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 June 30, 2014
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. Yes x 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). Yes o No x
As ofAugust 12, 2014, there were outstanding 18,395,960 shares of registrant's Common Stock.
TRIMEDYNE, INC.
| | | Page |
| | | |
| PART I. | Financial Information | 3 |
| | | |
| 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 |
| | | |
| ITEM 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 11 |
| | | |
| ITEM 3. | Quantitative and Qualitative Disclosures About Market Risk - N/A | 15 |
| | | |
| ITEM 4. | Controls and Procedures | 15 |
| | | |
| PART II. | Other Information | 16 |
| | | |
| ITEM 1. | Legal Proceedings | 16 |
| | | |
| ITEM 1A. | Risk Factors - N/A | 16 |
| | | |
| ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 16 |
| | | |
| ITEM 3. | Defaults Upon Senior Securities | 16 |
| | | |
| ITEM 4. | Mine Safety Disclosures | 16 |
| | | |
| ITEM 5. | Other Information | 16 |
| | | |
| ITEM 6. | Exhibits | 16 |
| | | |
| SIGNATURES | 17 |
PART I - FINANCIAL STATEMENT
ITEM 1. FINANCIAL INFORMATION
TRIMEDYNE, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
| | | June 30,
2014 | | | September 30,
2013 | |
| ASSETS | | | | | | | | |
| | | | | | | | | |
| Current assets: | | | | | | | | |
| Cash and cash equivalents | | $ | 1,318,000 | | | $ | 1,572,000 | |
| Trade accounts receivable, net of allowance for doubtful accounts of $11,000 at June 30, 2014 and September 30, 2013, respectively | | | 422,000 | | | | 475,000 | |
| Inventories | | | 1,264,000 | | | | 1,201,000 | |
| Other current assets | | | 170,000 | | | | 166,000 | |
| Total current assets | | | 3,174,000 | | | | 3,414,000 | |
| | | | | | | | | |
| Property and equipment, net | | | 688,000 | | | | 706,000 | |
| Other | | | 55,000 | | | | 37,000 | |
| Goodwill | | | 544,000 | | | | 544,000 | |
| | | | | | | | | |
| Total Assets | | $ | 4,461,000 | | | $ | 4,701,000 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | |
| | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Accounts payable | | $ | 197,000 | | | $ | 177,000 | |
| Accrued expenses | | | 442,000 | | | | 416,000 | |
| Deferred revenue | | | 41,000 | | | | 37,000 | |
| Accrued warranty | | | 24,000 | | | | 16,000 | |
| Income tax payable | | | 5,000 | | | | 8,000 | |
| Current portion of note payable and capital leases | | | 91,000 | | | | 49,000 | |
| Total current liabilities | | | 800,000 | | | | 703,000 | |
| | | | | | | | | |
| Deferred rent | | | 7,000 | | | | 11,000 | |
| Capital lease | | | 53,000 | | | | – | |
| | | | | | | | | |
| Total liabilities | | | 860,000 | | | | 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 June 30, 2014 and September 30, 2013, respectively | | | 186,000 | | | | 186,000 | |
| Additional paid-in capital | | | 51,310,000 | | | | 51,308,000 | |
| Accumulated deficit | | | (47,182,000 | ) | | | (46,794,000 | ) |
| | | | 4,314,000 | | | | 4,700,000 | |
| Treasury stock, at cost (101,609 shares) | | | (713,000 | ) | | | (713,000 | ) |
| | | | | | | | | |
| Total stockholders' equity | | | 3,601,000 | | | | 3,987,000 | |
| | | | | | | | | |
| Total liabilities and stockholders’ equity | | $ | 4,461,000 | | | $ | 4,701,000 | |
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, | |
| | | 2014 | | | 2013 | | | 2014 | | | 2013 | |
| Net revenues | | $ | 1,339,000 | | | $ | 1,681,000 | | | $ | 4,120,000 | | | $ | 4,726,000 | |
| Cost of sales | | | 924,000 | | | | 1,030,000 | | | | 2,778,000 | | | | 2,887,000 | |
| Gross profit | | | 415,000 | | | | 651,000 | | | | 1,342,000 | | | | 1,839,000 | |
| | | | | | | | | | | | | | | | | |
| Operating expenses: | | | | | | | | | | | | | | | | |
