UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2013
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE NO. 0-10581
TRIMEDYNE, INC.
Exact Name of Registrant as Specified in its Charter)
| NEVADA | 36-3094439 |
| (STATE OR OTHER JURISDICTION OF INCORPORATION) | (I.R.S. EMPLOYER IDENTIFICATION NO.) |
| | |
5 HOLLAND # 223
IRVINE, CALIFORNIA | 92618 |
| (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) | (ZIP CODE) |
Registrant's Telephone Number, Including Area Code:
(949) 951-3800
Securities Registered Pursuant to Section 12(b) of the Act:
NONE
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value per Share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports 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) and (2) has been subject to such filing requirements for the past 90 days. Yesx No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss. 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesx No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | o | Accelerated filer | o |
| Non-accelerated filer | o | Smaller reporting company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act of 1934). Yeso Nox
As of February 17, 2014, there were outstanding 18,395,960 shares of registrant's Common Stock.
TRIMEDYNE, INC.
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| PART I. | Financial Information | 3 |
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| ITEM 1. | Financial Statements (Unaudited) | 3 |
| | | |
| | Condensed Consolidated Balance Sheets | 3 |
| | | |
| | Condensed Consolidated Statements of Operations | 4 |
| | | |
| | Condensed Consolidated Statements of Cash Flows | 5 |
| | | |
| | Notes to Condensed Consolidated Financial Statements | 6 |
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| ITEM 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 12 |
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| ITEM 3. | Quantitative and Qualitative Disclosures About Market Risk - N/A | 14 |
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| ITEM 4. | Controls and Procedures | 14 |
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| PART II. | Other Information | 15 |
| | | |
| ITEM 1. | Legal Proceedings | 15 |
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| ITEM 1A. | Risk Factors - N/A | 15 |
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| ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 15 |
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| ITEM 3. | Defaults Upon Senior Securities | 15 |
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| ITEM 4. | Mine Safety Disclosures | 15 |
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| ITEM 5. | Other Information | 15 |
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| ITEM 6. | Exhibits | 15 |
| | | |
| SIGNATURES | | 16 |
TRIMEDYNE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| ASSETS | | | | | | |
| | | December 31, 2013 | | | September 30, 2013 | |
| Current assets: | | | | | | | | |
| Cash and cash equivalents | | $ | 1,599,000 | | | $ | 1,572,000 | |
| Trade accounts receivable, net of allowance for doubtful accounts of $11,000 at December 31, 2013 and September 30, 2013, respectively | | | 518,000 | | | | 475,000 | |
| Inventories | | | 1,040,000 | | | | 1,201,000 | |
| Other current assets | | | 145,000 | | | | 166,000 | |
| Total current assets | | | 3,302,000 | | | | 3,414,000 | |
| | | | | | | | | |
| Property and equipment, net | | | 785,000 | | | | 706,000 | |
| Other | | | 48,000 | | | | 37,000 | |
| Goodwill | | | 544,000 | | | | 544,000 | |
| | | | | | | | | |
| Total Assets | | $ | 4,679,000 | | | $ | 4,701,000 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | |
| | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Accounts payable | | $ | 232,000 | | | $ | 177,000 | |
| Accrued expenses | | | 454,000 | | | | 416,000 | |
| Deferred revenue | | | 74,000 | | | | 37,000 | |
| Accrued warranty | | | 25,000 | | | | 16,000 | |
| Income tax payable | | | 8,000 | | | | 8,000 | |
| Current portion of note payable and capital leases | | | 74,000 | | | | 49,000 | |
| Total current liabilities | | | 867,000 | | | | 703,000 | |
| | | | | | | | | |
| Deferred rent | | | 10,000 | | | | 11,000 | |
| Capital lease, net of current portion | | | 73,000 | | | | – | |
| | | | | | | | | |
| Total liabilities | | | 950,000 | | | | 714,000 | |
| | | | | | | | | |
