercise of stock options . . . . . . . . . . . . . . . . . 1,000 859,000
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Net cash provided by financing activities . . . . . . . . . . . . . . . . 1,000 859,000
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Net decrease in cash and cash equivalents . . . . . . . . . . . . . . . . . . (1,469,000) (2,134,000)
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Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . 3,183,000 7,150,000
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Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . $ 1,714,000 $ 5,016,000
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See accompanying notes to condensed consolidated financial statements
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TRIMEDYNE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995
(UNAUDITED)
NOTE 1
In the opinion of the Company, the accompanying condensed consolidated
financial statements contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the Company's condensed
consolidated financial position as of March 31, 1995 and September 30, 1994,
the results of operations and of cash flows for the six month periods ended
March 31, 1995 and 1994.
While the Company believes that the disclosures presented are adequate to make
the information not misleading, it is suggested that these condensed
consolidated financial statements be read in conjunction with the consolidated
financial statements and the notes included in the Company's latest annual
report on Form 10-K.
NOTE 2
March 31, 1995 September 30, 1994
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Inventories consist of the following:
Raw material . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,428,000 $ 3,796,000
Work-in-process . . . . . . . . . . . . . . . . . . . . . . . 1,457,000 1,010,000
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . 3,968,000 3,545,000
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8,853,000 8,351,000
Inventory reserve . . . . . . . . . . . . . . . . . . . . . . (2,605,000) (2,621,000)
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Net inventory . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,248,000 $ 5,730,000
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Net properties consist of the following:
Furniture and equipment . . . . . . . . . . . . . . . . . . . $ 4,565,000 $ 4,457,000
Leasehold improvements . . . . . . . . . . . . . . . . . . . . 287,000 256,000
Construction in progress . . . . . . . . . . . . . . . . . . . 75,000 43,000
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4,927,000 4,756,000
Accumulated depreciation and amortization . . . . . . . . . . (3,365,000) (3,128,000)
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Net properties . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,562,000 $ 1,628,000
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NOTE 3
The loss per share is based on the weighted average number of common shares
outstanding. Common stock equivalents including stock options and warrants
have not been considered in the calculation because they would be antidilutive.
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NOTE 4
The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS 109). SFAS 109 is an
asset and liability approach which required the recognition of deferred tax
liabilities and assets for the expected future tax consequences of temporary
differences between the carrying amounts for financial statement purposes and
tax bases of assets and liabilities.
At March 31, 1995, the Company had net operating loss carryforwards for federal
and state income tax purposes totaling approximately $14,450,000 and
$10,550,000 respectively, which begin to expire in 2006. The Tax Reform Act of
1986 includes provisions which may limit the net operating loss carryforwards
available for use in any given year if certain events occur, including
significant changes in ownership. A net deferred tax asset has not been
created for such loss carryforwards due to the uncertainty of future
realization.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
During the second quarter of fiscal 1995 ended March 31, 1995, Trimedyne's
net revenues decreased 12.5% from the same fiscal 1994 quarter ($3,206,000 vs.
$3,666,000). For the current quarter, the Company incurred a loss from
operations of $1,249,000 compared to a loss from operations of $464,000 for
the year earlier period. The net loss for the quarter ended March 31, 1995,
was $1,168,000 as compared to a net loss of $352,000 in the same quarter of
the previous year.
The decrease in net revenues was due to a decline in shipments of Urolase
right angle laser devices to C.R. Bard, Inc. ("Bard"), the exclusive,
worldwide distributor of this product. Bard has a substantial inventory of
Urolase(R) Fibers. While we expect Bard's inventory to decline as sales begin
to increase due to reimbursement and other factors as discussed below, no
substantial sales of this product to Bard are anticipated until our fourth
fiscal quarter ending September 30, 1995. Overall urology product line
revenues for the current quarter declined by approximately $765,000, compared
to the year ago quarter. This decrease was largely offset by growth in our
orthopedic business, particularly domestically, and a 20% increase in revenues
by the Company's plastic optical fiber subsidiary. Sales of disposable
orthopedic delivery systems increased in the current quarter and accounted for
16% of sales in the current quarter compared to 9% of sales in the March 1994
quarter. Delivery System revenues generally increase proportional to the
number of lasers sold to date and currently in use, therefore as our installed
base of Holmium lasers increase, we expect revenues from delivery systems to
also increase.
