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, 2001 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 92617 (Address of principal executive offices) (Zip Code) (949) 559-5300 (Registrant's telephone number, including area code) Not Applicable (Former name, former address and former fiscal year, if changed since last report). Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), (2) has been subject to such filing requirements for the past 90 days. Yes x No ______ ------- Indicate the number of shares outstanding of each of the issuer's class of common stock, as of the last practicable date. Class Outstanding at August 1, 2001 ---------------------------- ----------------------------- Common Stock, $.01 par value 12,815,510 shares (excluding 101,609 shares held as treasury shares) TRIMEDYNE, INC. Page Number ----------- PART I. Financial Information ITEM 1. Financial Statements Condensed Consolidated Balance Sheet 3 Condensed Consolidated Statements of Operations 4 Condensed Consolidated Statements of Cash Flows 5 Notes to Condensed Consolidated Financial Statements 6 ITEM 2. Management's Discussion and Analysis of Financial 8 Condition and Results of Operations PART II. Other Information 10 SIGNATURE PAGE 11 TRIMEDYNE, INC. CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) ASSETS June 30,2001 Current Assets: Cash and cash equivalents....................................... $ 99,000 Marketable securities (Note 2).................................. 47,000 Trade accounts receivable, net of allowance for doubtful accounts of $404,000........................................... 1,242,000 Inventories (Note 2)............................................ 5,125,000 Other........................................................... 355,000 ---------- Total Current Assets...................................... 6,868,000 ---------- Goodwill (Note 5)................................................. 633,000 Net Properties (Note 2)........................................... 793,000 ---------- $ 8,294,000 =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable............................................... $ 2,074,000 Accrued expenses............................................... 706,000 Deferred income................................................ 72,000 ------------ Total Current Liabilities..................................... 2,852,000 Long Term Obligations........................................... 116,000 ------------ Total Liabilities............................................... 2,968,000 Stockholders' Equity: Common stock - $0.01 par value; 30,000,000 shares authorized, 12,815,510 shares issued..................................... 120,000 Capital in excess of par value................................. 46,461,000 Accumulated deficit............................................ (40,542,000) Less shares of common stock held in treasury At cost, 101,609 shares......................................... (713,000) ------------ Total Stockholders' Equity....................................... 5,326,000 ------------ $ 8,294,000 ============ See accompanying notes to condensed consolidated financial statements TRIMEDYNE, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended Nine Months Ended June 30, June 30, 2001 2000 2001 2000 Net sales............................................ $ 1,589,000 $ 1,647,000 $ 5,444,000 $ 5,147,000 Costs and expenses: Cost of goods sold.................................. 709,000 787,000 $ 2,668,000 2,494,000 Selling, general and administrative................. 1,422,000 1,019,000 4,118,000 2,441,000 Research and development............................ 491,000 923,000 1,825,000 2,682,000 ----------- ----------- ----------- ----------- Total costs and operating expenses................. 2,622,000 2,729,000 8,611,000 7,617,000 ----------- ----------- ----------- ----------- Loss from Operations................................. (1,033,000) (1,082,000) (3,167,000) (2,470,000) Other income: Non - recurring impairment of marketable securities.. 953,000 953,000 Interest income...................................... 85,000 224,000 Other (Note 5)....................................... (100,000) (19,000) ----------- ----------- ---------- ----------- Net loss, including non-recurring item............... (1,886,000) (997,000) (4,101,000) (2,246,000) Other Comprehensive Loss: Unrealized (loss) gain on marketable securities..... 155,000 28,000 155,000 (109,000) ----------- ----------- ----------- ----------- Comprehensive Loss................................... $(1,731,000) $ (969,000) $(3,946,000) $(2,355,000) =========== =========== =========== =========== Basic and dilutive net loss per share (Note 3)....... $(0.15) $(0.08) $(0.33) $(0.19) =========== =========== =========== =========== Weighted average number of shares outstanding:....... 12,550,300 11,830,369 12,375,228 11,330,411 =========== =========== =========== =========== See accompanying notes to condensed consolidated financial statements. TRIMEDYNE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Nine Months Ended June 30, 2001 2000 Cash flows from operating activities: Net loss............................................................................... $(4,101,000) $(2,246,000) Adjustments to reconcile net loss to net cash used in operating activities:............ Impairment of marketable securities................................................... 953,000 Depreciation and amortization......................................................... 149,000 137,000 Value of employees' stock options issued below fair value............................. 6,000 Changes in operating assets and liabilities, net of assets and liabilities acquired: (Increase) decrease in trade accounts receivable, net................................ (359,000) 680,000 Increase in inventories.............................................................. (784,000) (1,166,000) Increase in other current assets..................................................... 