<PAGE> 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
DECEMBER 31, 1995 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 February 8, 1996
- ----------------------------- --------------------------------
Common Stock, $.01 par value 9,472,301 shares (excluding
101,609 shares held as treasury
shares)
<PAGE> 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
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. Other Information 9
SIGNATURE PAGE 10
2
<PAGE> 3
TRIMEDYNE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31, SEPTEMBER 30,
1995 1995
(UNAUDITED)
==================================
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . $ 712,000 $ 1,367,000
Marketable securities . . . . . . . . . . . . . . . . . . 2,550,000 3,048,000
Trade accounts receivable, net of allowance for
doubtful accounts of $328,000 and $315,000 . . . . . . . 1,995,000 2,098,000
Inventories (Note 2) . . . . . . . . . . . . . . . . . . . 5,704,000 5,798,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 748,000 712,000
------------ ------------
Total current assets . . . . . . . . . . . . . . . . 11,709,000 13,023,000
------------ ------------
Net properties (Note 2) . . . . . . . . . . . . . . . . . . . . 1,328,000 1,368,000
Prepaid royalties . . . . . . . . . . . . . . . . . . . . . . 334,000 355,000
Intangible assets, net of accumulated amortization of
$335,000 and $315,000 . . . . . . . . . . . . . . . . . . . . . 300,000 294,000
------------ ------------
$ 13,671,000 $ 15,040,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . $ 734,000 $ 1,021,000
Accrued expenses . . . . . . . . . . . . . . . . . . . . . 1,537,000 1,833,000
Deferred income . . . . . . . . . . . . . . . . . . . . . 172,000 87,000
------------ ------------
Total current liabilities 2,443,000 2,941,000
------------ ------------
Minority interest . . . . . . . . . . . . . . . . . . . . . . . 151,000 142,000
------------ ------------
Stockholders' equity :
Common stock - .01 par value; 15,000,000 shares authorized,
9,573,910 and 9,548,310 shares issued . . . . . . . . . 96,000 96,000
Capital in excess of par value . . . . . . . . . . . . . . 35,007,000 35,007,000
Accumulated deficit . . . . . . . . . . . . . . . . . . . (22,332,000) (21,446,000)
Notes receivable under stock option plans . . . . . (982,000) (982,000)
Unrealized gain (loss) on securities available for sale. . . 1,000 (5,000)
------------ ------------
11,790,000 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 . . . . . . . . . . . . 11,077,000 11,957,000
------------ ------------
$ 13,671,000 $ 15,040,000
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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TRIMEDYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
============================
1995 1994
========== ==========
<S> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . $2,964,000 $3,080,000
Costs and expenses:
Cost of goods sold . . . . . . . . . . . . . . . . . 1,714,000 1,762,000
Selling, general and administrative . . . . . . . . 1,687,000 1,644,000
Research and development . . . . . . . . . . . . . . 481,000 622,000
---------- ----------
Total costs and operating expenses . . . . . . . 3,882,000 4,028,000
---------- ----------
Loss from operations . . . . . . . . . . . . . . . . . . (918,000) (948,000)
Other income (expense):
Interest income . . . . . . . . . . . . . . . . . . 50,000 92,000
Other . . . . . . . . . . . . . . . . . . . . . . . (9,000) (11,000)
Minority interest in consolidated subsidiary . . . . (9,000) (5,000)
---------- ----------
Net loss . . . . . . . . . . . . . . . . . . . . . . . ($886,000) ($872,000)
========== ==========
Net loss per share (Note 3) . . . . . . . . . . . . . . ($0.09) ($0.09)
========== ==========
Weighted average number of shares outstanding . . . . . 9,472,301 9,446,701
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
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TRIMEDYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
================================
1995 1994
=========== ===========
<S> <C> <C>
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . ($886,000) ($872,000)
Adjustment, to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization . . . . . . . . . . . 118,000 133,000
Provision for excess and obsolete inventory . . . . 5,000 8,000
Minority interest in earnings of subsidiary . . . . 9,000 5,000
Changes in operating assets and liabilities:
Decrease in trade accounts receivable, net . . . . . 103,000 433,000
Decrease (increase) in inventories . . . . . . . . . 89,000 (281,000)
Increase in other current assets . . . . . . . . . . (36,000) (169,000)
