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, 1997 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 92606
(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 14, 1997
- ---------------------------- ------------------------------
Common Stock, $.01 par value 10,895,747 shares (excluding
101,609 shares held as
Treasury Shares)
2
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 6-7
ITEM 2. Management's Discussion and Analysis of Financial 8-9
Condition and Results of Operations
PART II. Other Information 10-11
SIGNATURE PAGE 12
3
TRIMEDYNE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
JUNE 30, SEPTEMBER 30,
1997 1996
------------ ------------
Current Assets:
Cash and cash equivalents ................................... $ 1,839,000 $ 5,575,000
Marketable securities ..................................... 4,626,000 2,525,000
Trade accounts receivable, net of allowance for doubtful
accounts of $230,000 and $337,000 ....................... 2,149,000 2,512,000
Inventories (Note 3) ...................................... 4,111,000 5,214,000
Other ..................................................... 454,000 395,000
------------ ------------
Total Current Assets ................................ 13,179,000 16,221,000
------------ ------------
Net Properties (Note 3) ..................................... 943,000 1,224,000
------------ ------------
Intangible assets, net of accumulated amortization of
0 and $315,000 ........................................ - 294,000
------------ ------------
$ 14,122,000 $ 17,739,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable .......................................... $ 370,000 $ 683,000
Accrued expenses .......................................... 1,809,000 1,433,000
Deferred income ........................................... 147,000 186,000
------------ ------------
Total Current Liabilities ............................... 2,326,000 2,302,000
------------ ------------
Minority Interest (Note 5) .................................. 185,000 167,000
Stockholders' Equity:
Common stock - .01 par value; 15,000,000 shares authorized,
10,997,356 and 10,991,956 shares issued ................ 110,000 110,000
Capital in excess of par value ............................ 42,928,000 42,081,000
Accumulated deficit ....................................... (30,689,000) (26,175,000)
Unrealized (gain) loss on securities available for sale ... (25,000) (33,000)
------------ ------------
12,324,000 15,983,000
Less shares of common stock in treasury,
at cost; 101,609 and 101,609 shares ....................... (713,000) (713,000)
------------ ------------
Total Stockholders' Equity ............................... 11,611,000 15,270,000
------------ ------------
$ 14,122,000 $ 17,739,000
============ ============
See accompanying notes to condensed consolidated financial statements
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4
TRIMEDYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
Net Sales .................................... $ 2,464,000 $ 2,619,000 $ 6,418,000 $ 6,942,000
Costs and Expenses:
Cost of goods sold ......................... 1,726,000 1,397,000 4,147,000 4,044,000
Selling, general and administrative ........ 1,566,000 1,961,000 4,421,000 4,936,000
Research and development ................... 984,000 552,000 2,434,000 1,466,000
------------ ------------ ------------ ------------
Total Costs and Operating Expenses ....... 4,276,000 3,910,000 11,002,000 10,446,000
------------ ------------ ------------ ------------
Loss from Operations ......................... (1,812,000) (1,291,000) (4,584,000) (3,504,000)
Other Income (expense):
Interest income ........................... 97,000 74,000 285,000 250,000
Other ..................................... (8,000) (4,000) (61,000) 17,000
Minority interest in consolidated subsidiary 54,000 - 89,000 -
------------ ------------ ------------ ------------
Net Loss from continuing operations (Note 2) . (1,669,000) (1,221,000) (4,271,000) (3,237,000)
Net Income from discontinued operations ...... - 44,000 33,000 200,000
Loss on sale of subsidiary assets ............ - - (276,000) -
------------ ------------ ------------ ------------
Net Loss ..................................... $ (1,669,000) $ (1,177,000) $ (4,514,000) $ (3,037,000)
============ ============ ============ ============
Earnings (loss) per share
From continuing operations ................. $ (0.15) $ (0.12) $ (0.39) $ (0.33)
From discontinued operations ............... - 0.01 0.01 0.02
Loss on sale of subsidiary assets .......... - - (0.03) -
------------ ------------ ------------ ------------
Net Loss per Share (Note 4) .................. $ (0.15) $ (0.11) $ (0.41) $ (0.31)
============ ============ ============ ============
Weighted average number of shares outstanding 10,895,747 10,365,291 10,895,535 9,818,280
See accompanying notes to condensed consolidated financial statements.
