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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 30, 1999 COMMISSION FILE NO. 0-10581
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________________________
TRIMEDYNE, INC.
(Exact Name of Registrant as Specified in its Charter)
Nevada 36-3094439
(State or Other Jurisdiction (I.R.S. Employer
Of Incorporation) Identification No.)
2801 Barranca Road, P.O. Box 57001 92619-7001
Irvine, California (Zip Code)
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code:
(949) 559-5300
________________________
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value per Share
(Title of Class)
________________________
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, and (2) has been subject to the
filing requirements for the past 90 days. Yes x No _____
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The aggregate market value of voting stock held by non-affiliates of
registrant on November 15, 1999, based upon the closing price of the common
stock on such date was $24,870,000.
As of November 15, 1999, there were outstanding 11,108,405 shares of
registrant's Common Stock.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.________
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TABLE OF CONTENTS
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PART I
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ITEM 1. BUSINESS............................................................................................... 1
General............................................................................................ 1
Orthopedics, Urology and Other Surgical Specialties................................................ 1
Settlement of Litigation with Bard................................................................. 2
Cardiodyne......................................................................................... 2
New Products....................................................................................... 3
License Agreements................................................................................. 3
Sale of License Agreement.......................................................................... 3
Research and Development........................................................................... 4
Manufacturing, Supply Agreements................................................................... 4
Marketing.......................................................................................... 4
Government Regulation.............................................................................. 4
Employees.......................................................................................... 6
Patents and Patent Applications.................................................................... 6
Competition........................................................................................ 6
Insurance.......................................................................................... 7
Foreign Operations................................................................................. 7
ITEM 2. PROPERTIES............................................................................................. 7
ITEM 3. LITIGATION............................................................................................. 7
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................................................... 8
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS............................................................................................ 9
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED RESULTS OF
OPERATIONS AND CONSOLIDATED FINANCIAL CONDITION.................................................... 9
ITEM 7. FINANCIAL STATEMENTS................................................................................... 11
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE............................................................................... 11
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS........................................... 12
ITEM 10. EXECUTIVE COMPENSATION................................................................................. 12
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT......................................... 12
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................................................... 12
ITEM 13. COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT...................................................... 12
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K....................................................................... 12
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS............................................................. F-1
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PART I
ITEM 1. BUSINESS
FORWARD LOOKING STATEMENTS
In addition to historical information, this Annual Report contains
forward-looking statements. These forward-looking statements are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those reflected in these forward-looking statements. Factors
that might cause such a difference include, but are not limited to, those
discussed in the section entitled "Management's Discussion and Analysis of
Consolidated Results of Operations and Consolidated Financial Condition. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which reflect management's opinions only as of the date hereof. The Company
undertakes no obligation to revise or publicly release the results of any
revision to these forward-looking statements. Readers should carefully review
the risk factors described in other documents the Company files from time to
time with the Securities and Exchange Commission, including the Quarterly
Reports on Form 10-Q to be filed by the Company in fiscal year 2000.
General
Trimedyne, Inc. (the "Company") is engaged in the development,
manufacturing and marketing of Holmium "cold" pulsed Lasers, Nd:YAG "thermal"
continuous wave Lasers and proprietary, disposable fiber-optic laser delivery
devices for use in orthopedics, urology, ear, nose and throat ("ENT") surgery,
gynecology, general surgery and other medical specialties. A 90% owned
subsidiary of the Company, Cardiodyne, Inc. ("Cardiodyne"), is engaged in the
development and testing of a new, automated system using the Company's 80 watt
Holmium laser to treat severe angina (chest pain due to blockages in one or more
of the coronary arteries).
The Company's principal efforts from its inception in 1980 until 1991
were devoted to the manufacturing and marketing of cardiovascular lasers and
related disposables for vaporizing plaque (fatty deposits) in blood vessels. As
a result of significant declines in sales of its cardiovascular laser products,
in 1991 the Company shifted its focus to laser and proprietary delivery system
technologies for use in selected "less invasive" surgical applications in
orthopedics, urology, gynecology, general surgery and ENT surgery. The Company's
Holmium laser was cleared for sale by the FDA in November 1999 for use in
gastrointestinal surgery, including excision of colorectal and other tumors and
fragmentation of gall bladder and other biliary stones. The Company is also
engaged in the development of new laser products for other surgical
applications. The Company believes its proprietary laser products may have
advantages over lasers made by others and conventional surgical devices in the
aforementioned fields.
Net revenue from continuing operations of the Company in fiscal 1999
increased 4% to $7,276,000 from $6,985,000 for the prior year, principally due
to the introduction of new laser delivery devices. The Company had a net income
of $2,750,000 or $0.25 per share in fiscal 1999, compared to a net loss of
$2,538,000 or $0.23 per share in fiscal 1998, largely as a result of $6.5
million received from the settlement of the Company's lawsuit against C.R. Bard,
Inc. ("Bard").
The Company believes its future lies in expanding the sales of its
laser products in its existing business areas and introducing new laser products
for use in the cardiovascular field (through Cardiodyne) and in urology,
neurology, gynecology and gastrointestinal surgery. (See "Cardiodyne" and "New
Products" for a description of the new products that Cardiodyne and the Company
are developing).
The Company's working capital on September 30, 1999 was $10,357,000.
(See "Management's Discussion and Analysis of Results of Operations and
Consolidated Financial Condition" herein).
The Company was incorporated in Nevada on May 1, 1980, and adopted its
present name on December 31, 1980. In addition to its 90% owned subsidiary,
Cardiodyne, until January 1997, the Company had a 90% owned subsidiary, Poly-
Optical, which manufactured plastic optical fibers for use in automotive,
consumer, industrial and medical products. Poly-Optical was sold in January
1997. Unless the context otherwise requires, all references to the Company shall
be to Trimedyne, Inc. and its subsidiary, Cardiodyne. The Company's principal
executive offices are located at 2801 Barranca Road, Irvine, California 92606,
and its telephone number is (949) 559-5300.
Orthopedics, Urology And Other Surgical Specialties
Holmium "cold" lasers, which generate very short, extremely powerful
pulses of laser energy, are able to cut and vaporize tissue without significant
thermal damage to surrounding areas. Such lasers are expected to have advantages
over continuous wave "thermal" lasers in certain surgical applications,
particularly when used in tissues such as cartilage, which can be irreparably
damaged by heat, or heat sensitive blood vessels or nerves. Also, tiny optical
fibers permit laser energy to be delivered into spaces too small to accommodate
conventional surgical instruments. During the past two years, the Company's
sales of Holmium lasers in some markets have declined, due to the introduction
of lower priced radiofrequency ("RF") devices by competitors.
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The Company's Holmium lasers are also used for decompression of
herniated lumbar spinal disks ("diskectomy") to treat lower back and leg pain.
In a laser discectomy procedure, a needle containing an optical fiber is
inserted into the spinal disk, either under x-ray guidance or through an
endoscope, and the laser is used to vaporize a portion of the disk, relieving
the pressure of the disk on the nerves of the spinal column. In addition to
straight firing laser needles, the Company also markets side firing laser
needles. According to published studies, Holmium Laser use in discectomy has
been successful in relieving the pain in up to 90% of the cases treated. The
Company's sales of Holmium lasers for use in diskectomy to date have not been
significant. However, in July 1999, the Company received clearance from the FDA
to market a new side firing laser needle with a channel for fluid infusion or
suction, which has generated increased interest by spinal surgeons.
Sales of the Company's Holmium lasers are increasing in lithotripsy for
fragmentation of urinary stones and for resection of enlarged prostates, a
condition affecting 50% of men over age 55. The recent clearance of the
Company's Holmium lasers for fragmentation of gall bladder and biliary stones is
expected to contribute to this growth.
In addition to its 80 watt Holmium laser, the Company has developed and
plans to commence marketing a new, smaller 30 watt Holmium laser in early 2000
for use in urology, disk decompression, ENT surgery, general surgery, gynecology
and gastrointestinal surgery.
