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
June 30, 1996 0-10581
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 August 13, 1996
- ------------------------------------ ------------------------------
Common Stock, $.01 par value 10,885,147 shares (excluding
101,609 shares held as
Treasury Shares)
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TRIMEDYNE, INC.
Page Number
-----------
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 10
SIGNATURE PAGE 11
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TRIMEDYNE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
JUNE 30, SEPTEMBER 30,
1996 1995
========== ============
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,053,000 $ 1,367,000
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,434,000 3,048,000
Trade accounts receivable, net of allowance for doubtful
accounts of $319,000 and $315,000 . . . . . . . . . . . . . . . . . . . . 2,420,000 2,098,000
Inventories (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,808,000 5,798,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 596,000 712,000
------------ ------------
Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . . 18,311,000 13,023,000
------------ ------------
Net Properties (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,306,000 1,368,000
------------ ------------
Prepaid royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 293,000 355,000
Intangible assets, net of accumulated amortization of
$364,000 and $315,000 . . . . . . . . . . . . . . . . . . . . . . . . 294,000 294,000
------------ ------------
$ 20,204,000 $ 15,040,000
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 688,000 $ 1,021,000
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,363,000 1,833,000
Deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158,000 87,000
------------ ------------
Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . 3,209,000 2,941,000
------------ ------------
Minority Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165,000 142,000
------------ ------------
Stockholders' Equity:
Common stock - .01 par value; 15,000,000 shares authorized,
10,885,147 and 9,573,910 shares issued . . . . . . . . . . . . . . . . . 110,000 96,000
Capital in excess of par value . . . . . . . . . . . . . . . . . . . . . . 41,960,000 35,007,000
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . (24,483,000) (21,446,000)
Notes receivable under stock option plans . . . . . . . . . . . . . . . . . (982,000)
Unrealized gain on securities available for sale. . . . . . . . . . . . . (44,000) (5,000)
------------ ------------
17,543,000 12,670,000
------------ ------------
Less shares of common stock in treasury,
at cost; 101,609 and 101,609 shares . . . . . . . . . . . . . . . . . . . . (713,000) (713,000)
------------ ------------
Total Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . 16,830,000 11,957,000
------------ ------------
$ 20,204,000 $ 15,040,000
============ ============
See accompanying notes to condensed consolidated financial statements
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TRIMEDYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ----------------------------
1996 1995 1996 1995
------------ ---------- --------- ----------
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,390,000 $3,521,000 $ 9,324,000 $ 9,807,000
Costs and Expenses:
Cost of goods sold . . . . . . . . . . . . . . . . . . . 1,816,000 2,046,000 5,295,000 5,848,000
Selling, general and administrative . . . . . . . . . . . 2,196,000 1,754,000 5,635,000 5,079,000
Research and development . . . . . . . . . . . . . . . . 620,000 654,000 1,676,000 2,009,000
------------ ---------- ------------ -----------
Total Costs and Operating Expenses . . . . . . . . . 4,632,000 4,454,000 12,606,00 12,936,000
------------ ---------- ------------ -----------
Loss from Operations . . . . . . . . . . . . . . . . . . . (1,242,000) (933,000) (3,282,000) (3,129,000)
Other Income (expense):
Interest income . . . . . . . . . . . . . . . . . . . . 74,000 71,000 250,000 255,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . (4,000) 19,000 18,000 6,000
Minority interest in consolidated subsidiary company . . (5,000) (9,000) (23,000) (24,000)
------------ ---------- ----------- -----------
Net Loss . . . . . . . . . . . . . . . . . . . . . . . . . ($1,177,000) ($852,000) ($3,037,000) ($2,892,000)
------------ ---------- ----------- -----------
Net Loss per Share (Note 4) . . . . . . . . . . . . . . . . ($0.11) ($0.09) ($0.31) ($0.31)
----------- ---------- ----------- -----------
Weighted average number of shares outstanding . . . . . . . 10,365,291 9,451,701 9,818,280 9,448,635
----------- ---------- ----------- -----------
See accompanying notes to condensed consolidated financial statements.
