SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED COMMISSION FILE NUMBER
MARCH 31, 2002 0-10581
--------------------- ----------------------
TRIMEDYNE, INC.
(Exact name of Registrant as specified in its charter)
Nevada 36-3094439
(State or other jurisdiction (IRS Employer Identification Number)
of incorporation or organization)
15091 Bake Parkway, Irvine, CA 92618
(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.
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 March 31, 2002
---------------------------- ------------------------------------
Common Stock, $.01 par value 13,489,760 shares
TRIMEDYNE, INC.
Page Number
-----------
PART I. Financial Information 3
ITEM 1. Financial Statements 3
Consolidated Balance Sheet 3
Consolidated Statements of Operations and
Comprehensive Loss 4
Consolidated Statements of Cash Flows 4
Notes to Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. Other Information 9
SIGNATURE PAGE 10
TRIMEDYNE, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
ASSETS
March 31,
2002
-------------
Current assets:
Cash and cash equivalents $ 91,000
Trade accounts receivable, net of allowance for doubtful
accounts of $435,000 1,006,000
Inventories (Note 2) 2,678,000
Other Current Assets 70,000
-------------
Total current assets 3,845,000
Goodwill, net of accumulated amortization of $72,000 538,000
Net properties (Note 2) 650,000
Other Assets 65,000
-------------
$ 5,098,000
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,430,000
Accrued expenses 560,000
Deferred income 143,000
Notes Payable 64,000
Other current liabilities 107,000
-------------
Total current liabilities 2,304,000
Due to officer 150,000
-------------
Total liabilities 2,454,000
Stockholders' equity:
Preferred Stock - $10 par value; 1,000,000 shares authorized,
none issued or outstanding --
Common stock - $0.01 par value; 30,000,000 shares authorized,
13,591,369 shares issued, 13,489,760 shares outstanding 137,000
Capital in excess of par value 47,508,000
Accumulated deficit (44,288,000)
-------------
3,357,000
Less 101,609 shares of common stock in treasury, at cost (713,000)
-------------
Total stockholders' equity 2,644,000
-------------
$5,098,000
=============
See accompanying notes to consolidated financial statements
3
TRIMEDYNE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
Three Months Ended Six Months Ended
March 31, March 31,
2001 2002 2001 2002
------------ ------------ ------------ ------------
(as restated) (as restated)
Net revenues.................................... $ 1,978,000 $ 1,675,000 $ 3,615,000 $ 3,512,000
Cost of revenues 1,571,000 787,000 3,015,000 1,712,000
------------ ------------ ------------ ------------
Gross profit 407,000 888,000 600,000 1,800,000
Operating expenses:
Selling, general and administrative 1,367,000 747,000 2,696,000 1,475,000
Research and development 542,000 393,000 1,334,000 788,000
------------ ------------ ------------ ------------
Total costs and operating expenses 1,909,000 1,140,000 4,030,000 2,263,000
------------ ------------ ------------ ------------
Loss from operations (1,502,000) (252,000) (3,430,000) (463,000)
Other income (expense) (161,000) 2,000 (741,000) 100,000
------------ ------------ ------------ ------------
Net Loss (1,663,000) (250,000) (4,171,000) (363,000)
Other Comprehensive Loss:
Unrealized loss on marketable securities...... (739,000) -- (745,000) --
Comprehensive Loss.............................. $(2,402,000) $ (250,000) (4,916,000) (363,000)
============ ============ ============ ============
Basic and diluted loss per common share $ (0.19) $ (0.02) $ (0.40) $ (0.03)
============ ============ ============ ============
Weighted average number of shares outstanding 12,447,811 13,489,760 12,274,228 13,489,760
============ ============ ============ ============
See accompanying notes to consolidated financial statements.
4
TRIMEDYNE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
Six Months Ended
March 31,
2001 2002
------------ ------------
Cash flows from operating activities:
Net Loss $(4,171,000) $ (363,000)
Adjustment to reconcile net loss to net cash
(used in) operating activities:
Depreciation and amortization 92,000 124,000
Impairment of inventory 438,000 --
Fair value of make up shares issued 660,000 --
Fair value of modification of options granted -- 25,000
Gain on sale of fixed assets -- (17,000)
Changes in operating assets and liabilities:
(Increase) decrease in trade accounts receivable (454,000) 235,000
(Increase) decrease in inventories (75,000) 186,000
(Increase) decrease in other current assets (55,000) 136,000
Increase (decrease) in accounts payable 1,176,000 (346,000)
Increase (decrease) in accrued expense 12,000 (243,000)
Increase (decrease) in other liabilities
Increase in other current liabilities -- 96,000
Increase (decrease) in deferred income (3,000) 24,000
------------ ------------
Net cash used in operating activities (2,380,000) (143,000)
Cash flows from investing activities:
(Purchases) sales of fixed assets (170,000) 35,000
Sale of marketable securities 2,232,000 --
Acquisition of MST, net of cash received (1,000) --
------------ ------------
Net cash provided by investing activities 2,061,000 35,000
Cash flows from financing activities:
Payments on long-term obligations (104,000) (35,000)
Loan from officer -- 150,000
Proceeds from exercise of stock options 20,000 --
------------ ------------
Net cash provided by (used in) financing activities (84,000) 115,000
------------ ------------
Net increase in cash and cash equivalents (403,000) 7,000
Cash and cash equivalents at beginning of period 466,000 84,000
------------ ------------
Cash and cash equivalents at end of period $ 63,000 $ 91,000
============ ============
Non-cash investing and financing activities:
Common stock issued for acquisition of MST $ 775,000 $ --
============ ============
TRIMEDYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2002
(UNAUDITED)
NOTE 1 - Basis of Presentation
In the opinion of management, the accompanying condensed consolidated financial
statements contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the Company's consolidated financial
position as of March 31, 2002 and the results of operations and of cash flows
for the three and six-month periods ended March 31, 2001 and 2002. Results for
the six months ended March 31, 2002 are not necessarily indicative of the
results to be expected for the year ending September 30, 2002.
While management believes that the disclosures presented are adequate to make
the information not misleading, it is suggested that these 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-KSB.
The Company has incurred losses from operations throughout its recent past. At
March 31, 2002, the Company had working capital of approximately $1.5 million,
and excluding inventories, the Company's current liabilities exceed the current
liquid assets by $1,137,000. In addition, the Company's trade payables are
significantly past due. These factors raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans with
respect to these matters include efforts to reduce certain of its expenses by
eliminating certain personnel positions, reducing certain overhead costs, and
raising additional capital. Sources of additional financing include the sale of
debt or equity securities of the Company, the sale of Cardiodyne and/or the sale
or licensing of certain patent rights. There is no assurance that additional
capital will be raised or obtained by the Company. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
The Company is required to have its quarterly condensed, consolidated financial
statements for the three months ended March 31, 2002, reviewed by its
independent accountants prior to filing. As of the date of this report, our
independent accountants were unable to complete their review of these financial
statements because of certain inventory discrepancies. Management is currently
investigating the matter. Management will file an amendment to this Form 10-QSB
when they are able to provide their independent accountants the information
required complete their review of these consolidated financial statements.
Restatement of Consolidated Interim Financial Statements
The Company restated its consolidated financial statements for the three and six
months ended December 31, 2000 and March 31, 2001, respectively, to comply with
accounting standards generally accepted in the United States. The effects of the
Company's restatement on their results of operations for the three and six
months ended December 31, 2000 and March 31, 2001, respectively, are as follows:
Three Months ended Six Months Ended
March 31, 2001 March 31, 2001
----------------------- ----------------------
Net Loss Net Loss
Net Loss Per Share Net Loss Per Share
Net loss, as previously presented $(1,074,000) $(0.09) $(2,215,000) $(0.18)
Reversal of sale -- -- (120,000) (0.01)
Physical inventory and overhead
adjustments (589,000) (0.04) (1,176,000) (0.10)
Fair value of "make-up" shares
issued -- -- (660,000) (0.05)
---------- ----- ---------- -----
Net loss, as adjusted $(1,663,000) $(0.13) $(4,171,000) $(0.34)
========== ===== ========== =====
During the three months ended December 31, 2000, the Company reversed sales and
the related costs totaling $120,000 because the sales did not meet its revenue
recognition criteria. The Company recorded an additional charge to cost of sales
of $219,000 and $368,000 for a provision of excess and obsolete inventories and
excess capitalized overhead costs, respectively. The Company recorded a charge
to operations totaling $660,000 for the value of "make-up" shares of common
stock issued pursuant to an anti-dilution clause related to the private
placement in fiscal 2000, which was triggered by the acquisition of MST. During
the three months ended March 31, 2001, the Company recorded an additional charge
to cost of sales of $219,000 and $370,000 for a provision of excess and obsolete
inventories and excess capitalized overhead costs, respectively. Management
believes the bases used for reporting these charges to operations constitute
errors requiring restatement of effects of such charges on operations during the
six months ended March 31, 2001.
Accounting Change
Effective the beginning of the first quarter of 2002, the Company completed the
adoption of Statement of Financial Accounting Standards (SFAS) No. 141,
"Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 141 requires all business combinations initiated after June
30, 2001 to be accounted for using the purchase method of accounting. As
required by SFAS No. 142, the company discontinued amortizing the remaining
balances of goodwill as of the beginning of fiscal 2002. All remaining and
future acquired goodwill will be subject to impairment tests annually, or
earlier if indicators of potential impairment exist, using a fair-value-based
approach. In conjunction with the implementation of SFAS No. 142, the company
has completed a goodwill impairment review as of the beginning of 2002 and found
no impairment.
NOTE 2 - Balance Sheet Items
Inventories consist of the following:
March 31, 2002
----------------
Raw material $ 893,000
Work-in-process 645,000
Finished goods 1,140,000
------------
Total inventory $ 2,678,000
============
Net properties consist of the following:
Furniture and equipment $ 3,270,000
Leasehold improvements 272,000
Other 98,000
------------
Total Properties 3,640,000
Accumulated depreciation (2,990,000)
------------
Net properties $ 650,000
============
NOTE 3 - Earnings Per Share Information
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 stock options would be antidilutive.
Basic and diluted EPS do not differ from earnings per share previously
presented.
NOTE 4 - Acquisition of Subsidiary
On November 30, 2000, the Company acquired 100% of Mobile Surgical Technologies,
Inc. ("MST"), a Dallas, TX based company that provides medical lasers and other
equipment to hospitals and surgery centers on a "per case" rental basis, for
500,000 shares of Trimedyne common stock valued at $775,000. Direct acquisition
costs consisting of legal and accounting fees totaled $17,000. The Company
recorded goodwill of $666,000 resulting from the transaction, which will be
amortized on a straight-line basis over ten years. During the three months ended
December 31, 2001, amortization expense was $21,763.
NOTE 5 - Contingencies
The Company elected not to pay the minimum quarterly royalty for the quarter
ended September 30, 2000, under a patent license in urology from Lumenis, Inc.
("Lumenis"), as sales of products covered by the license were insignificant. The
license, by its terms, terminated on September 30, 2000, due to said
non-payment, and the Company ceased marketing products covered by the license.
In January 2002, Lumenis filed a lawsuit against the Company in the Federal
District Court for the Central District of California in Los Angeles, alleging
the Company contributed to customers' infringing Lumenis' patents. The Company
believes the lawsuit is entirely without merit and will be rigorously defended.
The Company also intends to file counterclaims against Lumenis, including claims
alleging violation of the anti-trust laws, price fixing, trade libel, patent
misuse and that Lumenis infringed two the of Company's patents.
In the ordinary course of business, the Company is from time to time involved in
various pending or threatened legal actions from vendors. The litigation process
is inherently uncertain and it is possible that the resolution of such matters
might have a material adverse effect upon the financial condition and/or results
of operations of the Company. However, in the opinion of the Company's
management, matters currently pending or threatened against the Company are not
expected to have a material adverse effect on the financial position, results of
operations or cash flows of the Company.
NOTE 6 - Other Income (Expense)
During the six months ended March 31, 2002, the Company received a reimbursement
of legal fees of $51,000 related to the successful defense of the litigation
brought on by the co- inventor of the Company's Urolase product. Additionally,
the Company reversed approximately $30,000 in accruals related to a prior
period.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
RESULTS OF OPERATIONS
The statements contained in this Quarterly Report on Form 10-QSB that are not
historical facts may contain forward-looking statements that involve a number of
known and unknown risks and uncertainties that could cause actual results to
differ materially from those discussed or anticipated by management. Potential
risks and uncertainties include, among other factors, general business
conditions, government regulations governing medical device approvals and
manufacturing practices, competitive market conditions, success of the Company's
business strategy, delay of orders, changes in the mix of products sold,
availability of suppliers, concentration of sales in markets and to certain
customers, changes in manufacturing efficiencies, development and introduction
of new products, fluctuations in margins, timing of significant orders, and
other risks and uncertainties currently unknown to management.
Method of Presentation
The consolidated financial statements include the accounts of the Company, its
wholly owned subsidiary Mobile Surgical Technologies, Inc. ("MST") from the date
of acquisition, November 30, 2000 and its 90% owned subsidiary, Cardiodyne, Inc.
("Cardiodyne").
Quarter ended March 31, 2002 compared to quarter ended March 31, 2001.
During the quarter ended March 31, 2002, Trimedyne's net revenues decreased
$303,000 or 15% from the same quarter of the previous year, $1,978,000 vs.
$1,675,000. Net sales from lasers decreased by $48,000 or 9% from $540,000 in
the prior year quarter to $492,000 in the current quarter. Net sales from
delivery and disposable devices decreased by $64,000 or 7% from $848,000 to
$784,000 for the same quarters. Net sales from service and rental decreased by
$198,000 or 34% from $581,000 to $383,000 for the same quarters. The decrease is
due to the departure of a major participant in the revenue share program.
Additionally, the acquisition of MST contributed approximately $183,000 in the
current quarter compared to $165,000 in the prior year quarter.
Cost of goods sold was 47% of net sales in the second quarter of fiscal 2002
compared to 79% for the second quarter of fiscal 2001. The decrease in cost of
goods sold as a percentage of revenues was primarily the result of increases in
costs of sales in the second quarter 2001 for provisions of excess and obsolete
inventories totaling $219,000 and a charge for excess capitalized overhead costs
totaling $370,000.
Selling, general and administrative expenses decreased from $1,367,000 to
$747,000, a decrease of $620,000 or 45%. The decrease in selling, general and
administrative expenses is primarily attributed to cost containment measures
including employee layoffs of $428,000, including two executives and reductions
in advertising and marketing of approximately $108,000.
Research and development expenditures for the quarter ended March 31, 2002,
decreased $149,000 or 27% to $393,000 from $542,000. The decrease is primarily
attributed to the Company reducing its product development efforts.
Other expense decreased by $163,000 or 101% from $161,000 in the second quarter
of fiscal 2001, which included a loss on investments of $191,00, to other income
of $2,000 in the second quarter of 2002. All investments were sold in fiscal
2001.
The net loss for the current quarter was $250,000 or $0.02 per share, a
reduction of 85% from the net loss for the same quarter of the prior year of
$1,663,000 or $0.13 per share, which included charges and adjustments of
$589,000 or $0.04 per share.
Six months ended March 31, 2002 compared to six months ended March 31, 2001.
During the six months ended March 31, 2002, Trimedyne's net revenues decreased
$103,000 or 3% from the same period of the previous year, $3,615,000 vs.
$3,512,000. Net sales from lasers decreased by $59,000 or 5% from $1,181,000 in
the prior year to $1,122,000 in the current six month period. Net sales from
delivery and disposable devices decreased by $137,000 or 8% from $1,743,000 to
$1,606,000 for the six-month periods ending 2001 and 2002, respectively. Net
sales from service and rental decreased by $55,000 or 34% from $848,000 to
$793,000 for the six-month periods ending 2001 and 2002, respectively. The
decrease is due to the departure of a major participant in the revenue share
program. Additionally, the acquisition of MST contributed approximately $356,000
in the current six-month period compared to $221,000 in the prior year six-month
period.
Cost of goods sold was 47% of net sales in the six months ended March 31, 2002
compared to 79% for the six months ended March 2001. The decrease in cost of
goods sold as a percentage of revenues was primarily the result of increases in
costs of sales in the six months ended March 31, 2001 for provisions of excess
and obsolete inventories totaling $219,000 and a charge for excess capitalized
overhead costs totaling $368,000 in the first quarter ending December 31, 2000
and $219,000 and a charge for excess capitalized overhead costs totaling
$370,000 in the second quarter ending March 31, 2001
Selling, general and administrative expenses decreased from $2,696,000 to
$1,475,000, a decrease of $1,221,000 or 45%. The decrease in selling, general
and administrative expenses is primarily attributed to cost containment measures
including employee layoffs representing reductions of approximately $595,000,
reductions in advertising and marketing of approximately $173,000, and reduction
of legal fees of $237,000 resulting from the settlement of Bard legal case.
Research and development expenditures for the six months ended March 31, 2002,
decreased $546,000 or 27% to $788,000 from $1,334,000. The decrease is primarily
attributed to the Company reducing its product development efforts employee
attrition.
Other expense decreased by $841,000 or 113% from expense of $741,000 in the
six-month period of fiscal 2001, which included $660,000 charge for the value of
"make-up" shares of common stock issued pursuant to an anti-dilution clause
related to the private placement in fiscal 2000 triggered by the aquisition of
MST, to income of $100,000 in the six-month period of 2002. Income in the
current six-month period includes approximately $51,000 in proceeds from the
successful defense against the co-inventor of the Company's Urolase(R) product,
who was seeking a share of the proceeds of the lawsuit which the Company brought
against C.R. Bard, $17,000 for the sale of fixed assets.
The net loss for the six months ended March 31, 2002 was $363,000 or $0.03 per
share, a reduction of 91% from the net loss for the same quarter of the prior
year of $4,171,000 or $0.34 per share, which included charges and adjustments of
$1,956,000 or $0.16 per share.
Liquidity and Capital Resources
-------------------------------
The Company's working capital decreased from $1,622,000 at September 30, 2001 to
$1,541,000 at March 31, 2002. Cash and cash equivalents increased by $7,000 to
$91,000 at March 31, 2002, from $84,000 at September 30, 2001.
During the six-month period ended March 31, 2002, net cash used in operating
activities was $143,000 which resulted principally from losses incurred of
$363,000, offset by non-cash adjustments for depreciation and amortization of
$124,000 and a charge of $25,000 from the modification of certain stock option
grants.
Net cash provided by investing activities during the current six-month period
was $35,000 from the sale of fixed assets.
Net cash provided from financing activities during the six-month period ending
March 31, 2002, was $115,000, which included a loan of $150,000 from the chief
executive officer offset by payments on long-term obligations totaling
approximately $35,000.
The Company is required to have its quarterly condensed, consolidated financial
statements for the three months ended March 31, 2002, reviewed by its
independent accountants prior to filing. As of the date of this report, our
independent accountants were unable to complete their review of these financial
statements because of certain inventory discrepancies. Management is currently
investigating the matter. Management will file an amendment to this Form 10-QSB
when they are able to provide their independent accountants the information
required complete their review of these consolidated financial statements.
Going Concern
The Company has incurred losses from operations throughout its recent past.
Because of the Company's losses during 2001, the Company's liquid assets
declined dramatically and trade payables have become significantly past due.
These factors raise substantial doubt about the Company's ability to continue as
a going concern. Management's plans with respect to these matters include
efforts to reduce certain of its expenses (personnel and overhead) and raising
additional capital. Sources of additional financing include the sale of equity
securities of the Company, the sale of Cardiodyne and/or the sale or licensing
of certain patent rights. There are no assurances that additional capital will
be raised or obtained by the Company. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
Part II
Other Information
Item 1. Legal Proceedings Previously reported.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities None
Item 4. Submission of Matters to Vote of Security Holders
None
Item 5. Other Information None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
TRIMEDYNE, INC.
Date: February 19, 2002 /s/ Marvin P. Loeb
--------------------------- ------------------------------------
Marvin P. Loeb
President and
Chief Executive Officer
Date: February 19, 2002 /s/ Jeffrey S. Rudner
---------------------------- --------------------------------------
Jeffrey S. Rudner
Controller