Settlement of Litigation with Bard
On October 6, 1995, the Company filed a lawsuit against Bard claiming
substantial damages for Bard's failure to perform its obligations under an
Agreement the Company entered into with Bard in 1991, covering a device
developed by the Company to treat enlarged prostates in males. In November 1998,
the Company settled its lawsuit against Bard and received from Bard
approximately $6.5 million, after legal fees and other costs. (See Item 3
"Litigation")
Cardiodyne
In October 1996, the Company organized Cardiodyne, a 90% owned
subsidiary of the Company, which is developing a proprietary Injection and Laser
Transmyocardial Revascularization ("Laser TMR") System for the treatment of
severe angina resulting from advanced coronary artery disease. The Company
invested $2,000,000 and transferred to Cardiodyne its Laser TMR technology,
several lasers, and testing and production equipment and supplies, and the
Company granted Cardiodyne an exclusive license to certain of the Company's
issued patents, patent applications and technology in the cardiovascular field
in exchange for 9,000,000 shares of Cardiodyne common stock. The Company's
chairman also purchased 500,000 shares of Cardiodyne common stock at the same
average cost per share as the Company. The Company also agreed to supply all of
Cardiodyne's requirements for lasers, continuing R&D services and field service
in the United States on a cost-plus basis. On February 11, 1997, Cardiodyne sold
500,000 shares at a price of $2.00 per share, the then estimated fair value of
such common stock, to its distributor for Japan, Australia and New Zealand. As
of September 30, 1999, the Company had expended an additional $3,859,000 for R&D
on Cardiodyne's behalf.
Laser TMR is a new procedure for treating angina, in which a laser is
used to create 15 to 60 channels through the heart wall. The channels enable
blood from the heart chamber to reach and nourish areas of the myocardium (heart
muscle) that have been deprived of blood by blockages in one or more of the
patient's coronary arteries. The laser energy has also been shown to stimulate
the growth of new blood vessels (angiogenesis) in the area of the laser
channels, possibly due to the release of naturally occurring angiogenic growth
factors. Since the body produces and stores only very small amounts of
angiogenic growth factors (VEGF, FGF and others), and since angiogenic growth
factors and the genes that cause cells to produce such growth factors can be
produced by today's genetic engineering techniques, Cardiodyne has adapted its
Laser TMR System to also inject such angiogenic agents. The Company recently
filed a U.S. patent application covering an angiogenic agent it is developing.
Animal testing of the Company's angiogenic agent is planned for early 2000 and,
if successful, human testing could begin in late 2000.
Cardiodyne's proprietary Injection and Laser TMR System, which is
presently in development, consists of the SuperPulse(TM) 80 Watt Holmium Laser,
which is able to produce higher energy per pulse than any laser of this type
presently available, as well as Cardiodyne's proprietary AutoFire(TM) Automated
Interface, Accuject(TM) Injector and disposable ChannelMaker(TM) Optical Fiber
Catheters.
Cardiodyne's Epicardial ChannelMaker(TM) Catheter, which is used by a
surgeon from outside the heart, consists of an optical fiber whose tip is
enclosed within a sharp, double-beveled needle. The AutoFire(TM) Interface
monitors the patient's electrocardiogram ("ECG") and, at the desired time in the
cardiac cycle, automatically inserts the needle/fiber a pre-programmed distance
into the heart wall without lasing, activates the laser, advances the
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needle/fiber through the rest of the heart wall, into the heart chamber,
deactivates the laser and, as the needle/fiber is being withdrawn from the heart
without lasing, injects saline or an angiogenic agent into the channel, all in
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one-half second or less. When it is withdrawn, the needle/fiber leaves only a
small needle puncture in the outer portion of the heart wall, minimizing
bleeding, a serious complication reported in the use of other laser myocardial
revascularization systems.
Cardiodyne has also developed a directable Percutaneous ChannelMaker
(TM) Catheter, which is inserted by a cardioligist into a puncture in an artery
in the groin and advanced into the heart's main pumping chamber. The channels
can be made and saline or an angiogenic agent injected, again in less than
one-half second, by a cardiologist from the inside of the heart.
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The Company acquired sole ownership of a U.S. Patent covering the
therapeutic use of any device on a beating heart which is synchronized with the
movement of the heart (evidenced by the patient's ECG), which was issued in
1988. The use of lasers in TMR not properly synchronized with the patient's ECG
has been shown to increase the incidence of life threatening arrhythmias
(irregular, sometimes uncontrollable heartbeats). The Company believes this is
the dominant Patent covering ECG synchronization in the Laser TMR and angiogenic
injection fields. In addition, Cardiodyne has been issued a U.S. patent covering
its AutoFire(TM) Interface, needle/fiber and ChannelMaker(TM) catheters.
Cardiodyne presently has five other pending U.S. patent applications. The
SuperPulse(TM) 80 watt Holmium Laser is protected by two U.S. Patents and
foreign patents in a number of countries.
In November 1997, Cardiodyne filed an Investigational Device Exemption
("IDE") application with the FDA for approval to commence a Phase I clinical
trial of its Epicardial Laser TMR System in the treatment of "no option" angina
patients, who are unresponsive to maximal drug therapy and have already failed
bypass surgery and/or balloon angioplasty or are not suitable candidates for
such procedures. Cardiodyne expects to receive FDA approval of this IDE and
begin human trials in early 2000. Later in 2000, the Company plans to expand the
clinical trial of this device to testing laser TMR as an adjunct (assist) to
bypass surgery.
In mid 2000, Cardiodyne plans to seek FDA approval to conduct Phase I
clinical trials of its Endoscopic Laser TMR System in a minimally invasive,
Endoscopic Laser TMR procedure through a puncture between the ribs, with a
second port for insertion of a thoracoscope, enabling the surgeon to view the
heart while conducting the procedure. Also in mid 2000, Cardiodyne plans to
request FDA approval to commence a Phase I clinical trial of its Percutaneous
Laser TMR System.
Later in 2000, the Company plans to amend its IDEs (or file new IDEs)
to include the use of its Accuject(TM) Injector to inject an angiogenic agent
during the aforementioned clinical trials of its Epicardial, Endoscopic and
Percutaneous Laser TMR Systems.
Extensive, controlled clinical trials, demonstrating the safety and
efficacy of Cardiodyne's Injection and Laser TMR Systems versus conventional
therapies, will be required before Cardiodyne can submit a Pre-Market Approval
("PMA") application to the FDA to market its Injection and Laser TMR Systems.
This process could take two to three years, or longer, and will require
Cardiodyne's raising additional funds. Until U.S. marketing approval is
obtained, Cardiodyne plans to market its Injection and Laser TMR Systems
overseas, particularly in countries whose health care budgets cannot afford the
high cost of coronary bypass surgery or balloon angioplasty.
New Products
The Company believes the development of new products is essential to
its future success. While the Company is engaged in the development of the new
products described below, since the Company is attempting to control its costs,
the resources being expended in such development efforts is limited.
The Company plans to develop several new disposable devices for use in
urology, gynecology, neurosurgery, gastrointestinal surgery and other medical
specialities, which the Company believes offer advantages over competing
technologies. The Company has been issued U.S. patents covering certain of its
proposed new products and plans to file patent applications covering others.
The Company also plans to restart the development of its new laser for
use in cosmetic surgery and dermatology, which the Company put on hold while it
developed its new 30 watt Holmium laser and Cardiodyne's Injection and Laser TMR
System. Two U.S. patent applications are pending which cover the Company's new
cosmetic laser.
License Agreements
The Company has license agreements with a number of universities and
inventors, under which royalties on sales, if any, are payable, and two license
agreements with a competitor under which royalties are payable by the Company.
U.S. Patents covering certain of the Company's products have also been issued to
officers and employees of the Company and have been assigned to the Company
without royalty. In addition, patent applications by officers and employees of
the Company are on file with the U.S. Patent Office (and in a number of foreign
countries) and have been assigned to the Company without royalty. These patent
applications are currently being processed by the U.S. Patent Office and, to the
Company's knowledge, are proceeding in the normal course of review.
Sale Of License Agreement
In June 1998, the Company sold a non-exclusive license agreement to an
unaffiliated third party for net proceeds of approximately $3,600,000. The
patent covered by this license agreement was not being utilized in the Company's
business and no future need for such patent is contemplated.
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Research And Development
From its inception to September 30, 1999, an aggregate of $39,061,000
has been expended by the Company for research and development ("R&D"), including
clinical and regulatory activities, of which $3,809,000 (including $2,396,000 of
R&D expenses of Cardiodyne) was expended during the fiscal year ended September
30, 1999. As it has in the past, the Company intends to continue to contract
with unaffiliated hospitals and research institutions for the clinical testing
of its developmental products.
Manufacturing, Supply Agreements
Trimedyne and Cardiodyne believe that each has adequate engineering,
design and manufacturing facilities (see "Properties" herein).