38,000 (22,000) Increase in accounts payable......................................................... 1,636,000 107,000 Increase (decrease) in accrued expenses.............................................. 222,000 (81,000) (Decrease) increase in deferred income............................................... 4,000 (25,000) ----------- ----------- Net cash flows used in operating activities.......................................... (2,242,000) (2,610,000) ----------- ----------- Cash flows from investing activities: Capital expenditures................................................................. (258,000) (94,000) Purchase of marketable securities.................................................... (2,679,000) Sale of marketable securities........................................................ 2,231,000 Other................................................................................ 3,000 ----------- ----------- Net cash provided by (used in) investing activities.................................. 1,973,000 (2,770,000) ----------- ----------- Cash flows from financing activities: Proceeds from sale of common stock, net.............................................. 2,124,000 Paydown of long-term obligations..................................................... (123,000) Proceeds from the exercise of stock options.......................................... 25,000 289,000 ----------- ----------- Net cash (used in) provided by financing activities.................................... (98,000) 278,000 ----------- ----------- Net decrease in cash and cash equivalents.............................................. (367,000) (1,239,000) Cash and cash equivalents at beginning of period....................................... 466,000 3,212,000 ----------- ----------- Cash and cash equivalents at end of period............................................. $ 99,000 $ 1,973,000 =========== =========== Non cash investing and financing activities- Common stock issued for acquisition of MST............................................. $ 792,000 =========== =========== See accompanying notes to condensed consolidated financial statements TRIMEDYNE, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2001 (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 condensed consolidated financial position as of June 30, 2001, the results of operations for the three and nine-month periods ended June 30, 2001 and 2000 and of cash flows for the six month periods ended June 30, 2001 and 2000. While management believes that the disclosures presented are adequate to make the information not misleading, it is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and the notes included in the Company's latest annual report on Form 10-KSB for the year ended September 30, 2000. NOTE 2 - Selected Balance Sheet Items June 30, 2001 ------------- Inventories consist of the following: Raw material $ 2,531,000 Work-in-process 1,252,000 Finished goods 1,342,000 ----------- $ 5,125,000 =========== Net properties consist of the following: Furniture and equipment $ 3,566,000 Leasehold improvements 461,000 Other 22,000 ----------- Total properties 4,049,000 Accumulated depreciation and amortization (3,256,000) ----------- Net properties $ 793,000 =========== NOTE 3 - Marketable Securities Marketable securities at June 30, 2001 consist entirely of an investment in an equity hedge fund which suffered a significant loss during the second quarter. Management determined a permanent impairment to the asset value should be recognized at June 30, 2001, based on the proceeds received from the liquidation of its marketable securities in July 2001 for approximately $47,000. Accordingly, management recorded a charge of $953,000 to operations during the three months ended June 30, 2001. The Company has no additional marketable securities held at June 30, 2001 NOTE 4 - Earnings Per Share For all periods presented, the net earnings available to common shareholders and the weighted average shares outstanding are the same for both basic and diluted EPS, since the effects of the Company's and the Company's majority owned subsidiary Cardiodyne's stock options would be antidilutive. Basic and diluted EPS do not differ from earnings per share previously presented. NOTE 5 - 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 the Company common stock valued at $792,000. The Company recorded goodwill of $666,000 resulting from the transaction, which will be amortized on a straight-line basis over ten years. NOTE 6 - Proposed Business Combination In May 2001, the Company entered into a non-binding letter of intent with The Emergent Group (OTC:EMGR.OB) to effect a business combination of the two entities The business combination is predicated upon the execution of a definitive agreement, the approval of such definitive agreement by the Boards of Directors of both companies, and the ratification of the agreement by the shareholders of both companies, if necessary. In addition, the Company was to receive $600,000 in funds to be used for working capital purposes. The parties were unable to reach a definitive agreement and the transaction was terminated. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The statements contained in this Quarterly Report on Form 10-Q that are not historical facts may contain forward-looking statements that involve a number of known and unknown risks and uncertainties that could cause actual results to differ materially from those discussed or anticipated by management. Risk factors and uncertainties include general business conditions, government regulations governing medical device approvals and manufacturing practices, competitive market conditions, success of the Company's business strategy, delay of orders, changes in the mix of products sold, availability of suppliers, concentration of sales in markets and to certain customers, changes in manufacturing efficiencies, development and introduction of new products, fluctuations in margins, timing of significant orders, and other risks and uncertainties currently unknown to management. Overview The condensed consolidated financial statements include the accounts of the Company, its 90% owned subsidiary, Cardiodyne, Inc. ("Cardiodyne"), and its wholly-owned subsidiary, Mobile Surgical Technologies, Inc. ("MST") Cardiodyne has substantially ceased operations and product development during this fiscal year. MST's operations represent less than 10% of consolidated operating assets and revenues. Quarter ended June 30, 2001 compared to quarter ended June 30, 2000. During the quarter ended June 30, 2001, our net revenues decreased 1% from the same quarter of the previous year from $1,647,000 to $1,589,000. During the current quarter, we recorded $240,000 of product returns resulting from a sale made in December 2000. Our laser revenues increased from $477,000 to $478,000 (exclusive of the returns above), while our disposable systems decreased from $883,000 to $835,000. Rental revenues were approximately $276,000 for the three months ended June 30, 2001 versus $54,000 in the comparable quarter in the prior year. We also have sales from parts and repair services. Cost of goods sold was 45% of net sales during the three months ended June 30, 2001 compared to 48% for the third quarter of fiscal 2000. The decrease in cost of goods sold as a percentage of revenues was due to the sales mix, with disposable systems achieving higher overall margins. Selling, general and administrative expenses increased to $1,422,000 for the current quarter compared to $1,019,000 for the quarter ended June 30, 2000, a increase of $403,000 or 40%. The increase in selling, general and administrative expenses is attributed to the expansion of our sales and marketing efforts, increases in costs of rents, utilities and insurance costs and the addition of our Chief Executive Officer in December 2000. We anticipate that the current level of sales and marketing expenditures will continue into the foreseeable future, while continuing cost reduction measures in other areas of the Company. Research and development expenditures for the quarter ended June 30, 2001, decreased 32% from the prior quarter from $923,000 to $491,000 primarily due to the cessation of expenditures on the development of Cardiodyne's Laser TMR and Injection System. Our unrealized loss on marketable securities relates to an investment we made in an equity hedge fund which suffered a significant loss during the second quarter of fiscal 2001. We determined a permanent impairment to the asset value should be recognized at June 30, 2001, based on the proceeds the Company received from the liquidation of its entire investment in July 2001 for approximately $47,000. Accordingly, we recorded a charge of $953,000 to operations during the three months ended June 30, 2001. During the three months ending June 30, 2001, the company received $100,000 in interest income relating to a loan made to Cardiomedics, Inc., a related party. For the current quarter, the Company incurred a net loss of $1,886,000 or $0.15 per share compared to a net loss of $997,000 or $0.08 per share for the prior year period. Our net losses resulted from the loss on the impairment of our marketable securities totaling $953,000, the increase in our sales and marketing costs which resulted in no significant increase in sales, and increases to our operating expenses with a reduction in R&D. Management is currently reviewing expenditures to further reduce payroll, sales and marketing and administrative related expenses. Liquidity and Capital Resources ------------------------------- We continue to incur operating losses and we expect to continue incurring losses for the foreseeable future. Our working capital decreased from $8,065,000 at September 30, 2000 to $4,016,000 at June 30, 2001. Our quick ratio (cash and accounts receivable, net, divided by current liabilities) was 0.50 to 1. The Company's trade payables are critically extended and several creditors have taken legal action in an attempt to secure judgments against the Company. Our $1,000,000 investment in an equity hedge fund realized $47,000 in July 2001, which exacerbated our financial crisis. We have eliminated Cardiodyne's research and development expenses, and we have also implemented cost reductions at Trimedyne; however, the Company continues to incur significant losses. These factors raise substantial doubt about the Company's ability to continue as a going concern. Our financial statements have been prepared on a going concern basis. The Company's Chief Executive Officer and Chief Financial Officer resigned July 2001. Our Chairman and former Chief Executive Officer Mr. Loeb was named the Chief Executive Officer. Our Chief Financial Officer has not been replaced. Management's plans with respect to these factors are as follows: . Obtain a minimum equity investment of $2,000,000 to pay past-due obligations and future obligations as they become due. Management will seek $2,000,000 to $4,000,000 in equity financing, . Continue to reduce operating overhead to the extent possible. We may require further payroll reductions. During the nine months ended June 30, 2001, we have terminated approximately 25 employees in an effort to reduce our operating costs, . Continue to work with vendors to secure credit or COD terms for purchases of component parts. Seek possible debt forgiveness with certain vendors through of court settlements. There are no assurances that management's plans will be successful. No adjustments have been made to the Company's consolidated financial statements as a result of these uncertainties. PART II. Other Information Item 1. Legal Proceedings Previously reported. Item 2. Changes in Securities None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibit Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K None 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 20, 2001 s/ MARVIN P. LOEB ---------------- ------------------------ Marvin P. Loeb Chairman and Chief Executive Officer