<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
March 31, 1997 0-10581
- -------------- -------
TRIMEDYNE, INC.
(Exact name of Registrant as specified in its charter)
NEVADA 36-3094439
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
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.
<TABLE>
<CAPTION>
Class Outstanding at May 14, 1997
- -------------------------------- ---------------------------------
<S> <C>
Common Stock, $.01 par value 10,895,747 shares (excluding
101,609 shares held as
Treasury Shares)
</TABLE>
<PAGE> 2
TRIMEDYNE, INC.
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C> <C>
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
</TABLE>
<PAGE> 3
TRIMEDYNE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1996
============= =============
<S> <C> <C>
Current Assets:
Cash and cash equivalents ..................................... $ 3,960,000 $ 5,575,000
Marketable securities ......................................... 3,551,000 2,525,000
Trade accounts receivable, net of allowance for doubtful
accounts of $219,000 and $337,000 ........................... 2,091,000 2,512,000
Inventories (Note 3) .......................................... 4,825,000 5,214,000
Other ......................................................... 557,000 395,000
------------- -------------
Total Current Assets .................................... 14,984,000 16,221,000
------------- -------------
Net Properties (Note 3) ......................................... 852,000 1,224,000
------------- -------------
Intangible assets, net of accumulated amortization of
$0 and $219,000 .......................................... -- 294,000
------------- -------------
$ 15,836,000 $ 17,739,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable .............................................. $ 550,000 $ 683,000
Accrued expenses .............................................. 1,493,000 1,433,000
Deferred income ............................................... 160,000 186,000
------------- -------------
Total Current Liabilities ................................... 2,203,000 2,302,000
------------- -------------
Minority Interest (Note 5) ...................................... 1,198,000 167,000
------------- -------------
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 ................................ 42,082,000 42,081,000
Accumulated deficit ........................................... (29,012,000) (26,175,000)
Unrealized loss on securities available for sale .............. (32,000) (33,000)
------------- -------------
13,148,000 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 ................................... 12,435,000 15,270,000
------------- -------------
$ 15,836,000 $ 17,739,000
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements
3
<PAGE> 4
TRIMEDYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
----------------------------- -----------------------------
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net Sales .................................... $ 1,786,000 $ 2,157,000 $ 3,954,000 $ 4,324,000
Costs and Expenses:
Cost of goods sold ......................... 1,165,000 1,342,000 2,421,000 2,647,000
Selling, general and administrative ........ 1,511,000 1,522,000 2,853,000 2,975,000
Research and development ................... 827,000 505,000 1,451,000 914,000
------------ ------------ ------------ ------------
Total Costs and Operating Expenses ........ 3,503,000 3,369,000 6,725,000 6,536,000
------------ ------------ ------------ ------------
Loss from Operations ......................... (1,717,000) (1,212,000) (2,771,000) (2,212,000)
Other Income (expense):
Interest income ........................... 66,000 126,000 138,000 176,000
Other ..................................... (18,000) 27,000 (4,000) 15,000
Minority interest in consolidated
subsidiary................................ 35,000 -- 43,000 --
------------ ------------ ------------ ------------
Net Loss from continuing operations (Note 2) . $ (1,634,000) $ (1,059,000) $ (2,594,000) $ (2,021,000)
Net Income (loss) from discontinued operations $ (10,000) 79,000 $ 33,000 155,000
Loss on sale of subsidiary assets ............ (276,000) -- (276,000) --
------------ ------------ ------------ ------------
Net Loss ..................................... $ (1,920,000) $ (980,000) $ (2,837,000) $ (1,866,000)
============ ============ ============ ============
Earnings (loss) per share
From continuing operations ................. $ (0.15) $ (0.11) $ (0.23) $ (0.21)
From discontinued operations ............... $ (0.00) $ 0.01 $ 0.00 $ 0.01
Loss on sale of subsidiary assets .......... $ (0.03) -- $ (0.03) --
------------ ------------ ------------ ------------
Net Loss per Share (Note 4) .................. $ (0.18) $ (0.10) $ (0.26) $ (0.20)
============ ============ ============ ============
Weighted average number of shares outstanding 10,897,427 9,509,377 10,895,427 9,497,251
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
TRIMEDYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
