<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, 1997 0-10581
TRIMEDYNE, INC.
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(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
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principal executive offices) (Zip Code)
(714/559-5300)
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(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 19, 1998
- ---------------------------- --------------------------------
Common Stock, $.01 par value 10,905,956 shares (excluding
101,609 shares held as
Treasury Shares)
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TRIMEDYNE, INC.
Page Number
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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
2
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TRIMEDYNE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1997
------------ -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents..................................... $ 3,082,000 $ 3,286,000
Marketable securities....................................... 1,010,000 2,055,000
Trade accounts receivable, net of allowance for doubtful
accounts of $243,000 and $232,000 ........................ 2,474,000 2,732,000
Inventories (Note 3)........................................ 3,416,000 3,285,000
Other....................................................... 490,000 498,000
------------ ------------
Total Current Assets.................................. 10,472,000 11,856,000
------------ ------------
Net Properties (Note 3) 899,000 905,000
------------ ------------
$ 11,371,000 $ 12,761,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable............................................ $ 470,000 $ 580,000
Accrued expenses............................................ 1,327,000 1,519,000
Deferred income............................................. 158,000 106,000
------------ ------------
Total Current Liabilities................................. 1,955,000 2,205,000
------------ ------------
Minority Interest (Note 5).................................... 45,000 118,000
Stockholders' Equity:
Common stock - .01 par value; 15,000,000 shares authorized,
11,007,565 and 11,007,565 shares issued.................. 110,000 110,000
Capital in excess of par value.............................. 43,037,000 43,017,000
Accumulated deficit......................................... (33,037,000) (31,953,000)
Unrealized (gain) loss on securities available for sale..... (26,000) (23,000)
------------ ------------
10,084,000 11,151,000
Less shares of common stock in treasury,
at cost; 101,609 and 101,609 shares......................... (713,000) (713,000)
------------ ------------
Total Stockholders' Equity................................. 9,371,000 10,438,000
------------ ------------
$ 11,371,000 $ 12,761,000
============ ============
</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,
-------------------------
1997 1996
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<S> <C> <C>
Net Sales..................................... $ 2,111,000 $ 2,168,000
Costs and Expenses:
Cost of goods sold.......................... 1,170,000 1,259,000
Selling, general and administrative......... 1,163,000 1,343,000
Research and development.................... 986,000 621,000
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Total Costs and Operating Expenses......... 3,319,000 3,223,000
----------- -----------
Loss from Operations.......................... (1,208,000) (1,055,000)
Other Income (expense):
Interest income............................ 57,000 97,000
Other...................................... (6,000) (10,000)
Minority interest in consolidated subsidiary 73,000 --
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Net Loss from continuing operations (Note 2) (1,084,000) (968,000)
Net Income from discontinued operations....... -- 44,000
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Net Loss...................................... $(1,084,000) $ (924,000)
=========== ===========
Basic and dilutive earnings (loss) per share:
From continuing operations.................. $ (0.10) $ (0.09)
From discontinued operations................ -- 0.01
Basic and dilutive net earnings (loss) per
share (Note 4)............................. $(0.10) $(0.08)
====== ======
Weighted average number of shares outstanding 10,905,956 10,895,117
</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,
------------------------------
1997 1996
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<S> <C> <C>
Cash flows from operating activities:
Net loss .................................... $(1,084,000) $ ( 924,000)
Adjustment to reconcile net loss to net cash
used for operating activities:
Depreciation and Amortization ................... 76,000 107,000
Provision for excess and obsolete inventory ..... -- 9,000
Value of stock options issued below fair value .. 20,000 --
Minority interest in earnings of subsidiary ..... (73,000) 5,000
Changes in operating assets and liabilities:
Decrease (increase) in trade accounts receivable,
net ......................................... 258,000 119,000
Decrease (increase) in inventories .............. (131,000) (346,000)
(Increase) decrease in other current assets ..... 8,000 35,000
(Decrease) in accounts payable .................. (110,000) (233,000)
Increase in accrued expense ..................... (192,000) (97,000)
(Decrease) increase in deferred income .......... 52,000 (47,000)
----------- -----------
Net cash used for operating activities .......... (1,176,000) (1,372,000)
Cash flows from investing activities:
Capital expenditures ............................ (70,000) (42,000)
Patent expenditures ............................. (11,000)
(Purchase) Sale of marketable securities ........ 1,042,000 (12,000)
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Net cash used for investing activities .......... 972,000 (65,000)
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Cash flows from financing activities:
Proceeds from exercise of stock options .... -- 1,000
Sale of stock .............................. -- --
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Net cash provided by financing activities ....... -- 1,000
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Net (decrease) increase in cash and cash equivalents (204,000) (1,436,000)
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Cash and cash equivalents at beginning of period ... 3,286,000 5,575,000
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Cash and cash equivalents at end of period ......... $ 3,082,000 $ 4,139,000
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements
5
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TRIMEDYNE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 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 December 31, 1997 and September 30, 1997, and the
results of operations and of cash flows for the three month periods ended
December 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):
THREE MONTHS ENDED
DECEMBER 31, 1996
------------------
Net sales.................................... $ 701