The Company has supply agreements with several vendors for components
and materials used in the production of its products. The materials used in the
Company's products, consisting primarily of certain plastics, optical fibers,
lenses, various metal alloys, lasers and laser assemblies and components used in
the manufacture of its lasers are, in most cases, available from several
vendors. The Company has, on occasion, experienced temporary delays or increased
costs in obtaining these materials. An extended shortage of required materials
and supplies could have an adverse effect upon the revenue and earnings of the
Company. In addition, the Company must allow for significant lead time when
procuring certain materials and supplies. Where the Company is currently using
only one source of supply, the Company believes that a second source could be
obtained within a reasonable period of time. However, no assurance can be given
that the Company's results of operations would not be adversely affected until a
new source could be located.
Marketing
The principal markets for the Company's current products are hospitals
with orthopedic, urology, ENT, gynecology, gastrointestinal, general surgery,
cardiovascular and other surgical operating room facilities, as well as
outpatient surgery facilities. In the United States, this market represents
approximately 5,500 hospitals, as well as several hundred outpatient surgery
centers. The Company's proposed new products (See "New Products") will, if
cleared for sale by the FDA and marketed, be sold to hospitals and outpatient
surgery centers, as well as to gynecologists for use in their offices. The
Company anticipates marketing only those products which are customarily sold to
the same customer groups that are markets for its lasers and related devices.
There is no assurance as to the extent to which the Company will be able to
penetrate these markets.
At September 30, 1999, the Company had marketing arrangements for the
sale of its lasers and certain of its disposable products on a straight
commission basis with 39 independent sales representatives specializing in the
sale of medical devices in the United States. Outside the United States, the
Company sells its products through 62 independent distributors who sell various
medical products in approximately 62 foreign countries. The Company presently
employs two Regional Sales Directors, a Vice President - Sales, a Clinical
Education Director and an International Sales Manager.
The Company hopes in the future to increase the number of domestic
sales representatives and to appoint additional distributors in foreign
countries for the purpose of expanding sales of the Company's products. There is
no assurance that the Company will be able to enter into marketing arrangements
with any or all of the persons or organizations with which it is presently
negotiating or that the Company will be able to maintain its existing selling
arrangements.
Government Regulation
All of the Company's products are, and will in the future, likely be
subject to extensive governmental regulation and supervision, principally by the
FDA and comparable agencies in other countries. The FDA regulates the
introduction, advertising, manufacturing practices, labeling and record keeping
of all drugs and medical devices. The FDA has the power to seize adulterated or
misbranded devices, require removal of devices from the market, enjoin further
manufacture or sale of devices and publicize relevant facts regarding devices.
Prior to the sale of any of its products, the Company is required to
obtain marketing approval for each product from the FDA and comparable agencies
in foreign countries. Extensive clinical testing of each product, which is both
costly and time-consuming, may be required to obtain such approvals. The
Company's business would be adversely affected if it were unable to obtain such
approvals or to comply with continuing regulations of the FDA and other
governmental agencies. In addition, the Company cannot predict whether future
changes in government regulations might increase the cost of conducting its
business or affect the time required to develop and introduce new products.
Specific areas of regulation by the FDA and other related matters are
described in detail below:
Investigational Device Exemption:
Before a new medical device may be used for investigational research in
the United States, an Investigational Device Exemption ("IDE") application must
be approved by the FDA. In order to obtain an IDE, the sponsor of the
investigational research must first obtain
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approval for the research from an Institutional Review Board or Committee
("IRB") established for this purpose at the institution (e.g. hospital, medical
center, etc.) at which the research is to be conducted.
510(k) Premarket Notification:
The procedure for obtaining clearance from the FDA to market a new
medical device involves many steps, such as IDE's and PMA's (see "Premarket
Approval"). However, if a device is substantially equivalent to a product
marketed prior to May 28, 1976, or a comparable product subsequently cleared by
the FDA under a 510(k) Premarket Notification, a 510(k) Premarket Notification
may be filed to establish the device's equivalence. The FDA's review process can
take three months or longer. However, if additional testing or data are
requested by the FDA, it is common for the overall review process to be
extended.
Premarket Approval:
Under the Medical Device Amendments of 1976, all medical devices are
classified by the FDA into one of three classes. A "Class I" device is one that
is subject only to general controls, such as labeling requirements and good
manufacturing practices ("GMP"). A "Class II" device is one that is subject to
general controls and must comply with performance standards established by the
FDA. A "Class III" device is one for which general controls and performance
standards alone are insufficient to assure safety and effectiveness, unless the
device qualifies for sale under a 510(k) Premarket Notification. Such devices
require clinical testing to establish their safety and efficacy in treating
specific diseases or conditions, and a Premarket Approval ("PMA"). Application
for the intended use must be approved by the FDA before the device can be
marketed in the United States. A device is generally classified as a Class I,
II, or III device based on recommendations of advisory panels appointed by the
FDA.
The filing of a PMA Application entails a rigorous review by the FDA,
which can take one year or longer, unless additional testing or data are
requested by the FDA, in which case the review process can be considerably
longer. The Company anticipates the majority of its cardiovascular products will
be classified as Class III devices and that a PMA approval from the FDA will be
required before the sale of each of such products commences. The Company
believes the majority of its urology, orthopedic and other surgical products can
be cleared for sale pursuant to 510(k) Premarket Notifications, which in some
cases may require limited clinical trials, although such cannot be assured.
There is no assurance that required PMA approvals or 510(k) clearances
for new products can be obtained or that PMA approvals or 510(k) clearances for
the Company's present products can be maintained. The failure to maintain PMA
approvals and 510(k) clearances for existing products or to obtain needed PMA
approvals or 510(k) clearances for new products might have a material adverse
effect upon the Company's future operations.
Inspection of Plants:
The FDA also has authority to conduct detailed inspections of
manufacturing plants, to determine whether or not the manufacturer has followed
its GMP requirements, which are required for the manufacture of medical devices.
Additionally, the FDA requires reporting of certain product defects and
prohibits the domestic sale or exportation of devices that do not comply with
the law. The Company believes it is in compliance in all material respects with
these regulatory requirements, and expects that the processes and procedures in
place will satisfy the FDA, although such cannot be assured.
State Regulation:
Federal law preempts states or their political subdivisions from
regulating medical devices. Upon application, the FDA may permit state or local
regulation of medical devices which is either more stringent than federal
regulations or is required because of compelling local conditions. To date, and
to the best of the Company's knowledge, only California has filed such an
application. On October 5, 1980, the FDA granted partial approval to such
application, effective December 9, 1980. The California requirements which have
been exempted from preemption have not had a materially adverse effect on the
Company.
Insurance Reimbursement:
To permit the users of the Company's products to obtain reimbursement
under Federal health care programs such as Medicare, the Company may be required
to demonstrate, in an application to the Health Care Financing Administration
("HCFA"), at either the state or federal level or both, the safety and efficacy
of its products and the benefit to patients therefrom which justify the cost of
such treatment. Criteria for demonstrating such benefits are in the process of
definition by HCFA, and there does not yet exist a clear method or requirement
to receive approval for reimbursement. There is no assurance that such an
application, if made, will be approved by HCFA. Most private health insurance
companies and state health care programs have standards for reimbursement
similar to those of HCFA. If an application for reimbursement of a product is
not approved by HCFA, private insurers and/or health care programs, marketing of
such product would be adversely affected.
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Cost of Compliance with FDA and Other Applicable Regulations:
The costs of complying with FDA and other governmental regulations
prior to the sale of approved products are reflected mainly in the Company's R&D
expenditures. The cost of first obtaining an IDE for a product and, after having
developed a product which in the Company's view is safe and effective, obtaining
a PMA approval therefor, as well as making the necessary application to HCFA in
order to establish insurance reimbursability for treatments utilizing such
product, adds significantly to the cost of developing and bringing a product to
market over what such cost would have been if such regulatory requirements did
not exist.
Such regulatory requirements also lengthen the time which is required
to develop and commence marketing a product. These delays increase the Company's
R & D costs by (a) lengthening the time during which the Company must maintain
and bear the carrying costs of a given research and development effort and (b)
delaying the time when the Company can commence realizing revenues from sales of
a product, during which time, however, the Company must nevertheless continue to
bear administrative and overhead costs. It is, however, not possible for the
Company to quantify or estimate in advance the direct and indirect costs of
complying with such regulatory requirements, particularly since the expense and
difficulty of such compliance can vary greatly, depending upon the nature of the
product, its intended use, the technological success of the R&D effort and the
results of clinical testing of its products.