---------------------------
1997 1996
=========== ===========
<S> <C> <C>
Cash flows from operating activities:
Net loss ............................................ $(2,837,000) $(1,866,000)
Adjustment to reconcile net loss to net cash
used for operating activities:
Depreciation and Amortization ....................... 220,000 248,000
Minority interest in earnings of subsidiary ......... 35,000 17,000
Loss(Gain) on disposal of assets .................... 276,000 (2,000)
Changes in operating assets and liabilities:
(Increase) decrease in trade accounts receivable, net 137,000 (13,000)
Decrease (increase) in inventories .................. (389,000) 40,000
Decrease (increase) in other current assets ........ (219,000) 212,000
Decrease in prepaid royalties ....................... -- 42,000
Decrease in accounts payable ........................ (133,000) (527,000)
(Increase) decrease in accrued expense .............. 60,000 280,000
Increase (decrease) in deferred income .............. (26,000) 53,000
----------- -----------
Net cash used for operating activities ................. (2,876,000) (1,516,000)
----------- -----------
Cash flows from investing activities:
Capital expenditures ................................ (218,000) (224,000)
Patent expenditures ................................. (13,000) (34,000)
Proceeds from sale of subsidiary assets ............. 1,397,000 --
Sale of marketable securities ....................... (1,026,000) 2,029,000
----------- -----------
Net cash used for investing activities .............. 140,000 1,771,000
----------- -----------
Cash flows from financing activities:
Proceeds from sale of subsidiary stock .............. 1,120,000 --
Proceeds from exercise of stock options ............. 1,000 2,001,000
Net proceeds from exercise of warrants .............. -- 309,000
Payments received on notes receivable under
stock options plan ................................ -- 982,000
----------- -----------
Net cash provided by financing activities ........... 1,121,000 3,292,000
----------- -----------
Net increase (decrease) in cash and cash equivalents ... (1,615,000) 3,547,000
----------- -----------
Cash and cash equivalents at beginning of period ....... 5,575,000 1,367,000
----------- -----------
Cash and cash equivalents at end of period ............. $ 3,960,000 $ 4,914,000
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements
5
<PAGE> 6
TRIMEDYNE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 March 31, 1997 and September 30, 1996, the results of
operations and of cash flows for the six month periods ended March 31, 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):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
--------------------- --------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales ................................... $ 217 $ 812 $ 918 $ 1,610
Cost and Expenses
Cost of goods sold ........................ 102 423 457 832
Selling, general and administrative ....... 101 234 333 467
Research and development .................. 25 67 91 139
-------- -------- -------- --------
Total Costs and Operating Expenses ........ 228 724 881 1,438
-------- -------- -------- --------
Income (loss) from discontinued operations .. (11) 88 37 172
Less Minority Interest .................... (1) 9 4 17
-------- -------- -------- --------
Net income (loss) for Discontinued Operations $ (10) $ 79 $ 33 $ 155
======== ======== ======== ========
</TABLE>
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 value of the net assets
sold of $1,566,000.
6
<PAGE> 7
NOTE 3
<TABLE>
<CAPTION>
September 30,
March 31, 1997 1996
============== =============
<S> <C> <C>
Inventories consist of the following:
Raw material ............................ $ 3,282,000 $ 3,280,000
Work-in-process ......................... 1,143,000 1,584,000
Finished goods .......................... 3,090,000 3,445,000
----------- -----------
7,515,000 8,309,000
Inventory reserve ....................... (2,690,000) (3,095,000)
----------- -----------
Net inventory .............................. $ 4,825,000 $ 5,214,000
=========== ===========
Net properties consist of the following:
Furniture and equipment ................. $ 4,201,000 $ 4,887,000
Leasehold improvements .................. 281,000 278,000
Construction in progress ................ 0 71,000
----------- -----------
4,482,000 5,236,000
Accumulated depreciation and amortization (3,630,000) (4,012,000)
----------- -----------
Net properties ............................. $ 852,000 $ 1,224,000
=========== ===========
</TABLE>
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 current quarter, the Company received $1,120,000 in net proceeds from
the sale of stock and the exercise of stock options representing a total of a
10% minority interest in the Company's subsidiary, Cardiodyne Inc. 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
<PAGE> 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. The statements 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 consummated on January 31, 1997.
