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
DECEMBER 31, 2001 0-10581
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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.
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 February 5, 2002
---------------------------- ------------------------------------
Common Stock, $.01 par value 13,489,760 shares
TRIMEDYNE, INC.
Page Number
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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
2
TRIMEDYNE, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
ASSETS
December 31,
2001
-------------
Current assets:
Cash and cash equivalents $ 291,000
Trade accounts receivable, net of allowance for doubtful
accounts of $435,000 1,215,000
Inventories (Note 2) 2,659,000
Other 209,000
-------------
Total current assets 4,374,000
-------------
Goodwill, net of accumulated amortization of $72,000 (Note 4) 594,000
Net properties (Note 2) 707,000
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$ 5,675,000
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,752,000
Accrued expenses 641,000
Deferred income 218,000
Current portion of long-term debt 68,000
Due to officer 63,000
Other current liabilities 56,000
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Total current liabilities 2,798,000
Long-term debt 8,000
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Total liabilities 2,806,000
Stockholders' equity:
Common stock - .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 47,483,000
Accumulated deficit (44,038,000)
-------------
3,582,000
Less 101,609 shares of common stock in treasury, at cost (713,000)
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Total stockholders' equity 2,869,000
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$ 5,675,000
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See accompanying notes to consolidated financial statements
3
TRIMEDYNE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
Three Months Ended
December 31,
2000 2001
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(as restated)
Net revenues $ 1,638,000 $ 1,836,000
Cost of revenues 1,445,000 957,000
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Gross profit 193,000 879,000
Operating expenses:
Selling, general and administrative 1,330,000 699,000
Research and development 791,000 394,000
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Total costs and operating expenses 2,121,000 1,093,000
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Loss from operations (1,928,000) (214,000)
Other income (expense) (580,000) 101,000
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Net Loss (2,508,000) (113,000)
Other Comprehensive Loss:
Unrealized loss on marketable securities 6,000 --
Comprehensive Loss $ (2,514,000) $ (113,000)
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Basic and diluted loss per common share $ (0.20) $ (0.01)
============= =============
Weighted average number of shares outstanding 12,265,311 13,489,760
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See accompanying notes to consolidated financial statements.
4
TRIMEDYNE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
Three Months Ended
December 31,
2000 2001
------------ ------------
(as restated)
Cash flows from operating activities:
Net Loss $(2,508,000) $ (113,000)
Adjustment to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 46,000 55,000
Impairment of inventory 219,000 --
Fair value of make-up shares 660,000 --
Gain on sale of fixed assets -- (17,000)
Changes in operating assets and liabilities, net of acquisitions:
(Increase) decrease in trade accounts receivable (485,000) 26,000
Decrease in inventories 104,000 205,000
(Increase) decrease in other current assets (94,000) 62,000
Increase (decrease) in accounts payable 387,000 (24,000)
Increase (decrease) in accrued expense 29,000 (64,000)
Decrease in other current liabilities -- (10,000)
------------ ------------
Net cash provided by (used in) operating activities (1,642,000) 120,000
Cash flows from investing activities:
Capital expenditures (22,000) --
Sale of fixed assets -- 47,000
Sale of marketable securities 2,041,000 --
Acquisition of MST, net of cash received (1,000) --
------------ ------------
Net cash provided by investing activities 2,018,000 47,000
Cash flows from financing activities:
Payments on long-term obligations (7,000) (23,000)
Loan from officer -- 63,000
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Net cash provided by (used in) financing activities (7,000) 40,000
------------ ------------
Net increase in cash and cash equivalents 369,000 207,000
Cash and cash equivalents at beginning of period 466,000 84,000
------------ ------------
Cash and cash equivalents at end of period $ 835,000 $ 2,860,000
============ ============
Non-cash investing and financing activities:
Common stock issued for acquisition of MST $ 775,000 $ --
============ ============
See accompanying notes to consolidated financial statements
5
TRIMEDYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 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 consolidated financial
position as of December 31, 2001 and the results of operations and of cash flows
for the three-month periods ended December 31, 2000 and 2001. Results for the
three months ended December 31, 2001 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
December 31, 2001, the Company had working capital of approximately $1.6
million, and excluding inventories, the Company's current liabilities exceed the
current liquid assets by $1,083,000, primarily because of the Company's losses
during 2001. 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 reducing personnel
positions, reducing certain overhead costs, 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.