To the extent applicable regulations require more rigorous testing than
might otherwise be deemed necessary by the Company, the costs entailed in
conducting testing of its products by such institutions (and fees or royalties,
if any, payable to them) may be deemed in part a cost to the Company of
compliance with such regulatory requirements.
Employees
On September 30, 1999, the Company and Cardiodyne had 84 and 8 full-
time employees, respectively, a total of 92, of whom 55 were engaged in
production, 20 in R&D, 5 in sales and marketing, and 12 in general and
administrative functions. The Company and Cardiodyne also employ a total of 10
consultants on an hourly basis.
The Company may require additional employees in the areas of
administration, product development, research, production, regulatory affairs,
sales and marketing in the future. There is intense competition for capable,
experienced personnel in the medical device and laser fields, and there is no
assurance the Company will be able to obtain new qualified employees when
required.
The Company believes its relations with its employees are good.
Patents And Patent Applications
As of September 30, 1999, the Company had been assigned or obtained
exclusive or non-exclusive , worldwide licenses to 21 issued U.S. Patents and 19
patent applications on file with the U.S. Patent Office. Several of such patents
have issued as foreign patents and certain corresponding patent applications
have been filed in up to 3 foreign countries. The validity of one of the U.S.
Patents covering the Company's 80 watt Holmium Laser was challenged by a
competitor in the U.S. in an action before the U.S. Patent and Trademark Office
("USPTO"). In December 1996, the USPTO upheld the validity of all of the
Company's claims of this patent.
There is no assurance that (a) any patents will be issued from the
pending applications, (b) any issued patents will prove enforceable, (c) the
Company will derive any competitive advantage therefrom or (d) that the
Company's products may not infringe patents owned by others, licenses to which
may not be available to the Company. To the extent that pending patent
applications do not issue, the Company may be subject to more competition. There
can also be no assurance that the already patented products, methods and
processes will be medically useful or commercially viable. The issuance of
patents on some but not all aspects of a product may be insufficient to prevent
competitors from essentially duplicating the product by designing around the
patented aspects. The Company is obligated, under certain of its patent
licenses, to make royalty payments. Part of the Company's R&D activities will be
directed towards obtaining additional patent rights, which may entail future
royalty and minimum payment obligations.
Competition
The Company and Cardiodyne face competition from a number of both young
and established companies in the medical field. The larger of such established
companies include Coherent, Inc., Johnson & Johnson, Boston Scientific, Inc.,
Baxter International, Inc., ESC Medical Systems and others, all of which have
greater financial resources, engineering and manufacturing facilities, technical
skills, management staffs and/or marketing organizations than the Company's.
Among the younger companies with which the Company and Cardiodyne may
compete are Laserscope, Inc., Surgical Laser Technologies, Inc., PLC Systems,
Inc., Eclipse Surgical Technologies, Inc. and others, certain of which are
publicly held.
6
<PAGE>
Insurance
The Company has a commercial general liability insurance policy,
including an umbrella policy providing coverage in the aggregate amount of
$7,000,000 and a products liability insurance policy providing coverage in the
aggregate amount of $10,000,000. There is no assurance that such amounts of
insurance will be sufficient to protect the Company's assets against claims by
users of its products. Although there have been no successful claims against the
Company, there is no assurance the Company will be able to maintain such
liability insurance in force in the future at an acceptable cost, or at all, in
which case the Company's assets would be at risk in the event of successful
claims against it. Successful claims in excess of the amount of insurance then
in force could have a serious adverse effect upon the Company's financial
condition and its future viability.
The Company does not carry director and officer liability insurance,
but does have indemnification agreements covering its officers and directors.
Foreign Operations
In fiscal 1999, sales of products in foreign countries accounted for
approximately 21% of the Company's total sales. See "Marketing" herein for
information on the marketing of the Company's products in foreign countries.
ITEM 2. PROPERTIES
The Company occupies approximately 40,000 square feet of office,
manufacturing and warehouse space in Irvine, California, which it leases at
approximately $25,870 per month through June 2001. This facility serves as the
Company's headquarters, where research, regulatory, sales, marketing and
administrative activities, as well as manufacturing and warehousing, are
conducted. In November 1998, Cardiodyne moved its operations to this facility
(see below).
The Company leases a 14,000 square feet of office and manufacturing
building in Irvine, California, under a sixty month lease expiring in January,
2002 at a monthly rental of approximately $11,462, with one thirty-six month
renewal option. The Company subleases 8,000 sq. ft. of this building which it
occupied until November 1998 to a third party at its cost. The Company subleases
on a month-to-month basis approximately 6,000 sq. ft. of space at its cost to a
privately owned medical device company controlled by the Chairman of the
Company. Cardiodyne presently does not need the space subleased to either
entity.
Management considers all of its facilities to be well maintained and
adequate for its purposes.
ITEM 3. LITIGATION
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) type fibers. 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 unlikelihood of significant future revenues from such
fibers. Royalties paid in 1997, 1996 and 1995 were not significant. In September
1999, the co-inventor filed suit against the Company and Bard seeking damages
and a share of the proceeds of the lawsuit which Trimedyne brought against Bard.
The Company believes the suit is entirely without merit and intends to defend
the lawsuit vigorously. The case is still in preliminary stages.
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. In
April 1999, the Company settled its lawsuit with SLT, received a nominal payment
and will be paid royalties on the sale of certain products by SLT.
On October 6, 1995, the Company filed a lawsuit against Bard claiming
damages for Bard's failure to perform its obligations under an Agreement the
Company entered into with Bard in 1991. On August 13, 1998, the United States
District Court for the District of New Jersey denied Bard's motion for partial
summary judgement. In November 1998, the Company settled its lawsuit against
Bard and received from Bard approximately $6,500,000, after legal fees and other
costs.
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 any of the Company's existing and future
litigation may adversely affect the Company.
7
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the Company's fiscal year ended September
30, 1999, no matters were submitted to a vote of securities holders.
8
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
A. Market Information
The Company's Common Stock has been traded on the NASDAQ system in the
over-the-counter market since April 13, 1982, and, since August 12, 1986, has
been quoted on the NASDAQ National Market System under the symbol "TMED". The
following table sets forth the high and low closing sales prices for the Common
Stock for each quarterly period within the Company's two most recent fiscal
years on the National Market System.
1999 High Low
- ---- ---- ---
Quarter ended:
December 31, 1998 1 9/16 11/16
March 31, 1999 1 17/32 29/32
June 30, 1999 1 13/32 1 1/16
September 30, 1999 3 5/16 1 7/32
1998 High Low
- ---- ---- ---
Quarter ended:
December 31, 1997 2 7/8 1 25/32
March 31, 1998 2 3/4 1 5/8
June 30, 1998 2 25/32 1 1/2
September 30, 1998 1 21/32 23/32
B. Holders of Common Stock
As of November 15, 1999, there were approximately 1,274 holders of record
of the Company's Common Stock and an additional estimated 6,744 holders who
maintain the beneficial ownership of their shares in "Street Name".
C. Dividends
The Company has never paid cash dividends on its Common Stock, and does not
anticipate paying cash dividends in the foreseeable future. Any future
determination as to the payment of cash dividends will be dependent upon the
Company's financial condition and results of operations and other factors then
deemed relevant by the Board of Directors.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED RESULTS OF
OPERATIONS AND CONSOLIDATED FINANCIAL CONDITION
Consolidated Results of Operations
Fiscal years 1999 and 1998
The following table sets forth certain items in the consolidated statements
of operations as a percentage of net revenues for the years ended September 30,
1999 and 1998.
Year Ended September 30,
1999 1998
---- ----
Net revenues 100.0% 100.0%
Cost of goods sold 53.9 58.8
Selling, general and administrative 51.9 74.8
Research and development 52.4 59.3
Interest income 4.3 2.6
Other income (expense), net 91.6 53.9
Net income (loss) 37.8 (36.3)
9
<PAGE>
Net Revenues
Total revenues increased 4% in fiscal 1999 to $7,276,000 from
$6,985,000 in 1998, due primarily to the introduction of new delivery products
for spinal and urology applications.
International revenues were $1,528,000 for fiscal 1999 and $1,885,000
for fiscal 1998. The decline in fiscal 1999 resulted from lower sales to
European Economic Community countries due to a delay in qualification for the CE
mark, which was received in March 1999.
Cost of Goods Sold
Cost of goods sold in fiscal 1999 was approximately 53.9% of net
revenue, compared to 58.8% in fiscal 1998, due to proportionately higher sales
of greater margin disposable products.