| Commitments and contingencies | | | | | | | | |
| | | | | | | | | |
| Stockholders' equity: | | | | | | | | |
| Preferred stock - $0.01 par value, 1,000,000 shares authorized, none issued and outstanding | | | – | | | | – | |
| Common stock - $0.01 par value, 30,000,000 shares authorized, 18,497,569 shares issued, 18,395,960 shares outstanding at December 31, 2013 and September 30, 2013, respectively | | | 186,000 | | | | 186,000 | |
| Additional paid-in capital | | | 51,309,000 | | | | 51,308,000 | |
| Accumulated deficit | | | (47,053,000 | ) | | | (46,794,000 | ) |
| | | | 4,442,000 | | | | 4,700,000 | |
| Treasury stock, at cost (101,609 shares) | | | (713,000 | ) | | | (713,000 | ) |
| | | | | | | | | |
| Total stockholders' equity | | | 3,729,000 | | | | 3,987,000 | |
| | | | | | | | | |
| Total liabilities and stockholder's equity | | $ | 4,679,000 | | | $ | 4,701,000 | |
See accompanying notes to condensed consolidated financial statements
TRIMEDYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| | | For the Three Months Ended
December 31, | |
| | | 2013 | | | 2012 | |
| Net revenues | | $ | 1,399,000 | | | $ | 1,475,000 | |
| Cost of revenues | | | 1,023,000 | | | | 938,000 | |
| Gross profit | | | 376,000 | | | | 537,000 | |
| | | | | | | | | |
| Operating expenses: | | | | | | | | |
| Selling, general and administrative | | | 549,000 | | | | 573,000 | |
| Research and development | | | 124,000 | | | | 126,000 | |
| Total operating expenses | | | 673,000 | | | | 699,000 | |
| (Loss) from operations | | | (297,000 | ) | | | (162,000 | ) |
| | | | | | | | | |
| Other income, net | | | 38,000 | | | | 20,000 | |
| | | | | | | | | |
| Loss before income taxes | | | (259,000 | ) | | | (142,000 | ) |
| Provision for income taxes | | | – | | | | 2,000 | |
| Net loss | | $ | (259,000 | ) | | $ | (144,000 | ) |
| | | | | | | | | |
| Net (loss) per share: | | | | | | | | |
| Basic | | $ | (0.014 | ) | | $ | (0.008 | ) |
| Diluted | | $ | (0.014 | ) | | $ | (0.008 | ) |
| | | | | | | | | |
| Weighted average number of shares outstanding: | | | | | | | | |
| Basic | | | 18,395,960 | | | | 18,395,960 | |
| Diluted | | | 18,395,960 | | | | 18,395,960 | |
See accompanying notes to condensed consolidated financial statements
TRIMEDYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| | | Three Months Ended
December 31, | |
| | | 2013 | | | 2012 | |
| Cash flows from operating activities: | | | | | | | | |
| Net loss | | $ | (259,000 | ) | | $ | (144,000 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | |
| Stock-based compensation | | | 1,000 | | | | 4,000 | |
| Depreciation and amortization | | | 57,000 | | | | 70,000 | |
| Changes in operating assets and liabilities: | | | | | | | | |
| Trade accounts receivable | | | (43,000 | ) | | | (134,000 | ) |
| Inventories | | | 161,000 | | | | 61,000 | |
| Other assets | | | 13,000 | | | | 22,000 | |
| Accounts payable | | | 55,000 | | | | 85,000 | |
| Accrued expenses | | | 38,000 | | | | 86,000 | |
| Income tax payable | | | – | | | | 2,000 | |
| Deferred revenue | | | 37,000 | | | | 16,000 | |
| Accrued warranty | | | 9,000 | | | | (9,000 | ) |
| Deferred rent | | | (1,000 | ) | | | (16,000 | ) |
| | | | | | | | | |
| Net cash provided by operating activities | | | 68,000 | | | | 43,000 | |
| | | | | | | | | |
| Cash flows from investing activities: | | | | | | | | |
| Purchase of property and equipment | | | (4,000 | ) | | | (27,000 | ) |
| | | | | | | | | |
| Net cash used in investing activities | | | (4,000 | ) | | | (27,000 | ) |
| | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | |
| Principal payments on notes payable and capital leases | | | (37,000 | ) | | | (47,000 | ) |
| | | | | | | | | |
| Net cash used in financing activities | | | (37,000 | ) | | | (47,000 | ) |
| | | | | | | | | |
| Net increase (decrease) in cash and cash equivalents | | | 27,000 | | | | (31,000 | ) |
| Cash and cash equivalents at beginning of period | | | 1,572,000 | | | | 472,000 | |
| Cash and cash equivalents at end of period | | $ | 1,599,000 | | | $ | 441,000 | |
| | | | | | | | | |
| | | | | | | | | |
| Supplemental disclosure of cash flow information: | | | | | | | | |
| | | | | | | | | |
No cash was paid for income taxes during the three months ended December 31, 2013 and 2012. Cash paid for interest during the three months ended December 31, 2013 and 2012 was approximately $3,000 and $1,000, respectively.