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5
TRIMEDYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
NINE MONTHS ENDED
JUNE 30,
--------------------------
1997 1996
----------- -----------
Cash flows from operating activities:
Net loss ............................................................... $(4,514,000) $(3,037,000)
Adjustment to reconcile net loss to net cash used for operating activities:
Depreciation and Amortization .......................................... 285,000 367,000
Minority interest in earnings of subsidiary ............................ (256,000) 23,000
Loss (gain) on disposal of assets ...................................... 276,000 (2,000)
Changes in operating assets and liabilities:
Decrease (increase) in trade accounts receivable, net .................. 79,000 (322,000)
Decrease (increase) in inventories ..................................... 554,000 (10,000)
(Increase) decrease in other current assets ............................ (115,000) 115,000
Decrease in prepaid royalties .......................................... - 63,000
(Decrease) in accounts payable ......................................... (313,000) (333,000)
Increase in accrued expense ............................................ 376,000 530,000
(Decrease) increase in deferred income ................................. (39,000) 71,000
----------- -----------
Net cash used for operating activities .................................... (3,667,000) (2,535,000)
----------- -----------
Cash flows from investing activities:
Capital expenditures ................................................... (374,000) (255,000)
Patent expenditures .................................................... (13,000) (48,000)
Proceeds from sale of subsidiary assets ................................ 1,290,000 -
Sale of marketable securities .......................................... (2,093,000) (3,425,000)
----------- -----------
Net cash used for investing activities ................................. (1,190,000) (3,728,000)
----------- -----------
Cash flows from financing activities:
Proceeds from sale of subsidiary stock ................................. 1,120,000 -
Proceeds from exercise of stock options ................................ 1,000 2,073,000
Net proceeds from exercise of warrants ................................. - 309,000
Payments received on notes receivable under stock options plan ......... - 982,000
Sale of stock .......................................................... - 4,585,000
----------- -----------
Net cash provided by financing activities .............................. 1,121,000 7,949,000
----------- -----------
Net (decrease) increase in cash and cash equivalents ...................... (3,736,000) 1,686,000
----------- -----------
Cash and cash equivalents at beginning of period .......................... 5,575,000 1,367,000
----------- -----------
Cash and cash equivalents at end of period ................................ $ 1,839,000 $ 3,053,000
=========== ===========
See accompanying notes to condensed consolidated financial statements
5
6
TRIMEDYNE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
NOTE 1
In the opinion of management, 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, 1997 and September 30, 1996, the results of
operations and of cash flows for the nine month periods ended June 30, 1997 and
1996.
While management 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
The statement of operations has been restated to reflect the sale of the assets
of Poly-Optical Products, Inc. ("Poly"), the Company's 90% owned subsidiary,
which was sold in an all cash transaction consummated on January 31, 1997. The
results of operations related to Poly for the periods presented through the date
of sale are as follows (in thousands):
THREE MONTHS NINE MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------- --------------
1997 1996 1997 1996
------ ----- ----- ------
Net sales ...................................... $ 0 $ 771 $ 918 $2,382
Cost and Expenses
Cost of goods sold .......................... 0 419 457 1,251
Selling, general and administrative ......... 235 333 699
Research and development .................... 0 68 91 210
----- ----- ----- ------
Total Costs and Operating Expenses .......... 0 722 881 2,160
----- ----- ----- ------
Income from discontinued operations ............ 0 49 37 222
Less Minority Interest ...................... 0 5 4 22
----- ----- ----- ------
Net income from Discontinued Operations ........ $ 0 $ 44 $ 33 $ 200
===== ===== ===== ======
The Company received proceeds of $1,566,000, less costs of disposition of
$155,000, which includes a two year indemnification provision, and a minority
interest valued at $121,000, resulting in net proceeds of $1,290,000 for the
sale of the assets of Poly- Optical, Inc. Accordingly, the Company recorded a
loss of $276,000 on the sale of Poly-Optical, Inc. This loss represents the
difference between the net proceeds received and the carrying value of the net
assets sold of $1,566,000.