Research and Development Expenses (R&D)
R&D expenses were $3,809,000 in fiscal 1999, compared to $4,141,000 in
fiscal 1998. R&D spending in fiscal 2000 is expected to be lower than the fiscal
1999 level, as the Company completes the development of Cardiodyne's Injection
and Laser TMR System. However, clinical trial expenses of Cardiodyne in fiscal
2000 are expected to be substantial. The extent to which these trial expenses
will be mitigated by Medicare reimbursement cannot presently be ascertained. R&D
as a percentage of net revenues decreased to 52% of net revenues in fiscal 1999
vs. 59% in fiscal year 1998. The decrease in R&D expenses in 1999 was largely
due to a reduction in expenditures following completion of the development of
the Company's new 30 watt Holmium laser.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses decreased 28% to
$3,776,000 in fiscal 1999, compared to $5,225,000 in fiscal 1998. The decrease
in fiscal 1999 is attributed to lower legal expenses and ongoing efforts to
reduce overall operating expenses.
SG&A expenses decreased as a percentage of net revenues in fiscal 1999
over fiscal 1998, (52% and 75%, respectively), due to the aforementioned
factors.
Interest and Other Income and Net Income
Interest income in fiscal 1999 was $315,000 compared to $180,000 in
fiscal 1998. The levels of cash and equivalents available for investment in
interest bearing securities were $5,382,000 and $2,983,000, as of September 30,
1999 and 1998, respectively. In 1999, the Company generated higher income on its
investments than in 1998 due to the higher overall level of cash available for
investment during the current fiscal year.
Other income in fiscal 1999 consists primarily of $6.5 million in net
proceeds received in November 1998 from the settlement of the lawsuit against
Bard.
As a result of all of the above, fiscal 1999 net income was $2,750,000
compared to a net loss of $2,538,000 in fiscal 1998.
Due to cumulative net losses incurred in prior years, the Company was
not obligated to pay federal or state income taxes for fiscal 1999 and 1998.
Liquidity and Capital Resources
At September 30, 1999, the Company had working capital of $10,357,000
compared to $7,366,000 at the end of fiscal 1998. Cash, cash equivalents and
marketable securities increased by $2,399,000 in fiscal 1999 to $5,382,000 at
September 30, 1999. The increase in cash and cash equivalents, and marketable
securities was due to cash used for operating activities totaling approximately
$4.1 million which was offset by funds of $6.5 million received from the
settlement of the Company's lawsuit against Bard.
The Company incurred significant net operating losses during each of
the last two years. Management believes its existing working capital will be
sufficient to meet Trimedyne's operating needs for at least the next 12 months.
Management has implemented cost reductions at Trimedyne and will seek additional
financing to continue development of Cardiodyne's products. 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 Cardiodyne and the sale or licensing of certain patent rights.
10
<PAGE>
Year 2000 Disclosure
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a 2-
digit year is commonly referred to as the "Year 2000" issue. As the year 2000
approaches, such systems may be unable to accurately process certain date-based
information.
The Company uses computers principally for product design, product
prototyping and administrative functions such as communications, word
processing, accounting and management and financial reporting. The Company's
principal computer systems have been purchased since December 31, 1995. The
software utilized by the Company is generally standard "off the shelf" software,
typically available from a number of vendors. While the Company believes it has
taken all appropriate steps to assure year 2000 compliance, it is dependent
substantially on vendor compliance. The Company has verified with its system and
software vendors that the services and products provided are year 2000 compliant
and has replaced those systems that are not year 2000 compliant. The cost to
redevelop, replace or repair its technology was not material. There can be no
assurance, however, that such systems and/or programs are or will be year 2000
compliant or that the failure of such would not have a material adverse impact
on the Company's business and operations. The Company's products do not
incorporate date functions; therefore, Year 2000 concerns are not applicable.
In addition to its own computer systems, in connection with its business
activities, the Company interacts with suppliers, customers, creditors and
financial service organizations domestically and globally who use computer
systems. It is impossible for the Company to monitor all such systems and there
can be no assurance that the failure of such systems would not have a material
adverse impact on the Company's business and operations. The Company has
developed contingency plans in the event the Company or parties with whom the
Company does business experience year 2000 problems.
ITEM 7. FINANCIAL STATEMENTS
The financial statements required by Item 7 of this report are set
forth in the index on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
11
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Information with respect to this item is incorporated by reference from the
Company's definitive Proxy Statement to be filed with the Commission within 120
days after the close of Registrant's fiscal year.
ITEM 10. EXECUTIVE COMPENSATION
Information with respect to this item is incorporated by reference from the
Company's definitive Proxy Statement to be filed with the Commission within 120
days after the close of Registrant's fiscal year.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to this item is incorporated by reference from the
Company's definitive Proxy Statement to be filed with the Commission within 120
days after the close of Registrant's fiscal year.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to this item is incorporated by reference from the
Company's definitive Proxy Statement to be filed with the Commission within 120
days after the close of Registrant's fiscal year.
ITEM 13. COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Not applicable.
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(a) Financial Statements.
See "Index to Consolidated Financial Statements" included in this
report at Page F-1.
(b) No reports on Form 8-K were filed during the fourth quarter of the
fiscal year ended September 30, 1999.
(c) Exhibits
Filed Previously
10(b) Development, Supply and License Agreement with C.R. Bard, Inc.,
dated June 28, 1991.
10(c) Industrial Lease (for Barranca Parkway headquarters) with Griswold
Controls dated June 19, 1991, and Addendum thereto dated July 1,
1991.
10(d) Patent Licensing Agreement with Royice B. Everett, M.D. (covering
the Lateralase Catheter) dated April 1, 1988 as amended.
10(f) Addendum to Industrial Lease with Griswold Controls dated September
14, 1993
10(h) License agreement with Christopoulos Stafanadis, M.D. and Pavlos
Toutouzas, M.D. dated April 1, 1993
10(i)* Amendment to Development Supply and License Agreement with C.R.
Bard dated June 14, 1994.
Filed Herewith
27 Financial Data Schedule
* The Company requested and received confidential treatment for
portions of those exhibits marked with an asterisk (*).
12
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Trimedyne, Inc.
