<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, 1996 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.
Class Outstanding at February 11, 1997
- ----------------------------- --------------------------------
Common Stock, $.01 par value 10,895,747 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
Condition and results of Operations 7
PART II. Other Information 8
SIGNATURE PAGE 9
2
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TRIMEDYNE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1996
------------ -------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . $ 4,139,000 $ 5,575,000
Marketable securities . . . . . . . . . . . . . . . . 2,530,000 2,525,000
Trade accounts receivable, net of allowance for
doubtful accounts of $243,000 and $337,000 . . . . 2,393,000 2,512,000
Inventories (Note 2) . . . . . . . . . . . . . . . . 5,551,000 5,214,000
Other . . . . . . . . . . . . . . . . . . . . . . . 360,000 395,000
----------- -----------
Total current assets . . . . . . . . . . . . . . . 14,973,000 16,221,000
Net properties (Note 2) . . . . . . . . . . . . . . . . . 1,169,000 1,224,000
----------- -----------
Intangible assets, net of accumulated amortization of
$383,000 and $373,000 . . . . . . . . . . . . . . . . 295,000 294,000
----------- -----------
$16,437,000 $17,739,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . $ 450,000 $ 683,000
Accrued expenses . . . . . . . . . . . . . . . . . . 1,336,000 1,433,000
Deferred income . . . . . . . . . . . . . . . . . . . 139,000 186,000
----------- -----------
Total current liabilities . . . . . . . . . . . . . . 1,925,000 2,302,000
----------- -----------
Minority interest . . . . . . . . . . . . . . . . . . . . 172,000 167,000
----------- -----------
Stockholders' equity:
Common stock - .01 par value; 15,000,000 shares authorized,
10,997,356 and 9,573,910 shares issued . . . . . . 110,000 110,000
Capital in excess of par value . . . . . . . . . . . 42,082,000 42,081,000
Accumulated deficit . . . . . . . . . . . . . . . . . (27,099,000) (26,175,000)
Unrealized gain (loss) on securities available for sale (40,000) (33,000)
----------- -----------
15,053,000 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 . . . . . . . . . . . . . 14,340,000 15,270,000
----------- -----------
$16,437,000 $17,739,000
=========== ===========
</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,
------------------------------
1996 1995
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<S> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . . $ 2,869,000 $2,964,000
Costs and expenses:
Cost of goods sold . . . . . . . . . . . . . . . . . 1,615,000 1,714,000
Selling, general and administrative . . . . . . . . . 1,574,000 1,687,000
Research and development . . . . . . . . . . . . . . 686,000 481,000
----------- ----------
Total costs and operating expenses . . . . . . . 3,875,000 3,882,000
----------- ----------
Loss from operations . . . . . . . . . . . . . . . . . . (1,006,000) (918,000)
Other income (expense):
Interest income . . . . . . . . . . . . . . . . . . . 97,000 50,000
Other . . . . . . . . . . . . . . . . . . . . . . . . (10,000) (10,000)
Minority interest in consolidated subsidiary . . . . (5,000) (8,000)
----------- ----------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . $ (924,000) $ (886,000)
=========== ==========
Net loss per share (Note 3) . . . . . . . . . . . . . . . $(0.08) $(0.09)
=========== ==========
Weighted average number of shares outstanding . . . . . . 10,895,117 9,472,301
=========== ==========
</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,
--------------------------------
1996 1995
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<S> <C> <C>
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . $ (924,000) $ (886,000)
Adjustment to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization . . . . . . . . . . . 107,000 118,000
Provision for excess and obsolete inventory . . . . 9,000 5,000
Minority interest in earnings of subsidiary . . . . 5,000 9,000
Changes in operating assets and liabilities:
Decrease in trade accounts receivable, net . . . . . 119,000 103,000
(Increase) in inventories . . . . . . . . . . . . . (346,000) 89,000
Decrease in other current assets . . . . . . . . . . 35,000 (36,000)
Decrease in prepaid royalties . . . . . . . . . . . . -- 21,000
Decrease in accounts payable . . . . . . . . . . . . (233,000) (287,000)
Decrease in accrued expenses . . . . . . . . . . . . . (97,000) (296,000)
(Decrease) Increase in deferred income . . . . . . . . (47,000) 85,000
---------- ----------
Net cash used for operating activities (1,372,000) (1,075,000)
---------- ----------
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . . . (42,000) (59,000)
Patent expenditures . . . . . . . . . . . . . . . . (11,000) (25,000)
Purchase/Sale of marketable securities . . . . . . . . (12,000) 504,000
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Net cash provided by investing activities . . . . . . . . (65,000) 420,000
---------- ----------
Cash flows from financing activities:
Proceeds from exercise of stock options . . . . . . . 1,000
---------- ----------
Net cash provided by financing activities . . . . . . . . 1,000 0
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Net (decrease) increase in cash and cash equivalents . . (1,436,000) (655,000)
Cash and cash equivalents at beginning of period . . . . 5,575,000 1,367,000
---------- ----------
Cash and cash equivalents at end of period . . . . . . . $4,139,000 $ 712,000
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements
5
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TRIMEDYNE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(UNAUDITED)
NOTE 1. THE COMPANY
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, 1996 and September 30, 1996,
the results of operations and of cash flows for the three month periods ended
December 31, 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. INVENTORY AND PROPERTIES
<TABLE>
<CAPTION>
Dec. 31, 1996 Sept. 30, 1996
------------- --------------
<S> <C> <C>
Inventories consist of the following:
Raw Material . . . . . . . . . . . . . . . . $3,724,000 $3,280,000
Work-in-process . . . . . . . . . . . . . . . 1,405,000 1,584,000
Finished goods . . . . . . . . . . . . . . . 3,526,000 3,445,000
---------- ----------
Total inventory . . . . . . . . . . . . 8,655,000 8,309,000
Inventory reserve . . . . . . . . . . . . . . (3,104,000) (3,095,000)
---------- ----------
Net inventory . . . . . . . . . . . . . . . . . . $5,551,000 $5,214,000
========== ==========
Net properties consist of the following:
Furniture and equipment . . . . . . . . . . . $4,980,000 $4,887,000
Leasehold improvements . . . . . . . . . . . 278,000 278,000
Construction in progress . . . . . . . . . . 20,000 71,000
---------- ----------
Total Properties . . . . . . . . . . . . 5,278,000 5,236,000
Accumulated depreciation and amortization
of leasehold improvements . . . . . . . (4,109,000) (4,012,000)
---------- ----------
Net properties . . . . . . . . . . . . . . . . . $1,169,000 $1,224,000
========== ==========
</TABLE>
NOTE 3. LOSS PER SHARE
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.