| Selling, general and administrative | | | 443,000 | | | | 667,000 | | | | 1,464,000 | | | | 1,812,000 | |
| Research and development | | | 107,000 | | | | 73,000 | | | | 343,000 | | | | 324,000 | |
| Total operating expenses | | | 550,000 | | | | 740,000 | | | | 1,807,000 | | | | 2,136,000 | |
| | | | | | | | | | | | | | | | | |
| Loss from operations | | | (135,000 | ) | | | (89,000 | ) | | | (465,000 | ) | | | (297,000 | ) |
| | | | | | | | | | | | | | | | | |
| Other income, net | | | 21,000 | | | | 34,000 | | | | 84,000 | | | | 263,000 | |
| | | | | | | | | | | | | | | | | |
| Loss before provision for income taxes | | | (114,000 | ) | | | (55,000 | ) | | | (381,000 | ) | | | (34,000 | ) |
| | | | | | | | | | | | | | | | | |
| Provision for income taxes | | | 4,000 | | | | 3,000 | | | | 7,000 | | | | 7,000 | |
| | | | | | | | | | | | | | | | | |
| Net loss | | $ | (118,000 | ) | | $ | (58,000 | ) | | $ | (388,000 | ) | | $ | (41,000 | ) |
| | | | | | | | | | | | | | | | | |
| Net loss per share: | | | | | | | | | | | | | | | | |
| Basic | | $ | (0.01 | ) | | $ | 0.00 | | | $ | (0.02 | ) | | $ | 0.00 | |
| Diluted | | $ | (0.01 | ) | | $ | 0.00 | | | $ | (0.02 | ) | | $ | 0.00 | |
| | | | | | | | | | | | | | | | | |
| Weighted average number of shares outstanding: | | | | | | | | | | | | | | | | |
| Basic | | | 18,395,960 | | | | 18,395,960 | | | | 18,395,960 | | | | 18,395,960 | |
| Diluted | | | 18,395,960 | | | | 18,395,960 | | | | 18,395,960 | | | | 18,395,960 | |
See accompanying notes to condensed consolidated financial statements.
TRIMEDYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| | | Nine Months Ended | |
| | | June 30, | |
| | | 2014 | | | 2013 | |
| Cash flows from operating activities: | | | | | | | | |
| Net loss | | $ | (388,000 | ) | | $ | (41,000 | ) |
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | | | | | | | | |
| Stock-based compensation | | | 2,000 | | | | 9,000 | |
| Depreciation and amortization | | | 165,000 | | | | 206,000 | |
| Gain on disposal of assets | | | – | | | | (11,000 | ) |
| Changes in operating assets and liabilities: | | | | | | | | |
| Trade accounts receivable | | | 53,000 | | | | (144,000 | ) |
| Inventories | | | (63,000 | ) | | | 615,000 | |
| Other assets | | | 60,000 | | | | 58,000 | |
| Accounts payable | | | 20,000 | | | | (23,000 | ) |
| Accrued expenses | | | 26,000 | | | | 52,000 | |
| Income tax payable | | | (3,000 | ) | | | 5,000 | |
| Deferred revenue | | | 4,000 | | | | (14,000 | ) |
| Accrued warranty | | | 8,000 | | | | – | |
| Deferred rent | | | (4,000 | ) | | | (37,000 | ) |
| | | | | | | | | |
| Net cash (used in) provided by operating activities | | | (120,000 | ) | | | 675,000 | |
| | | | | | | | | |
| Cash flows from investing activities: | | | | | | | | |
| Purchase of property and equipment | | | (16,000 | ) | | | (60,000 | ) |
| | | | | | | | | |
| Net cash used in investing activities | | | (16,000 | ) | | | (60,000 | ) |
| | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | |
| Payments on notes payable and capital leases | | | (118,000 | ) | | | (98,000 | ) |
| | | | | | | | | |
| Net cash used in financing activities | | | (118,000 | ) | | | (98,000 | ) |
| | | | | | | | | |
| Net (decrease) increase in cash and cash equivalents | | | (254,000 | ) | | | 517,000 | |
| Cash and cash equivalents at beginning of period | | | 1,572,000 | | | | 472,000 | |
| Cash and cash equivalents at end of period | | $ | 1,318,000 | | | $ | 989,000 | |
Supplemental disclosure of cash flow information:
Cash paid for income taxes during the nine months ended June 30, 2014 and 2013 was $10,000 and $1,000 respectively.
Cash paid for interest during the nine months ended June 30, 2014 and 2013 was approximately $4,000 and $2,000, respectively.