Decrease in prepaid royalties . . . . . . . . . . . 21,000 21,000
Decrease in accounts payable . . . . . . . . . . . . (287,000) (406,000)
Decrease in accrued expenses . . . . . . . . . . . . (296,000) (277,000)
Increase (decrease) in deferred income . . . . . . . 85,000 (15,000)
----------- -----------
Net cash used for operating activities (1,075,000) (1,420,000)
----------- -----------
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . . . (59,000) (87,000)
Patent expenditures . . . . . . . . . . . . . . . . (25,000) (8,000)
Sales of marketable securities . . . . . . . . . . . 504,000 70,000
----------- -----------
Net cash provided by (used for) investing activities . . 420,000 (25,000)
----------- -----------
Net decrease in cash and cash equivalents . . . . . . . (655,000) (1,445,000)
Cash and cash equivalents at beginning of period . . . . 1,367,000 3,183,000
----------- -----------
Cash and cash equivalents at end of period . . . . . . . $ 712,000 $ 1,738,000
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements
5
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TRIMEDYNE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 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 December 31, 1995 and September 30, 1995,
the results of operations and of cash flows for the three month periods ended
December 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
<TABLE>
<CAPTION>
Dec. 31, 1995 Sept. 30, 1995
============= ==============
<S> <C> <C>
Inventories consist of the following:
Raw material . . . . . . . . . . . . . . . . $ 3,281,000 $ 3,362,000
Work-in-process . . . . . . . . . . . . . . . 1,404,000 633,000
Finished goods . . . . . . . . . . . . . . . 3,767,000 4,546,000
----------- -----------
8,452,000 8,541,000
Inventory reserve . . . . . . . . . . . . . . (2,748,000) (2,743,000)
----------- -----------
Net inventory . . . . . . . . . . . . . . . . . . $ 5,704,000 $ 5,798,000
=========== ===========
Net properties consist of the following:
Furniture and equipment . . . . . . . . . . . $ 4,618,000 $ 4,593,000
Leasehold improvements . . . . . . . . . . . 278,000 278,000
Construction-in-progress . . . . . . . . . . 105,000 72,000
----------- -----------
5,001,000 4,943,000
Accumulated depreciation and amortization
of leasehold improvements . . . . . . . (3,673,000) (3,575,000)
----------- -----------
Net properties . . . . . . . . . . . . . . . . . $ 1,328,000 $ 1,368,000
=========== ===========
</TABLE>
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.
6
<PAGE> 7
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 requires 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 December 31, 1995, the Company had net operating loss carryforwards for
federal and state income tax purposes totaling approximately $18,186,000 and
$12,286,000, 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.
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
During the quarter ended December 31, 1995, Trimedyne's net revenues decreased
4% from the same quarter of the previous year ($2,964,000) vs. ($3,080,000).
For the current quarter, the Company incurred a loss from operations of
$918,000, compared to a loss of $948,000 for the year earlier period. The net
loss for the quarter ended December 31, 1995, was $886,000, or $0.09 per share,
based on 9,472,301 weighted average number of shares outstanding, as compared
to a net loss of $872,000, or $0.09 per share, based on 9,446,701 weighted
average number of shares outstanding, in the same quarter of the previous year.
The Company believes that the 4% decline in revenue was due to tightness in
hospital budgets for capital equipment which delayed some sales anticipated
during the December quarter. Holmium and YAG lasers sales decreased $170,000
or 11% of capital equipment revenue. Service revenue decreased by $40,000 or
32% of service revenue. Sales of disposable orthopedic delivery systems have
increased in each of the last five quarters, and this growth is anticipated to
continue. For the current quarter, orthopedic probes increased $113,000 or
23% of orthopedic probes, compared to the year ago quarter.
On October 6, 1995, the Company filed a lawsuit against C.R. Bard, Inc.
("Bard") claiming damages of at least $72 million for Bard's failing to perform
its obligations as Trimedyne's exclusive distributor under its agreement with
the Company. The Company is taking steps to mitigate damages, generate
revenues and restore its position in the urology market. Sales effort has
begun through the Company's sales and distribution channels. However, the
Company does not anticipate that it will see positive results from these
actions until the March quarter.
