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