During November of the current year quarter, the Company financed the upgrading of its IT infrastructure with a lease agreement for $119,000.
During December of the current year quarter, the Company financed an additional insurance policy for $21,000. | | | | | | | | |
See accompanying notes to condensed consolidated financial statements
TRIMEDYNE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
(UNAUDITED)
NOTE 1 - Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of Trimedyne, Inc., a Nevada corporation, its wholly owned subsidiary, Mobile Surgical Technologies, Inc. ("MST"), a Texas corporation, and its 90% owned inactive subsidiary, Cardiodyne, Inc. ("Cardiodyne"), a Nevada corporation, (collectively, the "Company"). All intercompany accounts and transactions have been eliminated in consolidation.
At December 31, 2013, we had working capital of $2,435,000 compared to $2,711,000 at the end of the previous fiscal year ended September 30, 2013. Cash increased by $27,000 to $1,599,000 at December 31, 2013 from $1,572,000 at the fiscal year ended September 30, 2013.
Management's Plans
The Company is currently pursuing market development efforts in Asia, Latin America and Eastern Europe. We believe that by expanding healthcare infrastructure in these markets we may be able to create a sustained demand for Holmium Lasers applied to Spinal Endoscopy and Laser Lithotripsy. Additionally, we expect the global trend toward single-use disposable laser delivery products will improve sales and profit margins as more hospitals convert from multi-use products, due to concerns for sterility and interests to reduce handling costs incurred in product sterilization, and we are developing more single-use products.
Unaudited Interim Financial Information
The accompanying unaudited condensed consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America for interim financial information, and pursuant to the instructions to Form 10-Q promulgated by the Securities and Exchange Commission ("SEC"). Accordingly, they do not include all information and disclosures required by generally accepted accounting principles for complete financial statement 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, 2013 and the results of its operations and its cash flows for the three months ended December 31, 2013 and 2012. Results for the three months ended December 31, 2013 are not necessarily indicative of the results to be expected for the year ending September 30, 2014.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates and assumptions include inventory valuation, allowances for doubtful accounts and deferred income tax assets, recoverability of goodwill and long-lived assets and certain accrued liabilities.
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 condensed consolidated financial statements and the notes included in the Company's 2013 annual report on Form 10-K for the year ended September 30, 2013.
Stock-Based Compensation
Stock-based compensation was $1,000 and $3,000 during the quarters ended December 31, 2013 and 2012, respectively. As of December 31, 2013, there was approximately $4,970 of total unrecognized compensation cost, net of estimated expected forfeitures, related to employee and director stock option compensation arrangements. This unrecognized cost is expected to be recognized on a straight-line basis over the next nine reporting periods.