Date: November 16, 1999 /s/ MARVIN P. LOEB
----------------- ____________________________
Marvin P. Loeb,
Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Marvin P. Loeb Chairman of the
- ----------------------- Board of Directors and Nov. 16, 1999
Marvin P. Loeb Chief Executive Officer
/s/ Donald Baker Director Nov. 16, 1999
- -----------------------
Donald Baker
/s/ Bruce N. Barron Director Nov. 16, 1999
- -----------------------
Bruce N. Barron
/s/ Richard F. Horowitz Director Nov. 16, 1999
- -----------------------
Richard F. Horowitz
/s/ Shane H. Traveller Chief Financial Officer and Nov. 16, 1999
- ----------------------- Treasurer
Shane H. Traveller
13
<PAGE>
TRIMEDYNE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
The following consolidated financial statements of Trimedyne, Inc. and its
subsidiary are included in Item 7:
<TABLE>
<CAPTION>
Page
<S> <C>
Consolidated Financial Statements:
Report of Independent Accountants F-2
Consolidated Balance Sheet at September 30, 1999 F-3
Consolidated Statements of Operations for each of the two years in the period
ended September 30, 1999 F-4
Consolidated Statements of Stockholders' Equity for each of
the two years in the period ended September 30, 1999 F-5
Consolidated Statements of Cash Flows for each of the two years in the period
ended September 30, 1999 F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Trimedyne, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material aspects, the financial position of Trimedyne,
Inc. and its subsidiary at September 30, 1999, and the results of their
operations and their cash flows for each of the years in the two-year period
ended September 30, 1999, in conformity with generally accepted accounting
principles. These consolidated financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We conducted our audits
of these statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
McKennon, Wilson & Morgan LLP
Irvine, California
November 15, 1999
F-2
<PAGE>
TRIMEDYNE, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS
September 30,
-------------
1999
----
<S> <C>
Current assets:
Cash and cash equivalents $ 3,212,000
Marketable securities 2,170,000
Trade accounts receivable, net of allowance
for doubtful accounts of $581,000 2,214,000
Inventories 3,440,000
Other 409,000
------------
Total current assets 11,445,000
Property and equipment, net 488,000
------------
$ 11,933,000
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 325,000
Accrued expenses 634,000
Deferred income 129,000
------------
Total current liabilities 1,088,000
------------
Commitments and Contingencies (Note 6)
Stockholders' equity:
Common stock - $.01 par value; 15,000,000 shares
authorized, 11,083,665 shares issued
and 10,982,056 shares outstanding 111,000
Capital in excess of par value 43,249,000
Accumulated deficit (31,741,000)
Accumulated other comprehensive loss (61,000)
------------
11,558,000
Less treasury stock, at cost, 101,609 shares (713,000)
------------
Total stockholders' equity 10,845,000
------------
$ 11,933,000
============
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE>
TRIMEDYNE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For The Year Ended September 30,
--------------------------------
1999 1998
---- ----
<S> <C> <C>
Net revenues $ 7,276,000 $ 6,985,000
Cost of goods sold 3,922,000 4,104,000
------------ -------------
Gross Profit 3,354,000 2,881,000
Selling, general and administrative expenses 3,776,000 5,225,000
Research and development expenses 3,809,000 4,141,000
------------ -------------
Loss from operations (4,231,000) (6,485,000)
Other income:
Gain on sale of patent -- 3,638,000
Interest income 315,000 180,000
Minority interest in consolidated subsidiary -- 118,000
Gain on settlement of claim 6,500,000 --
Other 166,000 11,000
------------ -------------
Net income (loss) $ 2,750,000 $ (2,538,000)
============ =============
Basic earnings (loss) per share $ 0.25 $ (0.23)
============ =============
Diluted earnings (loss) per share $ 0.25 $ (0.23)
============ =============
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE>
TRIMEDYNE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Capital In Other
Common Stock Excess of Accumulated Comprehensive Treasury
------------
Shares Amount Par Value Deficit Loss Stock Total
------ ------ --------- ------- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
September 30, 1997 11,007,565 $110,000 $43,017,000 $(31,953,000) $(23,000) $(713,000) $10,438,000
Unrealized loss on
securities available
for sale (2,000) (2,000)
Net loss for the
year (2,538,000) (2,538,000)
---------- -------- ----------- ------------ -------- --------- -----------
Comprehensive loss (2,538,000) (2,000) (2,540,000)
Value of stock
options issued
below fair value 93,000 93,000
---------- -------- ----------- ------------ -------- --------- -----------
Balance at
September 30, 1998 11,007,565 110,000 43,110,000 (34,491,000) (25,000) (713,000) 7,991,000
Unrealized loss on
securities
available for sale (36,000) (36,000)
Net income for the
year 2,750,000 2,750,000
---------- -------- ----------- ------------ -------- --------- -----------
Comprehensive
income (loss) 2,750,000 (36,000) 2,714,000
Exercise of stock
options 76,100 1,000 117,000 118,000
Value of stock
options issued
below fair value 22,000 22,000
---------- -------- ----------- ------------ -------- --------- -----------
Balance at
September 30, 1999 11,083,665 $111,000 $43,249,000 $(31,741,000) $(61,000) $(713,000) $10,845,000
========== ======== =========== ============ ======== ========= ===========
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE>
TRIMEDYNE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For The Year Ended September 30,
--------------------------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 2,750,000 $(2,538,000)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 137,000 305,000
Value of stock options issued below fair value 22,000 93,000
Minority interest in loss of subsidiary -- (118,000)
Loss on disposition of property and equipment -- 74,000
Changes in operating assets and liabilities:
(Increase) decrease in trade accounts receivable, net (548,000) 1,066,000
Decrease (increase) in inventories 52,000 (207,000)
Decrease in other current assets 74,000 15,000
Increase (decrease) in accounts payable 113,000 (368,000)
Decrease in accrued expenses (300,000) (585,000)
Increase in other current liabilities 17,000 6,000
----------- -----------
Net cash provided by (used in) operating activities 2,317,000 (2,257,000)
----------- -----------
Cash flows from investing activities:
Capital expenditures -- (99,000)
(Purchase) sale of marketable securities (1,197,000) 1,044,000
----------- -----------
Net cash (used in) provided by investing activities (1,197,000) 945,000
----------- -----------
Cash flows from financing activities -
Proceeds from exercise of stock options 118,000 --
Net increase (decrease) in cash and cash equivalents 1,238,000 (1,312,000)
----------- -----------
Cash and cash equivalents at beginning of year 1,974,000 3,286,000
----------- -----------
Cash and cash equivalents at end of year $ 3,212,000 $ 1,974,000
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
F-6
<PAGE>
TRIMEDYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. THE COMPANY:
Trimedyne, Inc. ("Trimedyne") and its subsidiary (collectively "the
Company") is engaged primarily in the research and development, manufacture and
sale of lasers and disposable laser devices in the medical field. The Company is
also engaged in the research and development of cardiovascular laser devices
through its 90% owned subsidiary, Cardiodyne, Inc. ("Cardiodyne"). The Company's
operations are primarily located in Southern California with distribution of its
products worldwide (Note 10).
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of presentation
The consolidated financial statements include the accounts of the
Company and its 90% owned subsidiary, Cardiodyne. All significant intercompany
accounts and transactions have been eliminated in consolidation.
At September 30, 1999, the Company had working capital of approximately
$10.4 million and had no long-term obligations. Management believes existing
working capital is sufficient to meet Trimedyne's operating needs for at least
the next 12 months. Management has implemented cost reductions at Trimedyne and
will seek additional financing to continue development of Cardiodyne's products
as its capital needs arise. There is no assurance that additional financing will
be available to the Company to expand development of Cardiodyne's products.
Reclassifications
Certain prior year items have been reclassified to conform with the
current year presentation.
Cash and cash equivalents
Cash in excess of requirements is principally invested in short-term
corporate and government obligations, money market funds and certificates of
deposit with a remaining maturity of three months or less. Such investments are
deemed to be cash equivalents.
Marketable securities
Marketable securities are accounted for under the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." The Company's short-term
investments consisted of marketable debt and equity securities, which were
classified as "available-for-sale" in accordance with the provisions of SFAS No.
115. Accordingly, such investments are presented as current assets and carried
at their estimated fair values in the accompanying consolidated financial
statements. Fair value was determined based on quoted market prices. The
specific identification method has been used to determine cost for each
security. Unrealized losses are excluded from net income (loss) and reported as
a separate component of shareholders' equity, net of the related tax effect and
as a component of comprehensive income (loss).
The amortized cost and fair market values of all marketable securities
at September 30, 1999 are as follows:
<TABLE>
<CAPTION>
Amortized
Securities available for sale Cost Basis Unrealized
(mature within three years) (plus interest) Fair Value Loss
------------------------- ------------- ---------- ----
<S> <C> <C> <C>
September 30, 1999
Commercial paper $2,231,000 $2,170,000 $(61,000)
</TABLE>
Inventories
Inventories consist of raw materials and component parts, and work in
process and finished good lasers and dispensing systems. Inventories are
recorded at the lower of cost or market, cost being determined on a first-in,
first-out ("FIFO") basis.
Use of estimates by management
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
F-7
<PAGE>
TRIMEDYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Significant estimates and assumptions include those made surrounding inventory
valuation, as well as allowances for doubtful accounts and deferred income tax
assets, losses for contingencies and certain accrued liabilities.
The Company's inventory largely relates to technologies which have yet
to gain wide spread market acceptance. Management currently believes no material
loss will be incurred on the disposition of its inventory. If wide-spread market
acceptance of the Company's products is not achieved, the carrying amount of
inventory could be materially impacted.
Depreciation and amortization
Depreciation of property and equipment is calculated on a straight-line
basis over the estimated useful lives of the assets ranging from three to ten
years. Leasehold improvements are amortized on a straight-line basis over the
lesser of the useful lives or the term of the lease.
Revenue Recognition
Revenues from sales of lasers and disposable laser devices are
recognized upon shipment of product. Shipments subject to customer acceptance
criteria are deferred until customer acceptance.
Deferred income consists of the unamortized portion of payments
received from customers for extended warranty contracts. Revenue earned under
these service contracts is recognized ratably over the life of the related
contract (typically one year).
Research and development costs
All research and development costs, including licensing costs, are
charged to expense as incurred. In accordance with this policy, all costs
associated with the design, development and testing of the Company's products
have been expensed as incurred.
Income taxes
The liability method of accounting for income taxes requires the
recognition of deferred tax liabilities and assets for expected future tax
consequences of temporary differences between the carrying amounts and tax bases
of assets and liabilities. Management provides a valuation allowance for
deferred tax assets when it is more likely than not that all or a portion of
such assets will not be recoverable based on future operations.
Accounting for stock-based compensation
The Company has not adopted a fair value-based method of accounting for
stock-based compensation plans for employees. The Company uses the intrinsic
value-based approach, supplemented by disclosure of the pro forma impact on
operations and per share information using the fair value-based approach (see
Note 7).
