<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
--------------------- ----------------------
June 30, 1998 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)
(949/559-5300)
(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 18, 1998
----- ------------------------------
Common Stock, $.01 par value 10,905,956 shares (excluding
101,609 shares held as
Treasury Shares)
<PAGE> 2
TRIMEDYNE, INC.
<TABLE>
<CAPTION>
Page Number
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<S> <C>
INTRODUCTION 3
PART I. Financial Information
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statements of Operations 5
Condensed Consolidated Statements of Cash Flows 6
Notes to Condensed Consolidated Financial Statements 7
ITEM 2. Management's Discussion and Analysis of Financial 9
Condition and Results of Operations
PART II. Other Information 11
SIGNATURE PAGE 13
</TABLE>
2
<PAGE> 3
INTRODUCTION
As of June 30, 1998 the Company had $8,688,000 in working capital, of
which $4,354,000 is cash and equivalents and marketable securities. Management
believes existing working capital is sufficient to meet Trimedyne's operating
needs and the operating needs of its 90% owned subsidiary, Cardiodyne, Inc.
("Cardiodyne") for at least the next seven months. The Company has implemented
cut-backs in Cardiodyne's operating expenses and has also implemented cost
reductions at Trimedyne. The Company is seeking additional financing to continue
development of Cardiodyne's products and to support Trimedyne's operations, the
success of which cannot be assured. If current financing activities are
unsuccessful, Trimedyne will cease funding of operations at Cardiodyne until
additional funds are received, which will provide sufficient working capital to
fund Trimedyne's operations through the end of the fiscal year. Other sources of
financing include the sale of equity securities of the Company or Cardiodyne and
the sale or licensing of other patent rights.
3
<PAGE> 4
TRIMEDYNE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1998 1997
------------ ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents ................................. $ 3,845,000 $ 3,286,000
Marketable securities ..................................... 509,000 2,055,000
Trade accounts receivable, net of allowance for doubtful
accounts of $257,000 and $232,000 ....................... 1,867,000 2,732,000
Inventories (Note 3) ...................................... 3,795,000 3,285,000
Other ..................................................... 343,000 498,000
------------ ------------
Total Current Assets ................................ 10,359,000 11,856,000
------------ ------------
Net Properties (Note 3) ..................................... 773,000 905,000
------------ ------------
$ 11,132,000 $ 12,761,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable .......................................... $ 213,000 $ 580,000
Accrued expenses .......................................... 1,381,000 1,519,000
Deferred income ........................................... 77,000 106,000
------------ ------------
Total Current Liabilities ............................... 1,671,000 2,205,000
------------ ------------
Minority Interest (Note 5) .................................. (125,000) 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 ............................ 43,076,000 43,017,000
Accumulated deficit ....................................... (32,859,000) (31,953,000)
Unrealized loss on securities available for sale .......... (28,000) (23,000)
------------ ------------
10,299,000 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 ............................... 9,586,000 10,438,000
------------ ------------
$ 11,132,000 $ 12,761,000
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
<PAGE> 5
TRIMEDYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------- -------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales ........................................... $ 1,797,000 $ 2,464,000 $ 5,457,000 $ 6,418,000
Costs and Expenses:
Cost of goods sold ................................ 1,073,000 1,726,000 3,121,000 4,147,000
Selling, general and administrative ............... 1,554,000 1,566,000 4,362,000 4,421,000
Research and development .......................... 864,000 984,000 2,897,000 2,434,000
------------ ------------ ------------ ------------
Total Costs and Operating Expenses ............... 3,491,000 4,276,000 10,380,000 11,002,000
------------ ------------ ------------ ------------
Loss from Operations ................................ (1,694,000) (1,812,000) (4,923,000) (4,584,000)
Other Income (expense):