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TRIMEDYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
NINE MONTHS ENDED,
JUNE 30,
--------------------------------------
1996 1995
--------- ----------
Cash flows from operating activities: ($3,037,000) ($2,892,000)
Net loss
Adjustment to reconcile net loss to net cash used
for operating activities:
Depreciation and amortization 367,000 409,000
Loss on disposal of assets 18,000
Disposition of inventories (45,000)
Reversal of provision for excess and
obsolete inventory (20,000)
Minority interest in earnings of subsidiary 23,000 17,000
Gain on disposal of assets (2,000)
Changes in operating assets and liabilities:
(Increase) decrease in trade accounts receivable, net (322,000) 277,000
Decrease (increase) in inventories 10,000 (758,000)
Decrease (increase) in other current assets 115,000 (307,000)
Decrease in prepaid royalties 63,000 63,000
Decrease in accounts payable (333,000) (641,000)
(Increase) decrease in accrued expense 530,000 25,000
Increase (decrease) in deferred income 71,000 (51,000)
----------- -----------
Net cash used for operating activities (2,535,000) (3,885,000)
----------- -----------
Cash flows from investing activities:
Capital expenditures (255,000) (262,000)
Patent expenditures (48,000) (38,000)
Sale of marketable securities 2,029,000 1,523,000
Purchase of marketable securities (5,454,000)
----------- -----------
Net cash provided by (used for) investing activities (3,728,000) 1,223,000
----------- -----------
Cash flows from financing activities:
Proceeds from exercise of stock options 2,073,000 1,000
Net proceeds from exercise of warrants 309,000
Payments received on notes receivable under stock options plan 982,000
Sale of stock (Note 3) 4,585,000
----------- -----------
Net cash provided by financing activities 7,949,000 1,000
----------- -----------
Net increase (decrease) in cash and cash equivalents 1,686,000 (2,661,000)
----------- -----------
Cash and cash equivalents at beginning of period 1,367,000 3,183,000
----------- -----------
Cash and cash equivalents at end of period $3,053,000 $ 522,000
=========== ===========
See accompanying notes to condensed consolidated financial statements
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TRIMEDYNE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(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 June 30, 1996 and September 30, 1995, the
results of operations and of cash flows for the periods ended June 30, 1996
and 1995.
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
June 30, 1996 September 30, 1995
------------- ------------------
Inventories consist of the following:
Raw material . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,442,000 $ 3,362,000
Work-in-process . . . . . . . . . . . . . . . . . . . . . . . 1,535,000 633,000
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . 3,554,000 4,546,000
--------- -----------
8,531,000 8,541,000
Inventory reserve . . . . . . . . . . . . . . . . . . . . . . (2,723,000) (2,743,000)
----------- -----------
Net inventory . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,808,000 $ 5,798,000
=========== ===========
Net properties consist of the following:
Furniture and equipment . . . . . . . . . . . . . . . . . . . $ 4,852,000 $ 4,593,000
Leasehold improvements . . . . . . . . . . . . . . . . . . . . 278,000 278,000
Construction in progress . . . . . . . . . . . . . . . . . . . 66,000 72,000
----------- -----------
5,196,000 4,943,000
Accumulated depreciation and amortization . . . . . . . . . . (3,890,000) (3,575,000)
----------- -----------
Net properties . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,306,000 $ 1,368,000
=========== ===========
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NOTE 3
During the quarter ended June 30, 1996 the Company completed offshore sales
under Regulation S of an aggregate of 855,000 shares of common stock along with
338,750 warrants (exercisable at an average price of $6.71 per share), resulting
in gross proceeds of approximately $4.9 million. The exercise of stock options
by employees, repayment of option exercise loans and the exercise of outstanding
warrants resulted in the receipt of approximately $3.4 million in cash proceeds
in the quarter ended March 31, 1996.
NOTE 4
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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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
The statements contained in this Quarterly Report on Form 10-Q that are not
historical facts may contain forward-looking statements that involve a number
of known and unknown risks and uncertainties that could cause actual results
to differ materially from those discussed or anticipated by management.
Potential risks and uncertainties include, among other factors, general
business conditions, government regulations governing medical device approvals
and manufacturing practices, competitive market conditions, success of the
Company's business strategy, delay of orders, changes in the mix of products
sold, availability of suppliers, concentration of sales in markets and to
certain customers, changes in manufacturing efficiencies, development and
introduction of new products, fluctuations in margins, timing of significant
orders, and other risks and uncertainties currently unknown to management.
RESULTS OF OPERATIONS
Quarter ended June 30, 1996 compared to quarter ended June 30, 1995
During the quarter ended June 30, 1996, net sales decreased 4%
from the same fiscal 1995 quarter ($3,390,000 vs. $3,521,000). For the current
quarter, the Company incurred a loss from operations of $1,242,000, compared to
a loss from operations of $933,000 for the year earlier period. The net loss
for the quarter ended June 30, 1996, was $1,177,000, compared to a net loss
of $852,000 in the same quarter of the previous year.