Per Share Information
Basic per share information is computed based upon the weighted average number of common shares outstanding during the period. Diluted per share information consists of the weighted average number of common shares outstanding, plus the dilutive effects of options and warrants calculated using the treasury stock method. In loss periods, dilutive common equivalent shares are excluded as the effect would be anti-dilutive. During the three months ended December 31, 2013 and 2012, outstanding options of 818,900 and 997,650, respectively, were excluded from the diluted net loss per share as the effects would have been anti-dilutive. In addition, the exercise prices of these options were in excess of the average closing price of the Company’s common stock for the years ended December 31, 2013 and 2012.
NOTE 2 - Composition of Certain Balance Sheet Captions
Inventories, net of reserves, consist of the following:
| | | December 31,
2013 | | | September 30,
2013 | |
| Raw materials | | $ | 442,000 | | | $ | 501,000 | |
| Work-in-process | | | 86,000 | | | | 94,000 | |
| Finished goods | | | 512,000 | | | | 606,000 | |
| | | $ | 1,040,000 | | | $ | 1,201,000 | |
For the three months ended December 31, 2013 and 2012, the aggregate net realizable value of demonstration and evaluation lasers did not comprise a material amount in inventories.
Other current assets consist of the following:
| | | December 31,
2013 | | | September 30,
2013 | |
| Royalty receivable | | $ | 30,000 | | | $ | 25,000 | |
| Prepaid insurance | | | 52,000 | | | | 68,000 | |
| Prepaid income tax | | | 5,000 | | | | 6,000 | |
| Prepaid rent | | | 13,000 | | | | 13,000 | |
| Short-term deposits | | | 8,000 | | | | 8,000 | |
| Other | | | 37,000 | | | | 46,000 | |
| Total other current assets | | $ | 145,000 | | | $ | 166,000 | |
Property and equipment consist of the following:
| | | December 31,
2013 | | | September 30,
2013 | |
| Furniture and equipment | | $ | 3,559,000 | | | $ | 3,434,000 | |
| Leasehold improvements | | | 57,000 | | | | 45,000 | |
| Other | | | 316,000 | | | | 317,000 | |
| | | | 3,932,000 | | | | 3,796,000 | |
| Less accumulated depreciation and amortization | | | (3,147,000 | ) | | | (3,090,000 | ) |
| Total property and equipment | | $ | 785,000 | | | $ | 706,000 | |
Accrued expenses consist of the following:
| | | December 31,
2013 | | | September 30,
2013 | |
| Accrued vacation | | $ | 160,000 | | | $ | 146,000 | |
| Accrued salaries and wages | | | 104,000 | | | | 51,000 | |
| Accrued compensation | | | – | | | | 55,000 | |
| Accrued bonus | | | 4,000 | | | | 30,000 | |
| Medical device tax | | | 53,000 | | | | 39,000 | |
| Sales and use tax | | | 52,000 | | | | 52,000 | |
| Customer deposits | | | 2,000 | | | | 2,000 | |
| Commissions | | | 45,000 | | | | 23,000 | |
| Other | | | 34,000 | | | | 18,000 | |
| Total accrued expenses | | $ | 454,000 | | | $ | 416,000 | |
NOTE 3. Note Payable and Capital Lease
Note payable and capital leases consist of the following:
| | | December 31, 2013 | |
| Capital lease agreement in connection with the update of our IT infrastructure bearing an effective interest rate of 8.41% per annum. The lease requires monthly payments of $3,766 through October 2016 and is secured by the leased equipment. | | $ | 110,000 | |
| | | | | |
| Finance agreement issued in connection with the purchasing of an insurance policy. The note bears interest at 3.6% per annum and requires monthly payments principal and interest payments of $1,796 through December 2015. | | | 18,000 | |
| | | | | |
| Finance agreement issued in connection with the purchasing of insurance policies. The note bears interest at 3.35% per annum and require monthly principal and interest payments of $9,851 through March 2014. | | | 19,000 | |
| | | | | |
| | | $ | 147,000 | |
| | | | | |
| Less: current portion | | | (74,000 | ) |
| | | $ | 73,000 | |
NOTE 4 - Commitments and Contingencies
Litigation
We are subject to various claims and actions that arise in the ordinary course of business. The litigation process is inherently uncertain, and it is possible that the resolution of any future litigation may adversely affect us.