Interest income .................................. 31,000 97,000 133,000 285,000
Other ............................................ 7,000 (8,000) 4,000 (61,000)
Minority interest in consolidated subsidiary ..... 85,000 54,000 243,000 89,000
Sale of patent license ........................... 3,637,000 -- 3,637,000 --
------------ ------------ ------------ ------------
Net Gain (loss) from continuing operations .......... $ 2,066,000 $ (1,669,000) $ (906,000) $ (4,271,000)
Net Income (loss) from discontinued operations
(Note 2) ........................................... -- -- 33,000
Loss on sale of subsidiary assets ................... -- -- (276,000)
------------ ------------ ------------ ------------
Net Gain (loss) ..................................... $ 2,066,000 $ (1,669,000) $ (906,000) $ (4,514,000)
============ ============ ============ ============
Earnings Gain (loss) per share
From continuing operations ........................ $ 0.19 $ (0.15) $ (0.08) $ (0.39)
From discontinued operations ...................... 0.00 (0.00) 0.00 0.01
Loss on sale of subsidiary assets ................. 0.00 (0.00) 0.00 (0.03)
------------ ------------ ------------ ------------
Net Gain (loss) per Share (Note 4) .................. $ 0.19 $ (0.15) $ (0.08) $ (0.41)
============ ============ ============ ============
Weighted average number of shares outstanding ....... 10,905,956 10,895,747 10,905,956 10,895,535
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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TRIMEDYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
-------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash flows used for operating activities:
Net loss .................................................. $ (906,000) $ (4,514,000)
Adjustments to reconcile net loss to net cash used
for operating activities:
Depreciation and amortization ............................. 228,000 285,000
(Gain) on sale of patent license .......................... (3,637,000) --
Value of stock options issued below fair value ............ 59,000 --
Minority interest in earnings of subsidiary ............... (243,000) (256,000)
Loss on sale of subsidiary assets ......................... -- 276,000
Changes in operating assets and liabilities:
Decrease (increase) in trade accounts receivable, net ..... 865,000 79,000
Decrease (Increase) in inventories ........................ (510,000) 554,000
Decrease (increase) in other current assets .............. 155,000 (115,000)
(Decrease) in accounts payable ............................ (367,000) (313,000)
(Decrease) increase in accrued expense .................... (138,000) 376,000
Increase (decrease) in deferred income .................... (29,000) (39,000)
------------ ------------
Net cash flows from operating activities ..................... (4,523,000) (3,667,000)
------------ ------------
Cash flows from investing activities:
Capital expenditures ...................................... (96,000) (374,000)
Patent expenditures ....................................... -- (13,000)
Proceeds from sale of subsidiary assets ................... 1,290,000
Proceeds on sale of patent license ........................ 3,637,000 --
Purchase/Sale of marketable securities .................... 1,541,000 (2,093,000)
------------ ------------
Net cash used for investing activities .................... 5,082,000 (1,190,000)
------------ ------------
Cash flows from financing activities:
Proceeds from sale of subsidiary stock .................... -- 1,120,000
Proceeds from exercise of stock options ................... -- 1,000
------------ ------------
Net cash provided by financing activities ................. -- 1,121,000
------------ ------------
Net (decrease) in cash and cash equivalents .................. 559,000 (3,736,000)
------------ ------------
Cash and cash equivalents at beginning of period ............. 3,286,000 5,575,000
------------ ------------
Cash and cash equivalents at end of period ................... $ 3,845,000 $ 1,839,000
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements
6
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TRIMEDYNE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)
NOTE 1
In the opinion of management, the accompanying condensed consolidated financial
statements contain all adjustments (consisting of only normal recurring
transactions) necessary to present fairly the Company's condensed consolidated
financial position as of June 30, 1998 and September 30, 1997, the results of
operations for the six and nine month periods ended June 30, 1998 and 1997 and
of cash flows for the nine month periods ended June 30, 1998 and 1997.