Cost and Expenses
Cost of goods sold......................... 356
Selling, general and administrative........ 231
Research and development................... 65
------
Total Costs and Operating Expenses......... 652
------
Income from discontinued operations.......... 49
Less Minority Interest..................... 5
------
Net income from Discontinued Operations...... $ 44
======
6
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NOTE 3
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1997
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<S> <C> <C>
Inventories consist of the following:
Raw material ........................ $ 2,368,000 $ 2,720,000
Work-in-process ..................... 1,861,000 1,304,000
Finished goods ...................... 2,334,000 2,408,000
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Total inventory ...................... 6,563,000 6,432,000
Inventory reserve ................... (3,147,000) (3,147,000)
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Net inventory .......................... $ 3,416,000 $ 3,285,000
=========== ===========
Net properties consist of the following:
Furniture and equipment .............. $ 3,890,000 $ 3,822,000
Leasehold improvements ............... 331,000 331,000
Other ................................ 568,000 566,000
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Total Properties ..................... 4,789,000 4,719,000
Accumulated depreciation ............... (3,890,000) (3,814,000)
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Net properties ......................... $ 899,000 $ 905,000
=========== ===========
</TABLE>
NOTE 4
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 (ASFAS 128"), Earnings per Share, which
establishes a simplified computation of earnings per share (AEPS@). Under SFAS
128, primary EPS is replaced by basic EPS, and dual presentation of basic and
diluted EPS is required for all entities with a complex capital structure. Basic
EPS is computed by dividing net income by the weighted average number of common
shares outstanding during the period. Diluted EPS reflects the potential
dilution that could occur if stock options and other contracts to issue common
stock were exercised or converted into common stock or resulted in the issuance
of common stock that then shared in the earnings of the entity. For all periods
presented, the net earnings available to common shareholders and the weighted
average shares outstanding are the same for both basic and diluted EPS, since
the effects of the Company's and Cardiodyne's stock options would be
antidilutive. Basic and diluted EPS do not differ from earnings per share
previously presented.
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 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 and paid for 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
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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.
Method of Presentation.
The consolidated financial statements include the accounts of the Company and
its 90% owned subsidiary, Cardiodyne, Inc. (ACardiodyne@). The statement of
operations for the months ended December 31, 1996 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 December 31, 1997 compared to quarter ended December 31, 1996.
During the quarter ended December 31, 1997, Trimedyne's net revenues decreased
3% from the same quarter of the previous year ($2,111,000 vs. $2,168,000). The
Company believes that the 3% decline in revenue was primarily due to the
continued tightness in hospital budgets for capital equipment in the United
States and the introduction of lower cost arthroscopic devices by competitors.
For the current quarter, the Company incurred a loss from continuing operations
of $1,084,000, or $0.10 per share, based on 10,905,956 weighted average number
of shares outstanding, as compared to a net loss of $924,000 or $0.08 per share,
based on 10,895,117 weighted average number of shares outstanding, in the same
quarter of the previous year.
Cost of goods sold was 55% of net sales in the first quarter of fiscal 1998
compared to 58% for the first quarter of fiscal 1997. The decrease in cost of
goods sold as a percentage of revenues was the result of lower material and
warranty costs associated with the higher powered Holmium laser.
Selling, general and administrative expenses decreased from $1,343,000 to
$1,163,000, a decrease of $180,000 or 13.4%. The decrease in selling, general
and administrative expenses is attributed to lower legal expenses.
Research and development expenditures for the quarter ended December 31, 1997,
increased 58% ($986,000 vs. $621,000) due to the increase in costs associated
with advanced development work on the new TMR laser system being developed by
Cardiodyne for the treatment of severe cardiac disease.
Interest income decreased by 41% to $57,000 for the current quarter, compared
with $97,000 for the same period of the prior year due to liquidations of
marketable securities.
8
<PAGE> 9
Liquidity and Capital Resources
The Company's working capital decreased from $9,651,000 at September 30, 1997 to
$8,517,000 at December 31, 1997, of which $4,092,000 is cash and equivalents and
marketable securities. Management believes existing working capital is
sufficient to meet Trimedyne's operating needs for at least the next 12 months
provided no additional investment is made in Cardiodyne. Management has
implemented cost reductions at Trimedyne and will seek additional financing to
continue development of Cardiodyne's products, the success of which cannot be
assured. If funds for the latter purpose are not obtained, the Company will
require cut-backs in Cardiodyne's operating expenses or cease funding of
Cardiodyne's operations. Sources of additional financing include the sale of
equity securities of the Company or its subsidiaries and the sale or licensing
of certain patent rights.
9
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PART II.
OTHER INFORMATION
ITEM 1. Legal Proceedings
Previously reported.
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
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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: February 19, 1998 /s/ MARVIN P. LOEB
--------------------------------
Marvin P. Loeb
Chairman and
Chief Executive Officer
Date: February 19, 1998 /s/ CHARISSE E. CHEL
--------------------------------
Charisse E. Chel
Corporate Controller, Treasurer
and Chief Financial and
Accounting Officer
11
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,082
<SECURITIES> 1,010
<RECEIVABLES> 2,717
<ALLOWANCES> 243
<INVENTORY> 3,416
<CURRENT-ASSETS> 10,472
<PP&E> 4,789
<DEPRECIATION> 3,890
<TOTAL-ASSETS> 11,371
<CURRENT-LIABILITIES> 1,955
<BONDS> 0
0
0
<COMMON> 110
<OTHER-SE> 9,261
<TOTAL-LIABILITY-AND-EQUITY> 11,371
<SALES> 2,111
<TOTAL-REVENUES> 2,168
<CGS> 1,170
<TOTAL-COSTS> 3,319
<OTHER-EXPENSES> 6
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,084)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,084)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