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7
NOTE 3
June 30, September 30,
1997 1996
----------- ------------
Inventories consist of the following:
Raw material .............................. $ 3,362,000 $ 3,280,000
Work-in-process ........................... 1,173,000 1,584,000
Finished goods ............................ 2,740,000 3,445,000
----------- -----------
7,275,000 8,309,000
Inventory reserve ......................... (3,164,000) (3,095,000)
----------- -----------
Net inventory ................................ $ 4,111,000 $ 5,214,000
=========== ===========
Net properties consist of the following:
Furniture and equipment ................... $ 4,331,000 $ 4,958,000
Leasehold improvements .................... 329,000 278,000
----------- -----------
4,660,000 5,236,000
Accumulated depreciation ..................... (3,717,000) (4,012,000)
----------- -----------
Net properties ............................... $ 943,000 $ 1,224,000
=========== ===========
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.
Effective fiscal 1998, the Company will adopt Statement of Financial Accounting
Standards No. 128 ("Statement No. 128"), - "Earnings per Share." Early adoption
is not available; however, the proforma effects may be disclosed by management.
Management is currently assessing the impact of Statement No. 128, if any.
NOTE 5
During the quarter ended March 31, 1997, the Company received $1,120,000 in net
proceeds from the sale of stock representing a total of a 10% minority interest
in the Company's subsidiary, Cardiodyne, Inc. A total of 5% of the minority
interest was from stock sold in October, 1996 and paid for in January, 1997 to a
related party; and 5% of the minority interest was from stock sold to a third
party in February, 1997. The Company's balance sheet includes a liability which
reflects the equity interest held by the minority shareholders. This equity
interest includes a portion of the losses incurred by the subsidiary.
7
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
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.
Method of Presentation.
The statement of operations has been restated to reflect the sale of the assets
of Poly-Optical Products, Inc. ("Poly"), the Company's 90% owned subsidiary,
which were sold in an all cash transaction which was essentially consummated on
January 31, 1997.
Quarter ended June 30, 1997 compared to quarter ended June 30, 1996.
During the quarter ended June 30, 1997, Trimedyne's net revenues decreased 6%
from the same quarter of the previous year ($2,464,000 vs. $2,619,000). For the
current quarter, the Company incurred a loss from continuing operations of
$1,669,000, compared to a loss from operations of $1,221,000 for the year
earlier period. The net loss for the quarter ended June 30, 1997, was
$1,669,000, or $0.15 per share, based on 10,895,747 weighted average number of
shares outstanding, as compared to a net loss of $1,177,000 or $0.11 per share,
based on 10,365,291 weighted average number of shares outstanding, in the same
quarter of the previous year.
The Company believes that the 6% decline in revenue was primarily due to the
continued restrictions in hospital budgets for capital equipment resulting in a
$500,000 or 27% decline in laser sales compared to the year ago quarter. This
decline was offset in part by the increase in orthopedic delivery system sales
which increased by approximately $380,000 or 61% compared to the same quarter a
year ago.
Cost of goods sold was 70% of net sales in the third quarter of fiscal 1997
compared to 53% for the third quarter of fiscal 1996. The increase in cost of
goods sold as a percentage of revenues was due to a lower level of sales and a
proportionately higher level of fixed costs as a percentage of total costs.