Guarantees and Indemnities
The Company has made certain indemnities and guarantees, under which it may be required to make payments to a guaranteed or indemnified party. The Company indemnifies its directors, officers, employees and agents to the maximum extent permitted under the laws of the State of California. In connection with its facility leases, the Company has indemnified its users of lasers for certain claims arising from the use of the lasers. The duration of the guarantees and indemnities varies, and in many cases is indefinite. These guarantees and indemnities do not provide for any limitation of the maximum potential future payments the Company could be obligated to make. Historically, the Company has not been obligated to make any payments for these obligations and no liabilities have been recorded for these indemnities and guarantees in the accompanying condensed consolidated balance sheet.
Risks and Uncertainties
The Centers for Medicare and Medicaid Services (CMS), the agency of the U.S. Government that administers the Medicare Program, does not reimburse for thermal intradiscal procedures to treat spinal discs including the use of the Company's pulsed Holmium Lasers. Since most people suffering from a herniated or ruptured spinal disc are below Medicare age, we do not believe CMS's decision will have an adverse impact on our business.
NOTE 5 - Segment Information
The Company's segments consist of individual companies managed separately with each manager reporting to the Chief Executive Officer. Revenues, and operating or segment profit, are reflected net of inter-segment sales and profits. Segment profit is comprised of net sales less operating expenses. Other income and expense and income taxes are not allocated and reported by segment since they are excluded from the measure of segment performance reviewed by management.
Data with respect to these operating activities for the three months ended December 31, 2013 and 2012 are as follows:
| | | For the Three Months Ended
December 31, 2013 | | | For the Three Months Ended
December 31, 2012 | |
| | | Products | | | Service and Rental | | | Total | | | Products | | | Service and Rental | | | Total | |
| | | | | | | | | | | | | | | | | | | |
| Revenue | | $ | 760,000 | | | $ | 639,000 | | | $ | 1,399,000 | | | $ | 722,000 | | | $ | 753,000 | | | $ | 1,475,000 | |
| Cost of sales | | | 527,000 | | | | 496,000 | | | | 1,023,000 | | | | 434,000 | | | | 504,000 | | | | 938,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Gross profit | | | 233,000 | | | | 143,000 | | | | 376,000 | | | | 288,000 | | | | 249,000 | | | | 537,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Expenses: | | | | | | | | | | | | | | | | | | | | | | | | |
| Selling, general and administrative | | | 391,000 | | | | 158,000 | | | | 549,000 | | | | 407,000 | | | | 166,000 | | | | 573,000 | |
| Research and development | | | 124,000 | | | | – | | | | 124,000 | | | | 126,000 | | | | – | | | | 126,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Income (loss) from operations | | $ | (282,000 | ) | | $ | (15,000 | ) | | | (297,000 | ) | | $ | (245,000 | ) | | $ | 83,000 | | | | (162,000 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Other: | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest expense | | | | | | | | | | | (3,000 | ) | | | | | | | | | | | (1,000 | ) |
| Royalty income | | | | | | | | | | | 30,000 | | | | | | | | | | | | 17,000 | |
| Other income | | | | | | | | | | | 11,000 | | | | | | | | | | | | 4,000 | |
| Provision for income tax | | | | | | | | | | | – | | | | | | | | | | | | 2,000 | |
| Net loss | | | | | | | | | | $ | (259,000 | ) | | | | | | | | | | $ | (144,000 | ) |
Sales and gross profit to customers by similar products and services for the three months ended December 31, 2013 and 2012 were as follows:
| | | For the Three Months Ended
December 31, | |
| | | 2013 | | | 2012 | |
| By similar products and services: | | | | | | | | |
| Revenues: | | | | | | | | |
| Laser equipment and accessories | | $ | 283,000 | | | $ | 48,000 | |
| Delivery and disposable devices | | | 477,000 | | | | 674,000 | |
| Service and rental | | | 639,000 | | | | 753,000 | |
| Total | | $ | 1,399,000 | | | $ | 1,475,000 | |
| | | | | | | | | |
| Gross profit (loss) | | | | | | | | |
| Laser equipment and accessories | | $ | 56,000 | | | $ | (12,000 | ) |
| Delivery and disposable devices | | | 177,000 | | | | 300,000 | |
| Service and rental | | | 143,000 | | | | 249,000 | |
| Total | | $ | 376,000 | | | $ | 537,000 | |
Sales in foreign countries for the three months ended December 31, 2013 and 2012 accounted for approximately 13.7% and 9.3%, respectively, of the Company's total sales. The breakdown by geographic region is as follows:
| | | Three Months Ended
December 31, | |
| | | 2013 | | | 2012 | |
| Asia | | $ | 167,000 | | | $ | 63,000 | |
| Europe | | | 5,000 | | | | 27,000 | |
| Latin America | | | 10,000 | | | | 47,000 | |
| Australia | | | 9,000 | | | | – | |
| | | $ | 191,000 | | | $ | 137,000 | |
During the three months ended December 31, 2013 and 2012, one Laser was located in Canada and three Lasers, one located in Brazil, Canada and India, respectively.
Total segment assets at December 31, 2013 and 2012 for the Products segment were $2,992,000 and $2,560,000, respectively, and for the Service and Rental segment were $1,665,000 and $1,729,000, respectively. The $432,000 difference between total segment assets for the product segment for the current year quarter as compared to the prior year quarter was primarily the result of a $440,000 in cash received during the last quarter of the prior year offset by a reduction in inventory from the prior year. Total segment assets differ from total assets on a consolidated basis as a result of unallocated corporate assets primarily comprised of immaterial amounts of property and equipment, etc.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This information should be read in conjunction with the condensed consolidated financial statements and notes thereto included in Item 1 of Part I of this Quarterly Report and the audited consolidated financial statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations for the year ended September 30, 2013, contained in our 2013 Annual Report on Form 10-K.
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. 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. We do not undertake any duty to update forward-looking statements after the date they are made or to conform them to actual results or to changes in circumstances or expectations.
OVERVIEW
Trimedyne, Inc. (the "Company", "we", "our" or "us") is engaged in the development, manufacturing and marketing of 80 and 30 watt Holmium "cold" pulsed lasers ("Lasers") and a variety of disposable and reusable, fiber optic laser energy delivery devices ("Fibers", "Needles" and "Tips") for use in a broad array of medical applications.
Our Lasers, Fibers, Needles and Tips have been cleared for sale by the U.S. Food and Drug Administration for use in orthopedics, urology, ear, nose and throat surgery, gynecology, gastrointestinal surgery, general surgery and other medical specialties. Many of the medical procedures in which our Lasers, Fibers, Needles and Tips are used are being reimbursed by Medicare and many insurance companies and health plans.
Our 100% owned subsidiary, Mobile Surgical Technologies, Inc. ("MST"), is engaged in the rental of lasers, along with the services of a trained operator and, if requested, the provision of applicable Fibers, Needles or Tips, on a "fee per case" basis to hospitals, surgery centers, group practices and individual physicians in Texas and nearby areas.
The principal market for our Lasers and Side Firing Needles is presently in orthopedics to treat herniated (bulging) and ruptured lumbar, thoracic and cervical discs in the spine, two of the four major causes of lower back, neck and leg pain, typically on an outpatient basis. Our Lasers and Tips are also used in orthopedics to treat damage in joints, such as the knee, shoulder, elbow, hip, ankle and wrist, in outpatient, arthroscopic procedures.
The Company's Lasers and Fibers are also used in Urology to fragment stones in the Kidney, ureter or bladder. The Company's VaporMAX(R) Side Firing Optical Fiber device is also used to vaporize a portion of the male prostate which is used with the Company’s Lasers in the treatment of benign prostate hyperplasia or "BPH", commonly referred to as an "enlarged prostate."
CRITICAL ACCOUNTING POLICIES
We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements require the use of estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amount of revenues and expenses during the reporting period. Our management periodically evaluates the estimates and judgments made. Management bases its estimates and judgments on historical experience and on various factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates as a result of different assumptions or conditions.
The methods, estimates, and judgment we use in applying our most critical accounting policies have a significant impact on the results we report in our consolidated financial statements. The SEC has defined "critical accounting policies" as those accounting policies that are most important to the portrayal of our financial condition and results, and require us to make our most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain based upon this definition. We also have other key accounting estimates and policies, but we believe that these other policies either do not generally require us to make estimates and judgments that are as difficult or as subjective, or it is less likely that they would have a material impact on our reported results of operations for a given period. For additional information see Note 2, "Summary of Significant Accounting Policies" in the notes to our reviewed consolidated financial statements appearing elsewhere in this quarterly report and our annual audited consolidated financial statements appearing on Form 10-K. Although we believe that our estimates and assumptions are reasonable, they are based upon information presently available, and actual results may differ significantly from these estimates.
RESULTS OF OPERATIONS
Method of Presentation
The unaudited condensed consolidated financial statements include the accounts of Trimedyne, Inc., its wholly owned subsidiary Mobile Surgical Technologies, Inc. ("MST") and its 90% owned subsidiary, Cardiodyne.
Quarter Ended December 31, 2013 Compared to Quarter Ended December 31, 2012
During the quarter ended December 31, 2013, net revenues were $1,399,000 as compared to $1,475,000 for the same period of the previous year, a $76,000 or 5% decrease. Net sales from Lasers and accessories increased by $235,000 or 490% to $283,000 during the three months ended December 31, 2013 from $48,000 in the same period of the prior year. The increase in Laser revenues was due to the sale of four lasers during the current quarter as compared to one Laser sold during the comparable prior period. Lasers carry a high selling price and are subject to a longer, less predictable closing period, which as a result, can create larger variances between periods. Net sales from Fibers, Needles and Tips decreased $197,000, or 29% to $477,000 during the current period ended December 31, 2013 as compared to $674,000 in the same period of the prior year. The decrease in sales was primarily the result of production delays resulting from setting up of our new production facility which created a temporary supply issue. Net sales from service and rental decreased by $114,000, or 15%, to $639,000 from $753,000 for the same quarters. The decrease was primarily due to a decrease in total fee-per-case revenues provided by MST.
Cost of sales during the quarter ended December 31, 2013, was 73% of net revenue as compared to 64% of net revenues for the prior year quarter. Gross profit from the sale of Lasers and accessories was 20% as compared to (25%) for the prior year three-month period. During the current three-month period 80 watt Lasers were sold, which carry a higher profit margin, compared with one 30 watt Laser sold during the prior year three-month period. Gross profit from the sale of Fibers, Needles and Tips was 37% for the current three-month period as compared to 45% for the same period of the prior year. The lower gross profit during the current period ended December 31, 2013 was primarily due to a volumizing difference created by the lower sales volume as compared to the comparable prior year period combined with the accrual of medical device tax resulting from the sales of Fibers, Needles and Tips. Gross profit from revenue received from service and rentals was 22% in the current quarter, as compared to 33% for the prior three-month period. The decrease in gross profit as a percentage of sales from service and revenue as compared to the prior year period was primarily due to a volumizing difference created by the decrease in revenues from MST combined with an increase in property tax on fixed assets allocated to sales and the increase of health insurance for the laser technicians.
Selling, general and administrative expenses decreased in the current quarter to $549,000 from $573,000 in the prior year quarter, a decrease of $24,000 or 4%. The decrease in selling, general and administrative expenses was primarily the result of decreases of $27,000 in payroll related expense, $26,000 in allocated property tax, $12,000 in rent expense, $5,000 in utilities expense, $3,000 in commission expense, and $3,000 in auto expense, , offset by increases of $19,000 in audit fees, $19,000 legal expense and $17,000 in outside services for administration. The overall decrease during the current period was the result of the Company’s continuing efforts to reduce its overhead expenses.