Restatement of Consolidated Financial Statements
The Company restated its consolidated financial statements for the three months
ended December 31, 2000, 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 months ended December 31, 2000 are as follows:
Net Loss Net Loss
Per Share
------------ -------------
Net loss, as previously presented $(1,141,000) $ (0.09)
Reversal of sale (120,000) (0.01)
Physical inventory and
overhead adjustments (587,000) (0.05)
Loss on purchase commitments (660,000) (0.05)
------------ -------------
Net loss, as adjusted $(2,508,000) $ (0.20)
============ =============
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. Management believes the bases used for
reporting these charges to operations constitute errors requiring restatement of
effects of such charges on operations during the three months ended December 31,
2000.
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NOTE 2 - Balance Sheet Items
Inventories consist of the following:
December 31, 2001
-----------------
Raw material $ 1,183,000
Work-in-process 381,000
Finished goods 1,095,000
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Total inventory $ 2,659,000
============
Net properties consist of the following:
Furniture and equipment $ 3,270,000
Leasehold improvements 272,000
Other 98,000
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Total Properties 3,640,000
Accumulated depreciation (2,933,000)
------------
Net properties $ 707,000
============
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 three months ended December 31, 2001, 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.
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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 December 31, 2000 compared to quarter ended December 31, 2001.
During the quarter ended December 31, 2001, Trimedyne's net revenues increased
$198,000 or 12% from the same quarter of the previous year, $1,836,000 vs.
$1,638,000. Net sales from lasers decreased by $9,000 or 1% from $641,000 in the
prior year quarter to $632,000 in the current quarter. Net sales from delivery
and disposable devices increased by $70,000 or 9% from $743,000 to $813,000 for
the same quarters. Net sales from service and rental increased by $136,000 or
54% from $254,000 to $390,000 for the same quarters. The increase is due to
growth of its revenue share program which was still in its infancy in the prior
year quarter. Additionally, the acquisition of MST contributed approximately
$154,000 in the current quarter compared to $48,000 in the prior year quarter,
which represented only one month of operations due to the timing of the
acquisition.
Cost of goods sold was 52% of net sales in the first quarter of fiscal 2002
compared to 88% for the first 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 first quarter of fiscal 2001 for a provision of excess and
obsolete inventories totaling $219,000 and a charge for excess capitalized
overhead costs totaling $368,000.
Selling, general and administrative expenses decreased from $1,330,000 to
$699,000, a decrease of $631,000 or 47%. The decrease in selling, general and
administrative expenses is primarily attributed to cost containment measures
including employee layoffs representing reductions of approximately $345,000 and
reductions in advertising and marketing of approximately $90,000.
Research and development expenditures for the quarter ended December 31, 2001,
decreased $397,000 or 50% to $394,000 from $791,000. The decrease is primarily
attributed to the Company ceasing funding of Cardiodyne's ongoing development.
Additionally, the Company reduced its product development efforts.
Other income and expense increased by $681,000 or 117% from expense of $580,000
in the first quarter of fiscal 2001 to income of $101,000 in the first quarter
of 2002. The prior period quarter includes a $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, which was triggered by the
acquisition of MST. Income in the current quarter 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.
For the current quarter, the Company had a net loss of $113,000 or $0.01 per
share, based on 13,489,760 weighted average number of common shares outstanding,
as compared to a net loss of $2,508,000, or $0.20 per share, based on 12,265,311
weighted average number of common shares outstanding in the same quarter of the
previous year, resulting from the above mentioned factors.
8
Liquidity and Capital Resources
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The Company's working capital decreased from $1,622,000 at September 30, 2001 to
$1,576,000 at December 31, 2001, of which $291,000 is cash. Cash and cash
equivalents increased by $207,000 of which $120,000 was from operations. Cash
from investing activities included $47,000 from the sale of fixed assets. Cash
provided by financing activities of $40,000 included a loan of $63,000 from the
chief executive officer offset by payments on long-term obligations totaling
approximately $23,000.
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.
9
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
10
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
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Marvin P. Loeb
President and
Chief Executive Officer
Date: February 19, 2002 /s/ Jeffrey S. Rudner
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Jeffrey S. Rudner
Controller
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