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>
NINE MONTHS
ENDED JUNE 30,
1997
--------------
<S> <C>
Net sales .......................................... $918
Cost and Expenses
Cost of goods sold ............................... 457
Selling, general and administrative .............. 333
Research and development ......................... 91
----
Total Costs and Operating Expenses ............... 881
----
Income (loss) from discontinued operations ......... 37
Less Minority Interest ........................... 4
----
Net income (loss) from Discontinued Operations ..... $ 33
====
</TABLE>
7
<PAGE> 8
NOTE 3
<TABLE>
<CAPTION>
June 30, 1998 September 30, 1997
------------- ------------------
<S> <C> <C>
Inventories consist of the following:
Raw material ............................... $ 2,922,000 $ 2,720,000
Work-in-process ............................ 1,204,000 1,304,000
Finished goods ............................. 2,816,000 2,408,000
----------- -----------
Total inventory ............................ 6,942,000 6,432,000
Inventory reserve .......................... (3,147,000) (3,147,000)
----------- -----------
Net inventory ................................. $ 3,795,000 $ 3,285,000
=========== ===========
Net properties consist of the following:
Furniture and equipment ..................... $ 3,917,000 $ 3,822,000
Leasehold improvements ...................... 331,000 331,000
Other ....................................... 568,000 566,000
----------- -----------
Total properties ............................ 4,816,000 4,719,000
Accumulated depreciation and amortization ..... (4,043,000) (3.814.000)
----------- -----------
Net properties ................................ $ 773,000 $ 905,000
=========== ===========
</TABLE>
NOTE 4
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 ("SFAS 128"), Earnings per Share, which
establishes a simplified computation of earnings per share ("EPS"). 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 the Company's majority owned subsidiary
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
in Cardiodyne. This equity interest includes a portion of the losses incurred by
the subsidiary.
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 the ability to continue its current level of
operations beyond the next seven months due to limited cash. Other risk factors
and uncertainties include 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 condensed consolidated financial statements include the accounts of the
Company and its 90% owned subsidiary, Cardiodyne, Inc. ("Cardiodyne"). The
statement of operations for the months ended June 30, 1997 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 June 30, 1998 compared to quarter ended June 30, 1997.
During the quarter ended June 30, 1998, Trimedyne's net revenues decreased 27%
from the same quarter of the previous year ($1,797,000 vs. $2,464,000). For the
current quarter, the Company gained $2,066,000 from continuing operations
compared to a loss of $1,669,000 for the year earlier period. The net gain
included a patent license sale of $3,637,000. The net gain for the quarter ended
June 30, 1998, was $2,066,000, or $0.19 per share, based on 10,905,956 weighted
average number of shares outstanding, as compared to a net loss of $1,669,000 or
($0.15) per share, based on 10,895,747 weighted average number of shares
outstanding, in the same quarter of the previous year.
Cost of goods sold was 60% of net sales in the third quarter of fiscal 1998
compared to 70% for the third quarter of fiscal 1997. The decrease in cost of
goods sold as a percentage of revenues was due to a decline in the ratio of
laser sales to sales of disposables, as compared to the year ago quarter.
Selling, general and administrative expenses decreased to $1,554,000 for the
current quarter compared to $1,566,000 for the quarter ended June 30, 1997, a
decrease of $12,000 or 1%. Research and development expenditures for the quarter
ended June 30, 1998, decreased 12% ($864,000 vs. $984,000) due to the decrease
in costs associated with advanced development work on the new MLR laser system
being developed by the Company's 90% owned subsidiary, Cardiodyne, Inc., for the
treatment of severe cardiac disease.
Interest income decreased by 68% to $31,000 for the current quarter, compared
with $97,000 for the same period of the prior year, due to the declining
balances of cash and marketable securities.