During November 2013, the Company financed the upgrading of its IT infrastructure with a lease agreement for $119,000.
During the nine months ended June 30, 2014 and 2013, the Company financed the purchase of certain insurance policies with a $94,000 and a $107,000 note, respectively.
See accompanying notes to condensed consolidated financial statements.
TRIMEDYNE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014
(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.
Management's Plans
The Company is currently pursuing market development efforts in Asia and Latin America. 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. We are also pursuing the development of new products in the areas of lasers and laser energy delivery systems. Additionally, we expect the global trend toward single-use disposable laser delivery products will continue as more hospitals convert from multi-use products, due to concerns for sterility, and to reduce costs incurred in product sterilization. As a result, we plan to develop more single-use products. However, markets in many countries can often be difficult to penetrate as product registration cycles are long and we have limited sales staff.
We believe that existing cash flows will be sufficient to fund operations through June 30, 2015; however, we have incurred losses from operations for the past four years. Although we expect that we will be able to curtain losses, there is no guarantee that the Company will be able to do so or will be profitable. Thus, it is possible that additional working capital in the next 12 to 24 months may be required. If necessary, we will raise additional debt and/or equity capital, sell some of our assets and reduce our labor and overhead costs. There is no guarantee that our efforts to do so will be successful.
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 June 30, 2014 and the results of their operations and their cash flows for the nine months ended June 30, 2014 and 2013. Results for the nine months ended June 30, 2014 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, losses for contingencies and certain accrued liabilities, as well as the valuation of equity compensation.
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.
Stock-Based Compensation
Stock-based compensation was $2,000 and $9,000 during the nine months ended June 30, 2014 and 2013, respectively. As of June 30, 2014, there was approximately $4,215 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 seven quarterly 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 and nine months ended June 30, 2014 and 2013, outstanding options of 818,900 and 914,900, 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, with the exception of 110,000 options and no options, were in excess of the average closing price of the Company’s common stock for the periods ended June 30, 2014 and 2013.
Cash and Cash Equivalents
The Company considers all highly liquid investments with insignificant interest rate risk and original maturities of three months or less from the date of purchase to be cash equivalents. The carrying amounts of cash and cash equivalents approximate their fair values.
At June 30, 2014, the Company had cash balances in excess of federally insured limits of $250,000 in the amount of $964,000.
NOTE 2 - Composition of Certain Balance Sheet Captions
Inventories, net of reserves, consist of the following:
| | | June 30,
2014 | | | September 30,
2013 | |
| Raw materials | | $ | 592,000 | | | $ | 501,000 | |
| Work-in-process | | | 159,000 | | | | 94,000 | |
| Finished goods | | | 513,000 | | | | 606,000 | |
| | | $ | 1,264,000 | | | $ | 1,201,000 | |
For the three months ended June 30, 2014 and 2013, 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:
| | | June 30,
2014 | | | September 30,
2013 | |
| Royalty receivable | | $ | 22,000 | | | $ | 25,000 | |
| Prepaid insurance | | | 79,000 | | | | 68,000 | |
| Prepaid taxes | | | 7,000 | | | | 6,000 | |
| Prepaid rent | | | 13,000 | | | | 13,000 | |
| Short-term deposits | | | 8,000 | | | | 8,000 | |
| Other | | | 41,000 | | | | 46,000 | |
| Total other current assets | | $ | 170,000 | | | $ | 166,000 | |
Property and equipment consist of the following:
| | | June 30,
2014 | | | September 30,
2013 | |
| Furniture and equipment | | $ | 3,534,000 | | | $ | 3,434,000 | |
| Leasehold improvements | | | 57,000 | | | | 45,000 | |
| Other | | | 316,000 | | | | 317,000 | |
| | | | 3,907,000 | | | | 3,796,000 | |
| Less accumulated depreciation and amortization | | | (3,219,000 | ) | | | (3,090,000 | ) |
| Total property and equipment | | $ | 688,000 | | | $ | 706,000 | |