Quarter ended March 31, 1997 compared to quarter ended March 31, 1996.
During the quarter ended March 31, 1997, Trimedyne's net revenues decreased 17%
from the same quarter of the previous year ($1,786,000 vs. $2,157,000). For the
current quarter, the Company incurred a loss from continuing operations of
$1,634,000, compared to a loss from operations of $1,059,000 for the year
earlier period. The net loss for the quarter ended March 31, 1997, was
$1,920,000, or $0.18 per share, based on 10,897,427 weighted average number of
shares outstanding, as compared to a net loss of $980,000 or $0.10 per share,
based on 9,509,377 weighted average number of shares outstanding, in the same
quarter of the previous year.
The Company believes that the 17% decline in revenue was primarily due to the
continued restrictions in hospital budgets for capital equipment resulting in a
$530,000 or 50% 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 $140,000 or 21% compared to the same quarter a
year ago.
Cost of goods sold was 65% of net sales in the second quarter of fiscal 1997
compared to 62% for the second 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 $1,511,000 for the
current quarter compared to $1,522,000 for the quarter ended March 31, 1996. The
decrease in selling, general and administrative expenses is attributed to the
decrease in legal expenses incurred in connection with patent litigation in the
current quarter compared to the year ago quarter. This decrease was partially
offset by the incurrance of approximately $157,000 in expenses, principally in
administrative costs in connection with the organization and start up costs
associated with the Company's new subsidiary, Cardiodyne, Inc.
Research and development expenditures for the quarter ended March 31, 1997,
increased 64% ($827,000 vs. $505,000) due to the increase in costs associated
with advanced development work on a new Erbium laser, the new cosmetic laser and
the new TMR laser being developed by our new subsidiary Cardiodyne, Inc., for
the treatment of severe cardiac disease.
8
<PAGE> 9
Interest income decreased by 48% to $66,000 for the current quarter, compared
with $126,000 for the same period of the prior year. Included in the year ago
quarter was an adjustment to recognize realized gains on the sale of marketable
securities and interest earned in prior quarters which had not been previously
recorded.
Liquidity and Capital Resources
The Company's working capital decreased from $13,919,000 at September 30, 1996
to $12,781,000 at March 31, 1997, of which $7,511,000 is cash and equivalents,
and marketable securities. During the current quarter, the Company received net
proceeds of $1,120,000 from the sale of stock in Cardiodyne, Inc. and received
$1,397,000 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 two years.
9
<PAGE> 10
PART II.
OTHER INFORMATION
ITEM 1. Legal Proceedings
None
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
10
<PAGE> 11
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 20, 1997 s/ MARVIN P. LOEB
---------------------- --------------------------------
Marvin P. Loeb
Chairman and
Chief Executive Officer
Date: May 20, 1997 s/ PETER T. HYDE
---------------------- --------------------------------
Peter T. Hyde
President and
Chief Operating Officer
Date: May 20, 1997 s/ JAMES L. KELLY
---------------------- --------------------------------
James L. Kelly
Vice President-Finance,
Chief Financial Officer and
Chief Accounting Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 3,960
<SECURITIES> 3,551
<RECEIVABLES> 2,091
<ALLOWANCES> 219
<INVENTORY> 4,825
<CURRENT-ASSETS> 14,984
<PP&E> 4,482
<DEPRECIATION> 3,630
<TOTAL-ASSETS> 15,836
<CURRENT-LIABILITIES> 2,203
<BONDS> 0
0
0
<COMMON> 110
<OTHER-SE> 12,325
<TOTAL-LIABILITY-AND-EQUITY> 15,836
<SALES> 3,954
<TOTAL-REVENUES> 4,092
<CGS> 2,421
<TOTAL-COSTS> 6,725
<OTHER-EXPENSES> 39
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,594)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,594)
<DISCONTINUED> (243)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,837)
<EPS-PRIMARY> (0.26)
<EPS-DILUTED> (0.26)
</TABLE>