While sales of Urolase devices were expected to contribute significantly to
sales in future quarters, sales of the Urolase catheter were and will be lower
than was earlier expected, because the U.S. Food and Drug Administration (FDA)
designated right angle laser devices as "investigational" in the treatment of
BPH, despite such devices having earlier been cleared by the FDA for general
urologic use. The FDA's action caused Medicare reimbursement authorities in
many states to deny reimbursement for the use of such devices, resulting in a
decrease of Urolase device sales to hospitals by Bard in these areas.
Procedure codes for laser treatment of the prostate were published in the
Federal Register in December 1994, and fee schedules for laser treatment of the
prostate were recently established by the U.S. Government's Health Care
Financing Administration ("HCFA"). The status of reimbursement, however, will
continue to be determined on a state by state basis until the issuance of a
reimbursement guidance by HCFA, which is anticipated to occur in 1995.
Cost of goods sold was 63.7% of net sales in the second quarter of fiscal 1995
compared to 49.3% for the second quarter of fiscal 1994. This increase in cost
of goods sold as percentage of sales was primarily attributed to higher than
average manufacturing, warranty and installation costs associated with the
introduction of the higher-powered Holmium laser for use in orthopedics and
lower overall revenues.
Selling, general and administrative expenses increased slightly to $1,680,000
for the current quarter compared to $1,644,000 for the quarter ended March 31,
1994. The increase in selling, general and administrative expenses was
primarily due to the marketing expenses related to the introduction of our new
OmniPulse-MAX(TM) 80 Watt Holmium Laser system, and expenses incurred in
connection with patent litigation.
Research and development expenditures for the quarter ended March 31, 1995,
increased 8.2% ($734,000 vs. $678,000) due to the decrease in the reimbursement
by Bard of certain R&D costs incurred by the Company. R&D spending in fiscal
1995 is expected to increase slightly compared to fiscal 1994, as the Company
expands its development efforts of Holmium and Neodymium YAG lasers and other
products for use in urology and orthopedics applications.
Net interest income decreased by 26.4% to $92,000 for the current quarter,
compared with $125,000 for the same period of the prior year. The decrease
was due to the lower overall level of balances held for investment offset by
slightly higher interest rates earned.
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For the quarter ended March 31, 1995, the Company reported a net loss of
$1,168,000 or $.12 per share, based on 9,447,000 weighted average number of
shares outstanding, compared to a net loss of $352,000 or $.04 per share,
based on 9,024,000 weighted average number of shares outstanding for the year
earlier quarter.
Liquidity and Capital Resources
The Company's working capital decreased from $14,829,000 at September 30, 1994
to $12,921,000 at March 31, 1995, of which $6,217,000 is cash and equivalents,
and marketable securities. The Company's management believes that the current
level of cash and equivalents and marketable securities will be sufficient to
support its working capital requirements for at least the next two years.
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PART II.
OTHER INFORMATION
ITEM 1. Legal Proceedings
In January 1995, the Company filed a lawsuit in the United States District
Court for the Central District of California against Surgical Laser
Technologies, Inc. ("SLT") of Oaks, Pennsylvania for infringement of
United States patents covering devices that use laser energy to
cause localized vaporization of tissue, such as contact tips.
ITEM 2. Changes in Securities None
ITEM 3. Defaults Upon Senior Securities None
ITEM 4. Submission of Matters to Vote of Security Holders None
ITEM 5. Other Information None
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibit
27 Financial Data Schedule
(b) Reports on Form 8-K None
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SIGNATURE PAGE
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 hereunto duly authorized.
TRIMEDYNE, INC.
Date: May 12, 1995 s/ MARVIN P. LOEB
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Marvin P. Loeb
Chairman and
Chief Executive Officer
Date: May 12, 1995 s/ JAMES L. KELLY
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James L. Kelly
Vice President-Finance,
Chief Financial Officer and
Chief Accounting Officer
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