Selling, general and administrative expenses decreased to $1,566,000 for the
current quarter compared to $1,961,000 for the quarter ended June 30, 1996. The
decrease in selling, general and administrative expenses is attributed to the
decrease in legal expenses incurred in connection with patent litigation and a
decrease in payroll and commissions in the current quarter compared to the year
ago quarter. This decrease was partially offset by the incurrence of
approximately $240,000 in expenses, principally in administrative costs in
connection with the organization and start up costs associated with the
Company's subsidiary, Cardiodyne, Inc.
Research and development expenditures for the quarter ended June 30, 1997,
increased 78% ($984,000 vs. $552,000) due to the increase in costs associated
with advanced development work on a new cosmetic laser and the new TMR laser
system being developed by our subsidiary Cardiodyne, Inc., for the treatment of
severe cardiac disease.
8
9
Interest income increased by 31% to $97,000 for the current quarter, compared
with $74,000 for the same period of the prior year.
Liquidity and Capital Resources
The Company's working capital decreased from $13,919,000 at September 30, 1996
to $10,853,000 at June 30, 1997, of which $6,465,000 is cash and equivalents,
and marketable securities. During the quarter ended March 31, 1997, the Company
received net proceeds of $1,120,000 from the sale of stock in Cardiodyne, Inc.
and received $1,566,000 from the sale of Poly. Cash was principally used to fund
the operating loss and to acquire facilities and equipment associated with the
start up of Cardiodyne, and other items as described on the Consolidated
Statements of Cash Flow. The Company believes its current cash and cash
equivalents and other resources will be sufficient to meet its anticipated
operating and capital requirements for at least the next twelve months.
FDA Regulations
In May of this year, the Company received a letter from the FDA alleging two
omissions had been made in the operator's manual for two lasers manufactured
for research purposes by the Company. The Company responded and recently
received a letter from the FDA acknowledging that one of the two alleged
omissions was not an infraction of FDA requirements, and the other alleged
omission would be resolved by the Company's including further information in
future revisions of the operator's manual for the laser.
9
10
PART II.
OTHER INFORMATION
ITEM 1. Legal Proceedings
(a) In early 1995, the Company filed a lawsuit against
Surgical Laser Technologies, Inc. (SLT) charging
infringement of two U.S. Patents which are owned by the
Company, and one U.S. Patent which is owned jointly by
the Company and a co-inventor. The Court granted SLT's
motion for summary judgment that all three U.S. Patents
are not infringed by SLT's laser devices. The Company
believes that the Court's granting SLT's motions for
summary judgment is incorrect on two of the patents, and
the Company has, upon advice of its counsel, appealed the
court's decision in the SLT suit.
(b) The Company has been named as a defendant in an
employment dispute with a prior employee, which is not
expected to have a material financial effect.
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 Shareholders Meeting of Trimedyne, Inc. was held
on May 22, 1997.
(b) The directors elected at the meeting were:
Marvin P. Loeb
Richard F. Horowitz
(c) The proposal presented to the stockholders and the voting
results were:
For Withheld
--- --------
Marvin P. Loeb 8,703,473 526,649
Richard F. Horowitz 8,691,224 538,898
(d) Proposal to approve the Trimedyne, Inc. 1997 Incentive
and Non-Qualified Stock Plan
For Withheld
--- --------
2,649,712 1,138,568
10
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ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibit
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 14, 1997 /s/ MARVIN P. LOEB
------------------------------------
Marvin P. Loeb
Chairman and
Chief Executive Officer
Date: August 14, 1997 /s/ PETER T. HYDE
------------------------------------
Peter T. Hyde
President and
Chief Operating Officer
Date: August 14, 1997 /s/ CHARISSE E. CHEL
----------------------------------
Charisse E. Chel
Corporate Controller, Treasurer and
Chief Accounting Officer
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EXHIBIT INDEX
EXHIBIT
-------
Exhibit 27 - Financial Data Schedule