Accrued expenses consist of the following:
| | | June 30,
2014 | | | September 30,
2013 | |
| Accrued vacation | | $ | 175,000 | | | $ | 146,000 | |
| Accrued salaries and wages | | | 91,000 | | | | 51,000 | |
| Accrued compensation | | | – | | | | 55,000 | |
| Accrued bonus | | | 12,000 | | | | 30,000 | |
| Medical device tax | | | 73,000 | | | | 39,000 | |
| Sales and use tax | | | 49,000 | | | | 52,000 | |
| Customer deposits | | | 2,000 | | | | 2,000 | |
| Commissions | | | 14,000 | | | | 23,000 | |
| Other | | | 26,000 | | | | 18,000 | |
| Total accrued expenses | | $ | 442,000 | | | $ | 416,000 | |
NOTE 3 - Note Payable and Capital Leases
Note payable and capital leases consist of the following:
| | | June 30, | | | September 30, | |
| | | 2014 | | | 2013 | |
| Finance agreement issued in connection with the purchasing of insurance policies. The note bears interest at 3.35% per annum and requires monthly principal and interest payments of $9,851 through March 2014. | | | – | | | | 49,000 | |
| | | | | | | | | |
| 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. | | | 92,000 | | | | – | |
| | | | | | | | | |
| 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 November 2014. | | | 7,000 | | | | – | |
| | | | | | | | | |
| Finance agreement issued in connection with the purchasing of insurance policies. The note bears interest at 3.35% per annum and requires monthly principal and interest payments of $5,693 through February 2015. | | | 45,000 | | | | – | |
| | | | | | | | | |
| | | $ | 144,000 | | | $ | 49,000 | |
| | | | | | | | | |
| Less: current portion | | | (91,000 | ) | | | (49,000 | ) |
| | | $ | 53,000 | | | $ | – | |
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. We are not presently involved in any litigation.
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 and Medicaid Programs, 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 and nine months ended June 30, 2014 and 2013 are as follows:
| | | For the Three Months Ended June 30, 2014 | | | For the Three Months Ended June 30, 2013 | |
| | | Products | | | Service and Rental | | | Total | | | Products | | | Service and Rental | | | Total | |
| Revenue | | $ | 665,000 | | | $ | 674,000 | | | $ | 1,339,000 | | | $ | 945,000 | | | $ | 736,000 | | | $ | 1,681,000 | |
| Cost of sales | | | 486,000 | | | | 438,000 | | | | 924,000 | | | | 543,000 | | | | 487,000 | | | | 1,030,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Gross profit | | | 179,000 | | | | 236,000 | | | | 415,000 | | | | 402,000 | | | | 249,000 | | | | 651,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Expenses: | | | | | | | | | | | | | | | | | | | | | | | | |
| Selling, general and administrative | | | 298,000 | | | | 145,000 | | | | 443,000 | | | | 491,000 | | | | 176,000 | | | | 667,000 | |
| Research and development | | | 107,000 | | | | – | | | | 107,000 | | | | 73,000 | | | | – | | | | 73,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Income (loss) from operations | | $ | (226,000 | ) | | $ | 91,000 | | | | (135,000) | | | $ | (162,000 | ) | | $ | 73,000 | | | | (89,000 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Other: | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest expense | | | | | | | | | | | (1,000 | ) | | | | | | | | | | | (1,000 | ) |
| Royalty income | | �� | | | | | | | | | 20,000 | | | | | | | | | | | | 22,000 | |
| Gain (loss) on disposal of equipment | | | | | | | | | | | -- | | | | | | | | | | | | 11,000 | |
| Other income | | | | | | | | | | | 2,000 | | | | | | | | | | | | 2,000 | |
| Income taxes | | | | | | | | | | | (4,000 | ) | | | | | | | | | | | (3,000 | ) |
| Net loss | | | | | | | | | | $ | (118,000 | ) | | | | | | | | | | $ | (58,000 | ) |
| | | For the Nine Months Ended June 30, 2014 | | | For the Nine Months Ended June 30, 2013 | |
| | | Products | | | Service and Rental | | | Total | | | Products | | | Service and Rental | | | Total | |
| Revenue | | $ | 2,229,000 | | | $ | 1,891,000 | | | $ | 4,120,000 | | | $ | 2,565,000 | | | $ | 2,161,000 | | | $ | 4,726,000 | |
| Cost of sales | | | 1,462,000 | | | | 1,316,000 | | | | 2,778,000 | | | | 1,452,000 | | | | 1,435,000 | | | | 2,887,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Gross profit | | | 767,000 | | | | 575,000 | | | | 1,342,000 | | | | 1,113,000 | | | | 726,000 | | | | 1,839,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Expenses: | | | | | | | | | | | | | | | | | | | | | | | | |
| Selling, general and administrative | | | 1,009,000 | | | | 455,000 | | | | 1,464,000 | | | | 1,285,000 | | | | 527,000 | | | | 1,812,000 | |
| