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
June 30, 2003 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)
(949/951-3800)
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal
year, if changed since last report).
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [_]
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the last practicable date.
Class Outstanding at August 19, 2003
---------------------------- ------------------------------------
Common Stock, $.01 par value 13,729,760 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 5
Notes to Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
ITEM 3. Controls and Procedures 13
PART II. Other Information 14
SIGNATURE PAGE 15
CERTIFICATIONS 16
2
TRIMEDYNE, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
ASSETS
June 30,
2003
-------------
Current assets:
Cash and cash equivalents $ 1,300,000
Trade accounts receivable, net of allowance for doubtful
accounts of $84,000 532,000
Inventories (Note 2) 1,500,000
Other (Note 2) 242,000
-------------
Total current assets 3,574,000
-------------
Goodwill (Note 3) 544,000
Other assets 51,000
Property and equipment, net (Note 2) 489,000
-------------
$ 4,658,000
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 751,000
Accrued expenses (Note 2) 543,000
Accrued compensation 250,000
Deferred revenue 135,000
Current portion of capital lease obligation 4,000
-------------
Total current liabilities 1,683,000
Senior convertible secured notes due to officer (Note 4) 200,000
Capital lease obligation, net of current portion 7,000
-------------
Total liabilities 1,890,000
Commitments and contingencies (Note 6) --
Stockholders' equity:
Preferred stock - $0.01 per share, 1,000,000 shares
authorized, none outstanding
Common stock - $0.01 par value; 30,000,000 shares
authorized, 13,891,369 shares issued, 13,729,760
shares outstanding 139,000
Capital in excess of par value 47,655,000
Accumulated deficit (44,313,000)
-------------
3,481,000
Less 101,609 shares of common stock in treasury, at cost (713,000)
-------------
Total stockholders' equity 2,768,000
-------------
$ 4,658,000
=============
See accompanying notes to consolidated financial statements
3
TRIMEDYNE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
Three Months Ended Nine Months Ended
June 30, June 30,
2003 2002 2003 2002
------------- ------------- ------------- -------------
Net revenues $ 1,497,000 $ 1,896,000 $ 4,835,000 $ 5,408,000
Cost of revenues 644,000 935,000 2,333,000 2,971,000
------------- ------------- ------------- -------------
Gross profit 853,000 961,000 2,502,000 2,437,000
Operating expenses:
Selling, general and administrative 486,000 928,000 1,541,000 2,479,000
Research and development 24,000 348,000 127,000 1,136,000
------------- ------------- ------------- -------------
Total operating expenses 510,000 1,276,000 1,668,000 3,615,000
------------- ------------- ------------- -------------
Income (loss) from operations 343,000 (315,000) 834,000 (1,178,000)
Other income 5,000 28,000 37,000 128,000
------------- ------------- ------------- -------------
Income (loss) before income taxes 348,000 (287,000) 871,000 (1,050,000)
Provision for income taxes 17,000 -- 43,000 --
------------- ------------- ------------- -------------
Net income (loss) 331,000 (287,000) 828,000 (1,050,000)
Other comprehensive income (loss)
None -- -- -- --
------------- ------------- ------------- -------------
Comprehensive income (loss) $ 331,000 $ (287,000) $ 828,000 $(1,050,000)
============= ============= ============= ============
Basic and diluted income (loss) per common share $ 0.02 $ (0.02) $ 0.06 $ (0.08)
============= ============= ============= ============
Weighted average number of shares outstanding 13,729,760 13,614,760 13,729,760 13,531,510
============= ============= ============= ============
See accompanying notes to consolidated financial statements.
4
TRIMEDYNE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
June 30,
2003 2002
------------ -----------
Cash flows from operating activities:
Net income (loss) $ 828,000 $ (1,050,000)
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization (Note 3) 80,000 202,000
Stock-based compensation --- 173,000
Gain on sale of fixed assets -- (37,000)
Changes in operating assets and liabilities:
Decrease in trade accounts receivable 69,000 191,000
Decrease in inventories 361,000 774,000
(Increase) decrease in other current assets (126,000) 29,000
(Decrease) in accounts payable (273,000) (272,000)
Increase (decrease) in accrued expenses 51,000 (10,000)
Increase (decrease) in accrued compensation 67,000 (65,000)
(Decrease) increase in deferred revenue (37,000) 38,000
(Decrease) in other current liabilities (27,000) (85,000)
------------ -----------
Net cash provided by (used in) operating activities 993,000 (112,000)
Cash flows from investing activities:
Proceeds from sale of fixed assets -- 37,000
Purchase of fixed assets (10,000) --
------------ -----------
Net cash (used in) provided by investing activities (10,000) 37,000
Cash flows from financing activities:
Payments on notes payable -- (35,000)
Proceeds from senior convertible notes due to officer -- 200,000
------------ -----------
Net cash provided by financing activities -- 165,000
------------ -----------
Net increase in cash and cash equivalents 983,000 90,000
Cash and cash equivalents at beginning of period 317,000 84,000
------------ -----------
Cash and cash equivalents at end of period $ 1,300,000 $ 174,000
============ ============
Non-cash investing and financing activities:
Fixed assets aqcuired under capital lease obligation $ 7,000 $ --
============ ============
See accompanying notes to consolidated financial statements
5
TRIMEDYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2003
(UNAUDITED)
NOTE 1 - Basis of Presentation
The accompanying consolidated financial statements are unaudited.
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 June 30, 2003 and the results of operations and cash flows for
the three and nine-month periods ended June 30, 2003 and 2002. Results for the
three and nine-months ended June 30, 2003 are not necessarily indicative of the
results to be expected for the year ending September 30, 2003.
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 our 2002 Annual Report on Form 10-KSB.
Recent Accounting Pronouncements
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity, ("SFAS No.
150"). SFAS No. 150 establishes standards for how an issuer classifies and
measurers in its statement of financial position certain financial instruments
with characteristics of both liabilities and equity. In accordance with SFAS No.
150, financial instruments that embody obligations for the issuer are required
to be classified as liabilities. SFAS No. 150 shall be effective for financial
instruments entered into or modified after May 31, 2003, and otherwise shall be
effective at the beginning of the first interim period beginning after June 15,
2003. The Company is currently assessing the impact of SFAS No. 150.
In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities ("FIN 46"). FIN 46 clarifies the application of
Accounting Research Bulletin No. 51 for certain entities in which equity
investors do not have the characteristics of a controlling financial interest or
do not have sufficient equity at risk for the entity to finance its activities
without additional subordinated financial support from other parties. FIN 46
applies to variable interest entities created after January 31, 2003, and to
variable interest entities in which an enterprise obtains an interest after that
date. The Company believes that the adoption of the disclosure provisions of
this statement will not have a material effect on its financial position or
results of operations.
In December 2002, the FASB issued SFAS No. 148, "accounting for Stock-Based
Compensation-Transition and Disclosure", an amendment to SFAS No. 123,
"Accounting for Stock-Based Compensation" and APB Opinion No. 28, "Interim
Financial Reporting". SFAS No. 148 provides for alternative methods of
transition for an entity that voluntarily changes to the fair value based method
of accounting for stock-based employee compensation. In addition, SFAS No. 148
amends the disclosure provision of SFAS No. 123 to require prominent disclosure
about the effects on reported net income of an entity's accounting policy
decisions with respect to stock-based employee compensation; and amends APB
Opinion No. 28 to require disclosure about those effects in interim financial
information. Provisions of SFAS No. 148 relating to amendments to SFAS No. 123
are effective for financial statements for fiscal years ending after December
31, 2002. Provisions of SFAS No. 148 relating to amending APB Opinion No. 28 are
effective for financial reports for interim periods beginning after December 15,
2002. In January 2003, the Company adopted the disclosure requirements of SFAS
No. 148. The Company believes that the adoption of the disclosure provisions of
this statement will not have a material effect on its financial position or
results of operations.
In November 2002, the FASB issued Interpretation No. 45, Guarantors' Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others ("FIN 45"). FIN 45 elaborates on the existing disclosure
requirements for most guarantees, including loan guarantees such as standby
letters of credit. It also requires that at all times when a company issues a
guarantee, it must recognize an initial liability for the fair market value of
the obligations it assumes under that guarantee and must disclose that
information in its interim and annual financial statements. The initial
recognition and measurement provisions of FIN 45 apply on a prospective basis to
guarantees issued or modified after December 31, 2002. The adoption of this
requirement has not had a material effect on its financial position or results
of operations. The Company's accrued warranties are recorded in accordance with
FIN 45.
6
Management's Plans
The Company has incurred losses from operations throughout its recent history;
however, it achieved profitability during the three and nine-month periods ended
June 30, 2003 and generated approximately $993,000 of cash from operations. At
June 30, 2003, Trimedyne had $1,300,000 in cash and working capital of $1.9
million. The achievement of earnings and cash flows was primarily due to cost
containment measures implemented by management.
Management plans to maintain earnings by continuing to control costs. Management
will focus on the development of new products and increasing sales and marketing
activities. These activities which will require some existing and additional
financial resources, as well as profits from future operations. Management has
contracted with a financial consulting firm to assist the Company with its fund
raising efforts. Management is also seeking marketing alliances with established
companies to distribute certain of its products. Management intends to monitor
its financial resources to ensure they can service Trimedyne's obligations in
the normal course of business.
NOTE 2 - Balance Sheet Items
Inventories consist of the following:
June 30,
2003
------------
Raw material $ 935,000
Work-in-process 378,000
Finished goods 187,000
------------
Total inventory $ 1,500,000
============
Other current assets consist of the following:
Deposits $ 44,000
Prepaid insurance 162,000
Prepaid other 36,000
-----------
Total other current assets 242,000
===========
Property and equipment consist of the following:
Furniture and equipment $ 2,294,000
Leasehold improvements 218,000
Other 114,000
------------
2,626,000
Less accumulated depreciation and amortization (2,137,000)
------------
Total property and equipment $ 489,000
============
Accrued expenses consist of the following:
Insurance 131,000
Sales and use tax 113,000
Royalties 88,000
Warranties 46,000
Income tax 43,000
Interest 32,000
Customer deposits 20,000
Commissions 15,000
Sublease deposit 15,000
Other 40,000
------------
Total accrued expenses $ 543,000
============
NOTE 3 - Intangible Assets
On October 1, 2002, the Company adopted SFAS 142 "Goodwill and Other Intangible
Assets." Management believes the intangible assets relate primarily to goodwill
and no adjustment was made to the previous classification. Management reviews
for impairment annually. No impairment charges are required based on future
undiscounted cash flows. Had goodwill not been amortized during the comparable
periods in 2002, the Company's loss for the three and nine month periods ended
June 30, 2002 would have been reduced by $27,000 and $49,000 respectively. For
the three month period ended June 30, 2002, the net loss would have been
$260,000 or $0.02 per share. For the nine month period ended June 30, 2002, the
net loss would have been $1,001,000 or $0.07 per share.
7
NOTE 4 - Senior Convertible Secured Notes Due to Officer
During fiscal 2002, the Company sold two 12% Senior Convertible Secured Notes
(the "Convertible Notes") to its chief executive totaling $200,000. The
Convertible Notes sold in the amount of $150,000 and $50,000 bear interest at
12%, per annum, payable annually on December 31 through December 31, 2006, with
a maturity date of February 27 and April 15, 2007, respectively, and are
convertible into common stock, based on $0.40 per share and $0.50 per share (the
"Conversion Price"), respectively. The Convertible Notes are secured by
substantially all the Company's assets. The Convertible Notes are subject to
reduction if the Company issues or sells any shares of its common stock for a
consideration per share less than the Conversion Price at which the Conversion
Price will be reduced to the price at which the shares of common stock were
sold. However, no later sale of common stock at a price higher than the
Conversion Price shall cause the Conversion Price to be increased. No additional
notes have been issued by Trimedyne.
NOTE 5 - 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 6 - Commitments and Contingencies
Litigation
Trimedyne is currently a defendant and counterclaimant in Lumenis, Inc. v.
Trimedyne, Inc. The plaintiff alleges that Trimedyne has infringed on two of
Lumenis' patents. Trimedyne has filed an answer to Lumenis' complaint and also
filed counterclaims against Lumenis alleging Lumenis' infringement of two of the
Company's patents, unfair business practices, libel and anti-trust violations.
There have been settlement discussions, but no settlement has been reached. The
Company intends to vigorously defend this litigation and pursue its counterclaim
against Lumenis. No provision for loss has been recorded since the matter is in
its infancy stages and the probable outcome is not known.
Product liability
Trimedyne is currently a defendant in two product liability lawsuits. These
cases relate to injuries that occurred in connection with medical procedures in
which Trimedyne's lasers were used. Both of these cases are currently in
litigation. Trimedyne has insurance to cover product liability claims. This
insurance provides Trimedyne with $10,000,000 of coverage for each occurrence.
Trimedyne's liability is limited to a maximum of $50,000 per occurrence unless
the judgment against Trimedyne exceeds the insurance coverage. In such case,
Trimedyne would be liable for any liability in excess of $10,000,000. Management
has recorded a provision for these claims in the amount of $100,000 ($50,000 for
each claim), based on the deductible under the insurance policy.
In the ordinary course of business, Trimedyne, Inc. is from time to time
involved in various pending or threatened legal actions. 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 Trimedyne. However, in the opinion of management, matters
currently pending or threatened against Trimedyne, as discussed above, are not
expected to have a material adverse effect on its financial position, results of
operations or cash flows.
NOTE 7 - Other Income (Expense)
During the nine months ended June 30, 2003, Trimedyne received an insurance
settlement of $19,000. Income of $128,000 in the prior year nine-month period
included approximately $51,000 in proceeds from the successful settlement of a
lawsuit filed by the co-inventor of the Company's Urolase(R) product, who was
seeking a share of the settlement of the lawsuit which Trimedyne brought against
C.R. Bard, and $37,000 from the sale of fixed assets.
8
NOTE 8 - Segment Information
The revenue base of Trimedyne is derived from the sales of medical products and
services. Products consist of lasers, and related products such as disposable
systems and component parts. Services consist of rentals, fees on a per-case
basis, as well as service and warranty repairs and maintenance. Data with
respect to these operating activities for the three and nine months ended June
30, 2003 (unaudited) and June 30, 2002 (unaudited) are as follows:
For the quarter ended June 30, 2003 For the quarter ended June 30, 2002
Service and Service and
Products Rental Total Products Rental Total
---------------------------------------- ------------------------------------------
Revenue $ 1,120,000 $ 377,000 $ 1,497,000 $ 1,616,000 $ 280,000 $ 1,896,000
Cost of sales 419,000 225,000 644,000 784,000 151,000 935,000
---------------------------------------- ------------------------------------------
Gross Profit 701,000 152,000 853,000 832,000 129,000 961,000
Expenses:
Selling, general and
administrative 355,000 131,000 486,000 658,000 270,000 928,000
Research and Development 24,000 -- 24,000 348,000 -- 348,000
--------------------------------------- -----------------------------------------
Income from operations $ 322,000 $ 21,000 $ 343,000 $ (174,000) $ (141,000) $ (315,000)
========================= ==========================
Other income 5,000 28,000
Income taxes (17,000) --
----------- ----------
Net Income $ 331,000 $ (287,000)
=========== ==========
For the nine months ended June 30, 2003 For the nine months ended June 30, 2002
Service and Service and
Products Rental Total Products Rental Total
--------------------------------------- -----------------------------------------
Revenue $ 3,696,000 $ 1,139,000 $ 4,835,000 $ 4,353,000 $ 1,055,000 $ 5,408,000
Cost of sales 1,716,000 617,000 2,333,000 2,325,000 646,000 2,971,000
--------------------------------------- -----------------------------------------
Gross Profit 1,980,000 522,000 2,502,000 2,028,000 409,000 2,437,000
Expenses:
Selling, general and
administrative 1,134,000 407,000 1,541,000 1,744,000 735,000 2,479,000
Research and development 127,000 -- 127,000 1,136,000 -- 1,136,000
--------------------------------------- -----------------------------------------
Income from operations $ 719,000 $ 115,000 $ 834,000 $ (852,000) $ (326,000) $ (1,178,000)
========================= ==========================
Other income 37,000 128,000
Income taxes (43,000) --
----------- -----------
Net Income $ 828,000 $(1,050,000)
=========== ===========
Sales and gross profit to customers by similar products and services for the
three and nine months ended June 30, 2003 (unaudited) and June 30, 2002
(unaudited) were:
9
For the three months ended June 30, For the nine months ended June 30,
2003 2002 2003 2002
----------- ----------- ----------- -----------
By similar products and services:
Revenues:
Products:
Laser equipment and accessories $ 240,000 $ 787,000 $ 1,226,000 $ 1,904,000
Delivery and disposable devices 880,000 829,000 2,470,000 2,449,000
Service and rental 377,000 280,000 1,139,000 1,055,000
---------- ----------- ------------ -----------
Total $1,497,000 $1,896,000 $ 4,835,000 $ 5,408,000
========== =========== ============ ===========
Gross profit
Products:
Laser equipment and accessories $ 175,000 $ 269,000 $ 632,000 $ 514,000
Delivery and disposable devices 526,000 563,000 1,348,000 1,514,000
Service and rental 152,000 129,000 522,000 409,000
---------- ----------- ------------ -----------
Total $ 853,000 $ 961,000 $ 2,502,000 $ 2,437,000
========== =========== ============ ===========
The revenue base of Trimedyne is derived from the sales of medical products and
services on a worldwide basis originating from the United States. Export sales
during the three months ended June 30, 2003 and June 30, 2002, decreased by
$360,000 or 59% to $247,000 from $607,000, respectively. Export sales during the
nine months ended June 30, 2003 and June 30, 2002, decreased $7,000 or 1% to
$1,188,000 from $1,195,000, respectively. Although discrete components that earn
revenues and incur expenses exist, significant expenses such as research and
development and corporate administration are not incurred by nor allocated to
these operating units but rather are employed by the entire enterprise.
Additionally, the chief operating decision maker evaluates resource allocation
not on a product or geographic basis, but rather on an enterprise-wide basis.
Therefore, the Company has concluded that it contains only one reportable
segment, which is the medical systems business.
Sales in foreign countries for the quarters ended June 30, 2003 and June 30,
2002 accounted for approximately 16% and 32% of the Company's total sales,
respectively. Sales in foreign countries for the nine months ended June 30, 2003
and June 30, 2002 accounted for approximately 25% and 22% of the Company's total
sales. The breakdown by geographic region is as follows:
Three months Three months Nine months Nine months
ended June ended June ended June ended June
30, 2003 30, 2002 30, 2003 30, 2002
------------ ------------ ------------ ------------
Asia $ 169,000 $ 190,000 $ 734,000 $ 665,000
Europe 40,000 117,000 238,000 205,000
Latin America 25,000 276,000 186,000 277,000
Middle East 13,000 14,000 27,000 34,000
Other -- 10,000 3,000 14,000
------------ ------------ ------------- ------------
$ 247,000 $ 607,000 $ 1,188,000 $ 1,195,000
============= ============ ============= ============
All long-lived assets were located in the United States during the three months
and nine months ended June 30, 2003.
Trimedyne performs ongoing credit evaluations of its customers and generally
does not require collateral. Trimedyne maintains reserves for potential credit
losses and such losses have been within management's expectation.
10
Note 9 - Provision for Income Taxes
As of June 30, 2003, the Company's projected tax liability for the quarter is
approximately $17,000. The Company's annualized tax liability for the fiscal
year ending September 30, 2003, for federal and state tax purposes is
approximately $13,000 and $63,000, based on the expected effective income tax
rate for the year.
For federal tax purposes, the Company will utilize prior year net operating
losses ("NOL"). In addition, NOLs for alternative minimum tax ("AMT") purposes
are limited to 90% of AMT taxable income. At September 30, 2002, Trimedyne had
an NOL carryforward for federal income tax purposes of approximately $43.0
million. Federal NOLs begin to expire in 2006 and will fully expire in 2025.
For California tax purposes, the usage of California NOLs is currently suspended
and will resume in 2004. At September 30, 2002, Trimedyne had an NOL
carryforward for California income tax purposes of approximately $11.9 million.
California NOLs begin to expire in 2004 and will fully expire in 2011.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
RESULTS OF OPERATIONS
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking information to encourage companies to provide prospective
information about themselves without fear of litigation so long as that
information is identified as forward-looking and is accompanied by meaningful
cautionary statements identifying important factors that could cause actual
results to differ materially from those projected in the information.
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 Trimedyne, Inc.,
its wholly owned subsidiary Mobile Surgical Technologies, Inc. ("MST") and its
90% owned subsidiary, Cardiodyne, Inc. ("Cardiodyne"), which is inactive.
Quarter ended June 30, 2003 compared to quarter ended June 30, 2002
During the quarter ended June 30, 2003, net revenues were $1,497,000 as compared
to $1,896,000 for the same period of the previous year, a $399,000 or 21%
decrease. Net sales from lasers and accessories decreased by $547,000 or 70% to
$240,000 in the current quarter from $787,000 in the prior year quarter. This
decrease was the result of an decrease in both domestic and export sales during
the quarter. Net sales from delivery and disposable devices increased by $51,000
or 6% to $880,000 in the current quarter from $829,000 in the same quarter of
the prior year. Net sales from service and rental increased by $97,000 or 35% to
$377,000 from $280,000 for the same quarters. This increase is primarily due to
an increase in service related revenue, which includes sales of service
contracts and service parts along with billable service calls.
Cost of goods sold was 43% of net sales in the third quarter of fiscal 2003
compared to 49% for the third quarter of fiscal 2002. This decrease was
primarily a result of higher margins obtained from the sale of refurbished and
fully depreciated lasers from demo inventory along with an increase in sales of
delivery systems which carry a higher profit margin.
Selling, general and administrative expenses decreased in the current quarter to
$486,000 from $928,000 for the quarter ended June 30, 2002, a decrease of
$442,000 or 48%. The decrease in selling, general and administrative expenses
since prior year period is primarily attributed to cost containment measures
including employee layoffs representing reductions of approximately $108,000,
reductions in selling expenses of $166,000 (excluding advertising and
marketing), and outside services from consultants of $49,000. Further reductions
were accomplished in legal fees of $78,000, and rent expense of $29,000.
Research and development expenditures for the quarter ended June 30, 2003,
decreased $324,000 or 93% to $24,000 from $348,000 in the quarter ended June 30,
2002. The decrease is primarily due to Trimedyne significantly reducing its
product development efforts due to the completion of development of its current
products.
11
Other income and expense decreased by $23,000 to income of $5,000 in the second
quarter of fiscal 2003 from $28,000 in the third quarter of 2002. This decrease
was primarily the result of the sale of fixed assets of $20,000 during the prior
year quarter.
For the current quarter, Trimedyne had net income of $331,000 or $0.02 per
share, based on 13,729,760 weighted average number of common shares outstanding,
which included a provision for income taxes of $17,000, as compared to a net
loss of $287,000, or $0.02 per share, based on 13,614,760 weighted average
number of common shares outstanding in the same quarter of the previous year,
resulting from the above mentioned factors.
Nine months ended June 30, 2003 compared to nine months ended June 30, 2002.
During the nine months ended June 30, 2003, net revenues were $4,835,000 as
compared to $5,408,000 for the same period of the previous year, a $573,000 or
11% decrease. Net sales from lasers and accessories decreased by $678,000 or 36%
to $1,226,000 during the nine months ended June 30, 2003 from $1,904,000 in the
the same period of the prior year. This decrease was primarily the result of a
weakening of domestic sales. Export sales, however, decreased by $7,000 or 1%
due to decreased product orders in Latin America and the Middle East. Net sales
from delivery and disposable devices increased by $21,000 or 1% to $2,470,000
during the nine months ended June 30, 2003 from $2,449,000 for the same period
of the prior year. Net sales from service and rental increased by $84,000 or 8%
to $1,139,000 from $1,055,000 for the same period in the prior year. This
increase was primarily due to an increase in billable service calls and the
sales of service contracts and service parts.
Cost of goods sold was 48% of net sales in the nine months ended June 30, 2003
compared to 55% for the nine months ended June 30, 2002. The decrease in cost of
goods sold as a percentage of revenues was primarily the result of our continued
cost reduction efforts combined with the sale of refurbished and depreciated
lasers from demo inventory, along with an increase in sales of delivery systems
which carry a higher profit margin. For the nine months ended June 30, 2003,
selling, general and administrative expenses totaled $1,541,000 as compared to
$2,479,000 for the same period of the previous year, a $938,000 or 38% decrease.
The decrease in selling, general and administrative expenses since prior year
period is primarily attributed to cost containment measures including employee
layoffs representing reductions of approximately $175,000, reductions in selling
expenses of $360,000 (excluding advertising and marketing), and outside services
from consultants of $146,000. Further reductions were accomplished in
advertising and marketing of approximately $40,000, legal fees of $103,000, and
rent expense of $108,000.
Research and development expenditures for the nine months ended June 30, 2003,
decreased $1,009,000 or 89% to $127,000 from $1,136,000 in the same period of
the prior year. The decrease is primarily due to Trimedyne significantly
reducing its product development efforts due to the completion of development of
its current products.
Other income decreased by $91,000 to income of $37,000 in the current nine-month
period from income of $128,000 in the nine-month period of fiscal 2002. Other
income in the prior year nine-month period included approximately $51,000 in
proceeds from the successful settlement of a lawsuit filed by the co-inventor of
the Trimedyne's Urolase(R) product, who was seeking a share of the settlement of
the lawsuit which Trimedyne brought against C.R. Bard, and $37,000 from the sale
of fixed assets.
For the nine months ended June 30, 2003, Trimedyne had net income of $828,000 or
$0.06 per share, based on 13,729,760 weighted average number of common shares
outstanding, which included a provision for income taxes of $43,000, as compared
to a net loss of $1,050,000, or $0.08 per share, based on 13,531,510 weighted
average number of common shares outstanding in the same period of the previous
year, resulting from the above mentioned factors.
12
Liquidity and Capital Resources
-------------------------------
Trimedyne, Inc. has incurred losses from operations throughout its recent
history; however, it has achieved profitability during the nine months ended
June 30, 2003. The achievement of earnings was primarily due to significant
headcount reductions and the elimination of research and development. At June
30, 2003, we had working capital of approximately $1.9 million, and excluding
inventories, our liquid current assets exceed the current liabilities by
$391,000. Cash flows from operations has remained positive despite a $237,000
reduction in our accounts payable. Net cash provided by operating activities was
$993,000. Net cash used in investing activities was $10,000 resulting from the
purchase of fixed assets. Certain of our payables, primarily for legal fees,
remain significantly past due, but the past due balance continues to be reduced,
and we are obtaining favorable terms from vendors, which will allow us to
increase our inventories. We remain undercapitalized and, as a result, our
marketing and research and development efforts are constrained. Our plans with
respect to these matters include efforts to seek additional capital from
external sources to increase our marketing and research and development efforts
in an effort to increase sales. During the year ended September 30, 2002, we
sold 12% Senior Convertible Secured Notes to our Chief Executive Officer
totaling $200,000. There are no assurances that our efforts to obtain additional
capital from external sources will be successful. We currently believe our
working and projected cash flow from operations will be sufficient to service
our obligations during the next twelve months.
CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information
required to be disclosed in the reports filed or submitted under the Exchange
Act is recorded, processed, summarized and reported, within the time periods
specified in the SEC's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed in the reports filed under the Exchange Act
is accumulated and communicated to management, including the Chief Executive
Officer and Controller, as appropriate, to allow timely decisions regarding
required disclosure.
Within 90 days prior to the filing of this report, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and Controller, of
the effectiveness of the design and operation of the Company's disclosure
controls and procedures. Based upon and as of the date of that evaluation, the
Chief Executive Officer and Controller concluded that the Company's disclosure
controls and procedures are effective to ensure that the information required to
be disclosed in the reports the Company files and submits under the Exchange Act
is recorded, processed, summarized and reported as and when required.
(b) Changes in Internal Controls
There were no changes in the Company's internal controls or in the other factors
that could have significantly affected those controls subsequent to the date of
the Company's most recent evaluation.
13
Part II
Other Information
Item 1. Legal Proceedings Previously reported
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
31.1
31.2
32.1
32.2
(b) Reports on Form 8-K
None
14
SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
TRIMEDYNE, INC.
Date: August 19, 2003 /s/ Marvin P. Loeb
--------------------------- ------------------------------------
Marvin P. Loeb
President and
Chief Executive Officer
Date: August 19, 2003 /s/ Jeffrey S. Rudner
---------------------------- --------------------------------------
Jeffrey S. Rudner
Controller
15