Research and development expenditures decreased to $124,000 or 2% for the quarter ended December 31, 2013, as compared $126,000 for the quarter ended December 31, 2012. During the period ended December 31, 2013, R&D activities consisted of producing samples and documentation for interstitial fiber optic delivery systems, expanding the existing line of single use and reusable bare fibers, optimizing label production and inspection for existing products, and updating risk management files in compliance with current international standards.
Other income, net increased by $18,000 or 90% to $38,000 in the first quarter ended December 31, 2013 from $20,000 in the first quarter of the prior year. Other income during the quarter ended December 31, 2013 primarily consisted of $30,000 of royalty income from Lumenis. The increase of other income during the current year quarter as compared to the prior quarter was primarily the result of an $13,000 increase in royalties received from Lumenis to $30,000 during the current year period from $17,000 during the comparable prior year comparable period combined with the receipt of $4,000 resulting from the prior litigation of a patent infringement.
For the current quarter, the Company had a net loss of $259,000, or $0.014 per share, as compared to net loss of $144,000, or $0.008 per share during the same period of the prior year, based on 18,395,960 basic weighted average number of common shares outstanding. The loss was primarily the result of lower revenues of Fibers, Needles and Tips due to the delaying of shipments. The delaying of shipments was the result of our moving to a new facility in June of 2013 which created a temporary shortage of product on hand. Management does not expect this trend to continue as we expect a return to normal inventory levels and shipments in the future.
Liquidity and Capital
At December 31, 2013, the Company had working capital of $2,435,000 compared to $2,711,000 at the end of the fiscal year ended September 30, 2013. Cash increased by $27,000 to $1,599,000 from $1,572,000 at September 30, 2013. Cash used in financing activities was $37,000 which was the result of payment on notes payable and a lease. During November 2013, the Company entered into an agreement to finance the purchase of an additional insurance policy for $21,000 and financed the upgrade of its IT infrastructure with a lease agreement for $119,000.
The Company is currently pursuing market development efforts in Asia, Latin America and Eastern Europe. We believe that by expanding healthcare infrastructure in these markets we may be able to create a sustained demand for Holmium Lasers applied to Spinal Endoscopy and Laser Lithotripsy. Additionally, we expect the global trend toward single-use disposable laser delivery products will improve sales and profit margins as more hospitals convert from multi-use products, due to concerns for sterility and interests to reduce handling costs incurred in product sterilization, and we are developing more single-use products.
OFF BALANCE SHEET ARRANGEMENTS
None.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. N/A
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures. Our management has evaluated, under the supervision and with the participation of our interim chief executive officer and principal financial officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (the "Exchange Act"). Based on that evaluation, our interim chief executive officer and principal financial officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner, and (2) accumulated and communicated to our management, including our chief executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting. There have been no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II Other Information
Item 1. Legal Proceedings
None
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. [Removed and Reserved]
Item 5. Other Information
None
Item 6. Exhibits
(a) Exhibits
| 31.1 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Marvin P. Loeb |
| 31.2 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Jeffrey S. Rudner |
| 32.1 | Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 32.2 | Principal Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 101.INS | XBRL Instance document |
| 101.SCH | XBRL Schema |
| 101.CAL | XBRL Calculation Linkbase |
| 101.DEF | XBRL Definition Linkbase |
| 101.LAB | XBRL Label Linkbase |
| 101.PRE | XBRL Presentation Linkbase |
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, 2014 | By: | s/ Marvin P. Loeb | |
| | | Marvin P. Loeb | |
| | | Chairman and Chief Executive Officer | |
| | | | |
| | TRIMEDYNE, INC. | |
| | | | |
| Date: February 19, 2014 | By: | s/ Jeffrey S. Rudner | |
| | | Jeffrey S. Rudner | |
| | | Principal Financial Officer | |
| | | | |