Impairment of long-lived assets
The Company accounts for impairment of long-lived assets under the
provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and Long-Lived Assets to Be Disposed Of." This statement requires that long-
lived assets and certain identifiable intangibles be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell. No significant impact on the Company's consolidated financial
position, results of operations or cash flows has been realized as a result of
this policy.
Per share information
Basic earnings (loss) per share is computed by dividing income (loss)
available to common shareholders by the weighted average common shares
outstanding plus the potential effect of dilutive securities which are
convertible to common shares such as options, warrants and preferred stock.
Potential common shares which consist of the incremental common shares issuable
upon the exercise of stock options using the treasury stock method, approximated
45,000 shares in fiscal 1999. Due to the net loss incurred in fiscal 1998, all
common stock equivalents outstanding were considered anti-dilutive and were
excluded from the calculations of diluted net loss per share. No adjustments
were made to net income (loss) attributable to common stock in the calculation
of basic or diluted income (loss) per share in fiscal 1999 or 1998.
F-8
<PAGE>
TRIMEDYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Anti-dilutive securities and common stock equivalents at September 30,
1999, which could be dilutive in future periods include common stock options to
purchase 501,000 shares of common stock.
Fair Value of Financial Instruments
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments,"
requires that the Company disclose estimated fair values for its financial
instruments. The carrying amount of cash and cash equivalents approximates fair
value because their maturity is generally less than three months. The fair value
of marketable securities classified as available-for-sale is based on quoted
market prices at the reporting date for those or similar investments. The
carrying amount of accounts receivable, accounts payable and accrued liabilities
approximates fair value.
Consolidated statements of cash flows
The Company made no cash payments for interest or income taxes in 1999
or 1998.
Comprehensive Income
In fiscal 1999, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income" ("SFAS 130"). This statement establishes standards for the
reporting and display of comprehensive income and its components. Comprehensive
income is defined as the change in equity of a business enterprise during a
period from transactions and other events and circumstances from non-owner
sources. The Company's only element of comprehensive income during fiscal 1999
and 1998 related to unrealized losses on marketable securities.
Segment Information
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131") which supersedes No. 14. This statement changes the
way that publicly-held companies report information about operating segments as
well as disclosures about products and services, geographic areas and major
customers. Operating segments are defined as revenue-producing components of the
enterprise, which are generally used internally for evaluating segment
performance. SFAS 131 was adopted for the Company's year ending September 30,
1999 and does not affect the Company's financial position or results of
operations.
NOTE 3. COMPOSITION OF CERTAIN BALANCE SHEET CAPTIONS:
<TABLE>
<CAPTION>
Inventories consist of the following at September 30, 1999:
1999
----
<S> <C>
Raw materials $1,558,000
Work-in-process 774,000
Finished goods 1,108,000
----------
$3,440,000
==========
Property and equipment, net consist of the following at September 30, 1999:
1999
----
Furniture and equipment $3,098,000
Leasehold improvements 331,000
Other 16,000
------------
3,445,000
Less accumulated depreciation and amortization (2,957,000)
------------
$ 488,000
============
Accrued expenses consist of the following at September 30, 1999:
1999
----
Professional fees $ 55,000
Commissions 116,000
Salaries, wages and benefits 265,000
Sales tax 50,000
Product Warranty 91,000
Other 57,000
------------
$ 634,000
============
</TABLE>
F-9
<PAGE>
TRIMEDYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. DEVELOPMENT SUPPLY AND LICENSE AGREEMENT WITH BARD
In June 1991, the Company entered into an agreement (the "Agreement")
granting worldwide rights to market the Company's side-firing laser devices in
the medical specialty fields of urology, gynecology and gastroenterology to C.R.
Bard, Inc. ("Bard"). Pursuant to the terms of the Agreement, (i) the Company
received a royalty amount (subject to certain specified volume adjustments) from
the unit sales price for the Company's products charged by Bard to its
customers, (ii) an additional 4% of the unit sales price was appropriated to an
escrow fund for reimbursing the Company for the future development of other
urological products or improvements to existing urological products, (iii) the
Company also received a monthly research and development allowance of $33,333
for the first twelve months of the agreement, and (iv) the cost of certain
future patent preparation and filing cost was borne by Bard. In addition, Bard
agreed to pay a portion of royalty and patent litigation costs relating to the
Company's lateral lasing device. Under the Agreement, no net revenues and no
royalties were earned from Bard during the periods presented. In addition, no
development costs related to urological applications were incurred during the
periods presented. During fiscal 1995, in management's opinion, Bard
discontinued fulfilling its obligations under the agreement. Accordingly, in
August 1997, the Company initiated litigation against Bard.
In August 1998, the United States District court for the District of
New Jersey denied Bard's motion for partial summary judgement. In November 1998,
the Company settled its lawsuit against Bard and received from Bard
approximately $6,500,000, after legal fees and other costs (See Note 6).
NOTE 5. INCOME TAXES:
The deferred income tax balances at September 30, 1999 are comprised as
follows:
September 30, 1999
------------------
Deferred income tax assets:
Net operating loss carry forwards $11,056,000
Research & development credits 3,076,000
Inventory obsolescence reserves 390,000
Accrued expenses 170,000
Account receivable reserves 249,000
Other 257,000
Valuation allowance (15,198,000)
-----------
-
===========
The valuation allowance for deferred tax assets decreased approximately
$902,000 and increased approximately $1,690,000 during the years ended September
30, 1999 and 1998, respectively. The 1998 increase primarily relates to
additional valuation allowance for net operating loss carry forwards and
research tax credits generated. The decrease in 1999 relates to the use of net
operating losses to offset taxable income. Due to the utilization of net
operating loss carry forwards, such assets of which were fully reserved, the
Company recorded no provision for income taxes in fiscal 1999.
In fiscal 1998, the difference between the tax benefit derived by using
the 34% Federal tax rate and the zero benefit recorded by the Company is due to
the Company providing a 100% valuation allowance against any deferred tax asset.
At September 30, 1999, the Company had net operating loss ("NOL")
carryforwards for Federal and California income tax purposes totaling
approximately $30 million and $8 million, respectively. Federal NOLs begin to
expire in 2008 and fully expire in 2019. California NOLs begin to expire in 2000
and fully expire in 2003. The Tax Reform Act of 1986 includes provisions which
may limit the net operating loss carry forwards available for use in any given
year if certain events occur, including significant changes in stock ownership.
NOTE 6. COMMITMENTS AND CONTINGENCIES:
Commitments
The Company is obligated under certain facility and equipment lease
agreements to make minimum rental payments, excluding taxes and common area
maintenance costs, for the years ending September 30 as follows:
F-10
<PAGE>
TRIMEDYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2000 $ 473,000
2001 393,000
2002 61,000
-----------
Total $ 927,000
===========
The lease on the Company's headquarters facility was renewed in
November 1998 and expires in June 2001. The Company's Cardiodyne facility lease
expires January 2002 and contains one thirty-six month renewal option.
Rent expense for the years ended September 30, 1999 and 1998 was
approximately $376,000 and $360,000, respectively.
Contingencies
On October 6, 1995, the Company filed a lawsuit against C.R. Bard Inc.
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. In November 1998, the Company
settled its lawsuit against Bard and in December 1998 received from Bard net
proceeds of approximately $6,500,000, after legal fees and other costs. During
1999, the co-inventor sued the Company seeking damages and a share of the
proceeds received from the settlement of the Bard suit.
The Company is subject to a limited number of 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 any of the Company's
existing and future litigation may adversely affect the Company. Management is
unaware of any matters which may have material impact on the Company's financial
position, results of operations or cash flows.
NOTE 7. STOCKHOLDERS' EQUITY:
Stock Options:
The Company has adopted stock option plans that authorize the granting
of options to key employees, directors, and/or consultants to purchase unissued
common stock subject to certain conditions, such as continued employment.
Options are generally granted at the fair market value of the Company's common
stock at the date of grant, become exercisable over a period of five years from
the date of grant, and expire in ten years. Forfeitures of stock options are
returned to the Company and become available for grant under the respective
plan.