Cost of goods sold was 57.8% of net sales in the first quarter of fiscal 1996
compared to 57.2% for the first quarter of fiscal 1995. The increase in cost
of goods sold is due to the combination of higher royalty expenses due to
increased sales in orthopedics and lower service costs associated with Holmium
lasers.
Selling, general and administrative expenses increased to $1,687,000 for the
current quarter compared to $1,644,000 for the quarter ended December 31,
1994. The increase in selling, general and administrative expenses is
attributed to the increase in legal expenses incurred in connection with
patent litigation, which was largely offset by lower commission expense on
sales and generally lower overall operating expenses.
Research and development expenditures for the quarter ended December 31, 1995,
decreased 23% ($481,000 vs. $622,000) due to the decrease in costs associated
with development work on the Holmium and Neodymium:YAG Lasers, which has been
largely completed.
Interest income decreased by 46% to $50,000 for the current quarter, compared
with $92,000 for the same period of the prior year. The decrease was due to
lower amounts of cash available for investment.
Liquidity and Capital Resources
The Company's working capital decreased from $10,082,000 at September 30, 1995
to $9,266,000 at December 31, 1995, of which $3,262,000 is cash and
equivalents, and marketable securities. Management believes that the Company's
liquidity and capitalization will be sufficient to meet its short term
operating needs. The Company is upgrading its sales force, aggressively
pursuing contracts with hospital chains and buying groups, introducing new
products and offering attractive leasing and rental programs to make it easier
for its customers to acquire its lasers. Management believes these efforts
will result in an increase in revenues over current levels and an improvement
in profit margins, which are required to sustain the Company over the longer
term.
8
<PAGE> 9
PART II.
OTHER INFORMATION
ITEM 1. Legal Proceedings
Surgical Laser Technologies, Inc. ("SLT"), a competitor of the
Company, sued the Company's distributor, C.R. Bard, Inc. and Bard Urological
Division ("Bard") in 1994, alleging contract and tort claims. The action was
filed in the United States District Court for the Eastern District of
Pennsylvania, styled Surgical Laser Technologies, Inc. v. C.R..Bard, Inc., et
al, and bears case no. 94 CV-7073. In September 1995, the court granted a
motion by SLT to file an amended complaint naming the Company as a defendant,
claiming the Company allegedly interfered with SLT's purported contractual
relationship with one of its foreign distributors, and alleging civil
conspiracy between the Company and Bard purportedly to control and restrict
competition in the market for urological and gynecological products.
The Company filed a motion to dismiss the second amended complaint for
lack of personal jurisdiction over the Company. Since the Company's motion is
still pending, the Company has not yet been required to answer the complaint.
The Company denies the allegations of the complaint against it and
intends to vigorously oppose the claims asserted against it by SLT. If the
Company's motion to dismiss is denied and it is required to respond to the
complaint, the Company intends to file counterclaims against SLT for
interference with the Company's contractual relationship with Bard, in addition
to other related claims.
The Company does not believe that the action poses any significant
risk of liability to the Company. Therefore, the Company does not consider the
action to be material to the financial condition of the Company.
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
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
None
9
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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.
/s/ MARVIN P. LOEB
Date: February 14, 1996 -------------------------------------
----------------- Marvin P. Loeb
Chairman and Chief Executive Officer
/s/ PETER T. HYDE
Date: February 14, 1996 -------------------------------------
----------------- Peter T. Hyde
President and Chief Operating Officer
/s/ JAMES L. KELLY
Date: February 14, 1996 -------------------------------------
----------------- James L. Kelly
Vice President-Finance,
Chief Financial Officer and
Chief Accounting Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 712
<SECURITIES> 2,550
<RECEIVABLES> 2,323
<ALLOWANCES> 328
<INVENTORY> 5,704
<CURRENT-ASSETS> 11,709
<PP&E> 5,001
<DEPRECIATION> 3,673
<TOTAL-ASSETS> 13,671
<CURRENT-LIABILITIES> 2,443
<BONDS> 0
0
0
<COMMON> 96
<OTHER-SE> 10,981
<TOTAL-LIABILITY-AND-EQUITY> 13,671
<SALES> 2,964
<TOTAL-REVENUES> 2,964
<CGS> 1,714
<TOTAL-COSTS> 1,714
<OTHER-EXPENSES> 3,882
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (886)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (886)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