NOTE 4. SUBSEQUENT EVENT
The Company completed the sale of all of the assets of its 90% owned
subsidiary, Poly-Optical Products, Inc. ("Poly") in an all cash transaction to
an independent privately held company. The sale of Poly will result in a gain
of approximately $700,000 which will be recorded in the second fiscal quarter.
In the fiscal year ended September 30, 1996, Poly had revenues of approximately
$3 million and income from operations of $252,000.
6
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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.
Quarter ended December 31, 1996 compared to quarter ended December 31, 1995.
During the quarter ended December 31, 1996, Trimedyne's net revenues decreased
3% from the same quarter of the previous year ($2,869,000 vs. $2,964,000).
For the current quarter, the Company incurred a loss from operations of
$1,006,000, compared to a loss of $918,000 for the year earlier period. The
net loss for the quarter ended December 31, 1996, was $924,000, or $0.08 per
share, based on 10,895,117 weighted average number of shares outstanding, as
compared to a net loss of $886,000, or $0.09 per share, based on 9,472,301
weighted average number of shares outstanding, in the same quarter of the
previous year.
The Company believes that the 3% decline in revenue was due to continued
restrictions in hospital budgets for capital equipment which delayed some sales
anticipated during the December quarter. Holmium and YAG lasers sales decreased
$244,000 or 18% of capital equipment revenue. Service revenue increased by
$80,000 or 98% of service revenue. Sales of disposable orthopedic delivery
systems have increased in each successive quarter over the last five quarters,
and this growth is anticipated to continue. For the current quarter, orthopedic
probes increased $179,000 or 27%, compared to the year ago quarter.
Cost of goods sold was 56.3% of net sales in the first quarter of fiscal 1997
compared to 57.8% for the first quarter of fiscal 1996. The decrease in cost
of goods sold as a percentage of revenues was due to the slightly higher margins
on delivery system sales which accounted for a larger portion of sales in the
current quarter.
Selling, general and administrative expenses decreased to $1,574,000 for the
current quarter compared to $1,687,000 for the quarter ended December 31, 1995.
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 incurrence of approximately $200,000 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 December 31, 1996,
increased 43% ($686,000 vs. $481,000) 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 for the treatment of severe cardiac disease.
Interest income increased by 94% to $97,000 for the current quarter, compared
with $50,000 for the same period of the prior year. The increase was due to
higher amounts of cash available for investment.
Liquidity and Capital Resources
The Company's working capital decreased from $13,919,000 at September 30, 1996
to $13,048,000 at December 31, 1996, of which $6,669,000 is cash and cash
equivalents, and marketable securities. 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.
7
<PAGE> 8
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
8
<PAGE> 9
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: February 12, 1997 /s/ MARVIN P. LOEB
--------------------------------------
Marvin P. Loeb
Chairman and Chief Executive Officer
Date: February 12, 1997 /s/ PETER T. HYDE
--------------------------------------
Peter T. Hyde
President and Chief Operating Officer
Date: February 12, 1997 /s/ JAMES L. KELLY
--------------------------------------
James L. Kelly
Vice President-Finance
Chief Financial Officer and
Chief Accounting Officer
9
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 4,139
<SECURITIES> 2,530
<RECEIVABLES> 2,393
<ALLOWANCES> 243
<INVENTORY> 5,551
<CURRENT-ASSETS> 14,973
<PP&E> 5,278
<DEPRECIATION> 4,109
<TOTAL-ASSETS> 16,437
<CURRENT-LIABILITIES> 1,925
<BONDS> 0
0
0
<COMMON> 110
<OTHER-SE> 14,230
<TOTAL-LIABILITY-AND-EQUITY> 16,437
<SALES> 2,869
<TOTAL-REVENUES> 2,966
<CGS> 1,615
<TOTAL-COSTS> 3,875
<OTHER-EXPENSES> (15)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (924)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (924)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