Liquidity and Capital Resources
The Company's working capital decreased from $9,651,000 at September 30, 1997 to
$8,688,000 at June 30, 1998, of which $4,354,000 is cash and equivalents and
marketable securities. Management believes existing working capital is
sufficient to meet Trimedyne's operating needs and the needs of its 90% owned
subsidiary, Cardiodyne, Inc. for at least
9
<PAGE> 10
the next seven months. The Company has implemented cut-backs in Cardiodyne's
operating expenses and has also implemented cost reductions at Trimedyne. The
Company is seeking additional financing to continue development of Cardiodyne's
products and to support Trimedyne's operations, the success of which cannot be
assured. Additionally, the Company is currently pursuing the sale of patent
licenses, which could result in additional funds being generated. If current
financing activities are unsuccessful, Trimedyne will cease funding of
operations at Cardiodyne until additional funds are received, which will provide
sufficient working capital to fund Trimedyne's operations for an additional
period of time. Other sources of potential financing include the sale of equity
securities of the Company or Cardiodyne and the sale or licensing of other
patent rights.
10
<PAGE> 11
PART II.
OTHER INFORMATION
ITEM 1. Legal Proceedings
In connection with the June 9, 1994 settlement of litigation with
the co-inventor of the Urolase(R) fiber, the Company amended and restated its
licensing agreement with the co-inventor. The Company paid $90,000 of the
settlement amount for royalties owed on past Urolase(R) fiber sales and $585,000
of the settlement amount as a non-refundable prepayment of future royalties
which otherwise would be owed to the co-inventor on future sales of the
Urolase(R) fiber. The Company wrote off the unused prepaid royalty of $355,000
during fiscal 1997 and the corresponding reserve which was established in fiscal
1996, due to the uncertainty of future urology revenues. Royalties paid in 1997,
1996 and 1995 were not significant. Management believes that royalties on all
future sales of Urolase(R) fibers over the term of the agreement, which has no
expiration date, will not be significant.
In early 1995, the Company filed a lawsuit against Surgical Laser
Technologies, Inc. (SLT) charging infringement of the Company's U.S. Patents No.
4,646,737 and 5,380,317, which are owned by the Company, and one U.S. Patent
which is owned jointly by the Company and a co-inventor. The trial court granted
SLT's motion for summary judgement that all three U.S. Patents are not infringed
by SLT's laser devices. On July 10, 1998, the Federal Circuit Court of Appeals
reversed the trial court's grant of summary judgement as to the 5,380,317
patent, and sent the matter back to the trial court for further proceedings.
On October 6, 1995, the Company filed a lawsuit against Bard
claiming substantial damages for among other things, Bard's failure to perform
its obligations as Trimedyne's exclusive distributor under the Agreement and
Bard's failure to pay certain amounts due under the Agreement. On August 13,
1998, the United States District court for the District of New Jersey denied
Bard's motion for partial summary judgement. No trial date is currently set.
The Company has been named as a defendant in one product liability
lawsuit, which was being handled by the Company's insurance carrier. A trial was
held in March 1998 with a verdict in favor of the Company. Plaintiff's motion
for a new trial was denied and an appeal was not filed.
In July, 1998, the Company settled a pending lawsuit with a former
employee.
The Company is subject to various claims and actions which arise in
the ordinary course of business. The litigation process is inherently uncertain,
and it is possible that the resolution of the Company's existing and future
litigation may adversely affect 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
11
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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
12
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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 19, 1998 /s/ MARVIN P. LOEB
------------------ -----------------------------------
Marvin P. Loeb
Chairman and
Chief Executive Officer
Date: August 19, 1998 /s/ CHARISSE E. CHEL
------------------ -----------------------------------
Charisse E. Chel
Corporate Controller, Treasurer
and Chief Financial and
Accounting Officer
13
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 3,845
<SECURITIES> 509
<RECEIVABLES> 2,124
<ALLOWANCES> 257
<INVENTORY> 3,795
<CURRENT-ASSETS> 10,359
<PP&E> 4,816
<DEPRECIATION> 4,043
<TOTAL-ASSETS> 11,132
<CURRENT-LIABILITIES> 1,671
<BONDS> 0
0
0
<COMMON> 110
<OTHER-SE> 9,476
<TOTAL-LIABILITY-AND-EQUITY> 11,132
<SALES> 5,457
<TOTAL-REVENUES> 5,590
<CGS> 3,121
<TOTAL-COSTS> 10,380
<OTHER-EXPENSES> 7
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (906)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (906)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