The 4% decline in net sales in the current quarter compared to the year ago
quarter resulted from a decline in urology laser sales ($60,000 vs. $200,000)
and a 14% decline ($772,000 vs. $894,000) in revenues of Poly-Optical Products,
Inc. ("Poly-Optical"). Partially offsetting the above, revenues from orthopedic
lasers and disposables increased by 4% ($2,273,000 vs. $2,192,000). While
revenues from sales of urology fibers increased slightly, the increase was not
meaningful and future prospects in urology are at this time uncertain.
Cost of goods sold was 53.6% of net sales in the third quarter of fiscal 1996,
compared to 58.1% for the third quarter of fiscal 1995. The decrease in cost
of goods as a percentage of sales was primarily due to costs incurred in the
prior fiscal year associated with the introduction of the higher powered Holmium
Laser, offset in part by royalty expenses incurred on orthopedic sales which
were not covered by a license agreement in the prior year.
Selling, general and administrative expenses increased to $2,196,000, for the
current quarter compared to $1,754,000 for the quarter ended June 30, 1995. The
increase in selling, general and administrative expenses was primarily due to
increased legal expenses incurred in connection with the Company's lawsuits
against C.R. Bard and SLT, offset in part by generally lower operating expenses.
Research and development expenditures for the quarter ended June 30, 1996,
decreased 5% ($620,000 vs. $654,000) due to a decrease in costs associated with
development work on the Holmium and Neodymium:YAG Lasers, which has been largely
completed.
Year to date 1996 compared to year to date 1995
Net sales declined $483,000 or 5% in the first nine months of the current fiscal
year, compared to the same period a year ago. This decline is attributed
primarily to a decline in sales of Nd:Yag lasers for use in urology ($182,000),
lower royalties on urology fiber sales from C.R. Bard ($159,000), and lower
revenues of Poly-Optical ($133,000).
Cost of goods sold was 56.8% of net sales in the first nine months of fiscal
1996, compared to 59.6% of net sales for the same period of fiscal 1995. The
decrease in cost of goods as a percentage of sales was primarily due to costs
incurred in the prior fiscal period associated with the introduction of the
higher powered Holmium Laser, offset in part by royalty expenses on orthopedic
revenues, and a lower overall level of operating expenses. As a result of these
factors, gross margins in absolute dollars for the current fiscal period
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increased by $70,000 compared to the prior fiscal period.
For the year to date, selling and general and administrative expenses increased
by 11% or $556,000. This increase was due principally to legal expenses
incurred in connection with the Company's lawsuits against C.R. Bard and SLT,
offset in part by generally lower operating expenses.
Research and Development expenses declined by 17%, or $333,000, due to the
decrease in cost associated with development work on the Holmium and Nd:YAG
lasers, which has been largely completed. It is anticipated the research and
development expenditures will increase gradually over the next several quarters.
Liquidity and Capital Resources
The Company's working capital increased from $10,082,000 at September 30, 1995
to $15,102,000 at June 30, 1996, of which $9,487,000 is cash and equivalents
and marketable securities. During the quarter ended June 30, 1996 the Company
completed offshore sales under Regulation S of an aggregate of 855,000 shares
of common stock along with 338,750 warrants (exercisable at an average price of
$6.71 per share), resulting in proceeds of approximately $4.9 million. The
exercise of stock options by employees, repayment of option exercise loans and
the exercise of outstanding warrants resulted in the receipt of approximately
$3.4 million in the prior quarter.
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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 of California against Surgical Laser Technologies, Inc. ("SLT") of
Oaks, Pennsylvania for infringement of three United States patents. The Court
earlier found that SLT did not infringe two of these patents and, in July 1996,
the Court found that SLT did not infringe the third patent. The Company
believes that the Court's decisions are in error, and the Company is presently
considering if it will appeal any or all of the decisions.
ITEM 2. Changes in Securities None
ITEM 3. Defaults Upon Senior Securities None
ITEM 4. Submission of Matters to Vote of Security Holders
a) Annual Stockholders Meeting of Trimedyne, Inc. was
held on April 1, 1996.
b) The director elected at the meeting was:
Donald Baker
c) The proposal presented to the stockholders and the
voting results were:
For Against
--- -------
Donald Baker 8,236,270 557,620
d) Proposal to approve the Trimedyne, Inc. 1996
Incentive an Non-Qualified Stock Option Plan
For Against Withheld
--- ------- --------
6,838,051 990,584 964,755
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: August 13, 1996 s/ MARVIN P. LOEB
----------------------------
Marvin P. Loeb
Chairman and
Chief Executive Officer
Date: August 13, 1996 s/ PETER T. HYDE
----------------------------
Peter T. Hyde
President and
Chief Operating Officer
Date: August 13, 1996 s/ JAMES L. KELLY
----------------------------
James L. Kelly
Vice President-Finance,
Chief Financial Officer and
Chief Accounting Officer