Activity during the years ended September 30, 1999 and 1998 under the
plans was as follows:
<TABLE>
<CAPTION>
Stock Options Outstanding
Option Exercise Aggregate
Options Price Per Share Exercise Price
------- --------------- --------------
<S> <C> <C> <C>
September 30, 1997 1,120,184 1/100 - 6 7/8 $ 5,551,244
Granted 469,500 1 1/2 - 2 23/32 875,220
Exercised -- --
Canceled (179,040) 2 1/4 - 6 7/8 (1,033,564)
--------- -------------- ----------
September 30, 1998 1,410,644 1/100 - 6 7/8 $ 5,392,900
Granted 942,550 1 1/16 - 2 5/8 1,347,110
Exercised (76,100) 1 1/16 - 1 1/2 (113,276)
Canceled (974,010) 1/100 - 6 7/8 (4,101,772)
--------- -------------- ----------
September 30, 1999 1,303,084 1 1/16 - 6 5/8 $ 2,524,962
========= ==========
</TABLE>
F-11
<PAGE>
TRIMEDYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes information concerning outstanding and
exercisable options at September 30, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------- -------------------
Outstanding Weighted-Average Exercisable Weighted-
Range of as of Remaining Weighted-Average as of Average
Exercise Prices 9/30/1999 Contractual Life Exercise Price 9/30/1999 Exercise Price
-------------- --------- ---------------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
$0.00 - $1.65 1,022,450 7.6 $1.41 501,870 $1.49
$1.65 - $2.47 400 1.1 $2.37 400 $2.37
$2.47 - $3.30 81,334 4.8 $2.92 32,334 $2.96
$3.30 - $4.12 150,900 1.0 $3.55 147,300 $3.55
$4.12 - $4.95 5,000 3.0 $4.25 2,000 $4.25
$4.95 - $5.77 1,000 0.9 $5.50 1,000 $5.50
$5.77 - $6.60 10,000 2.5 $6.44 6,000 $6.44
$6.60 - $7.42 32,000 2.1 $6.63 22,000 $6.63
</TABLE>
As of September 30, 1999, the Company had 696,916 shares available for
grant under the above option plans. Of the shares previously granted and
outstanding at September 30, 1999, 712,904 shares were vested and exercisable at
prices ranging from $1.063 to $6.63 per share.
As stock options are generally granted at an exercise price equal to
the fair market value of the underlying stock at the date of grant, there are
generally no charges to income in connection with the issuance of stock options.
Upon exercise, proceeds from the sale of shares under the stock options plans
are credited to common stock and additional paid-in capital.
On December 8, 1998, the Board of Directors approved the exchange of
all outstanding Incentive Stock Options and Non-Qualified Stock Options held by
directors, officers and employees of the Company that were in excess of $1.50
per share for new options exercisable at $1.50 per share with the same vesting
periods. The closing price of the common stock on such date was $1.06 as
reported by the NASDAQ National Market System.
As discussed in Note 2, the Company is required to disclose the effects
on operations and per share data as if the Company had elected to use the fair
value approach to account for all of its employee stock-based compensation
plans. Had the compensation cost for the Company's plans been determined using
the fair value method, the compensation expense would have had the effects of
decreasing the Company's net income for the year ended September 30, 1999 to the
pro-forma amount of $1,958,000, and increasing the Company's net loss for the
year ended September 30, 1998 to the pro forma amount of $3,064,000 with a pro
forma net income (loss) per share of $0.18 and ($0.28), respectively. These pro
forma amounts were determined based upon the fair value of each option granted
during fiscal 1999 and 1998 on its grant date, using the Black-Scholes option-
pricing model. Assumptions of no dividend yield, a risk free interest rate which
approximates the Federal Reserve Board's rate for treasuries at the time
granted, an expected life of five years, and a volatility rate of approximately
100 percent were applied to all options granted. The weighted average fair value
at the grant date for the options granted during fiscal years 1999 and 1998 was
$1.43 and $1.13 per option, respectively.
Common stock issued and Expenditures on Behalf of Cardiodyne:
On October 30, 1996, the Company formed Cardiodyne, a development-stage
company. The Company invested $2,000,000 and transferred to Cardiodyne certain
equipment and supplies (valued at $117,000) and certain intellectual property
rights in exchange for 9,000,000 shares of Cardiodyne at a price of $0.24 per
share. The Company's chief executive officer purchased 500,000 shares of
Cardiodyne at the same average cost per share at the Company's then estimated
fair value of such common stock. Prior to February 11, 1997, Cardiodyne issued
options to purchase 725,000 shares of its common stock at an exercise price of
$0.24 per share, the then estimated fair value of the common stock. On February
11, 1997, Cardiodyne sold 500,000 shares to an unrelated party at $2.00 per
share, the then estimated fair value of such common stock. Subsequent to
February 11, 1997, Cardiodyne issued options to purchase 206,000 shares of its
common stock to certain employees at an exercise price of $0.24 per share. In
accordance with Accounting Principles Board Opinion No. 25, the Company recorded
compensation expense of $22,000 in fiscal 1999 and $93,000 in fiscal 1998 for
the difference between the fair value of the common stock at the date of grant
and the exercise price over the vesting period of five (5) years. In addition,
Cardiodyne issued options to purchase 564,500 shares of its common stock at an
exercise price of $2.00 subsequent to February 11, 1997. At September 30, 1999,
options to purchase 559,500 shares of common stock of Cardiodyne are
F-12
<PAGE>
TRIMEDYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
outstanding, of which options to purchase 249,566 shares of such common stock
are exercisable. These options vest over five (5) years and expire ten years
from the date of grant.
NOTE 8. EMPLOYEE BENEFIT PLAN:
Effective February 1, 1989, the Company adopted a 401(k) Retirement
Savings Plan (the "Retirement Plan"). Under the terms of the Retirement Plan,
employees may, subject to certain limitations, contribute up to 15% of their
total compensation. The Company contributes an additional $0.50 for each dollar
of employee contributions up to 4% of eligible employee compensation. Employees
become vested in the Company's contribution at 20% per year over five years. The
Company's annual contributions to the Retirement Plan totaled $64,000 for both
fiscal 1999 and 1998.
NOTE 9. RELATED PARTY TRANSACTIONS:
The Company has made payments of $56,000 and $55,000 in the fiscal
years ending 1999 and 1998, respectively, to the law firm of which a director of
the Company is a member. The Company has engaged in a consulting agreement for
annual payments of $33,000 with a director who is related to the Company's
Chairman and Chief Executive Officer.
The Company subleases space to a company controlled by the Company's
Chairman and Chief Executive Officer. The Company allocates expenses to said
company based on actual costs incurred. Such charges aggregated $56,000 and
$102,000 for the fiscal years 1999 and 1998, respectively. At September 30,
1999, the Company has a receivable from this related party amounting to
$202,000. Also see Note 6 for discussion of additional related party
transactions.
NOTE 10. CONCENTRATION OF CREDIT RISK
The Company generates revenues principally from sales of products in
the medical field. As a result, the Company's trade accounts receivable are
concentrated primarily in this industry. The Company had one domestic customer
that accounted for 11.3% of sales in fiscal 1999. No single customer represented
more than 10% of sales in fiscal 1998.
Sales in foreign countries in fiscal 1999 and 1998 accounted for
approximately 21% and 27% of the Company's total sales, respectively. The
breakdown by geographic region is as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Asia $ 267,000 $ 104,000
Latin America 53,000 243,000
Middle East 279,000 52,000
Europe 464,000 1,471,000
Other (Australia, New Zealand, South Africa) 465,000 15,000
---------- ----------
Total $1,528,000 $1,885,000
========== ==========
</TABLE>
The Company performs ongoing credit evaluations of its customers and
generally does not require collateral. The Company maintains reserves for
potential credit losses and such losses have been within management's
expectations.
F-13
<PAGE>
TRIMEDYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-8 (File No. 333-02027)
of Trimedyne, Inc. of our report dated November 15, 1999 appearing on page F-2
of this Form 10-KSB.
McKennon, Wilson & Morgan, LLP
Irvine, CA
November 30, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSOLIDATED BALANCE SHEET AND STATEMENTS OF OPERATIONS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 3,212
<SECURITIES> 2,170
<RECEIVABLES> 2,214
<ALLOWANCES> (581)
<INVENTORY> 3,440
<CURRENT-ASSETS> 11,445
<PP&E> 488
<DEPRECIATION> (2,957)
<TOTAL-ASSETS> 11,933
<CURRENT-LIABILITIES> 1,088
<BONDS> 0
0
0
<COMMON> 111
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 11,933
<SALES> 7,276
<TOTAL-REVENUES> 14,257
<CGS> 3,922
<TOTAL-COSTS> 11,507
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,231)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,231)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,750
<EPS-BASIC> .25
<EPS-DILUTED> .25
</TABLE>
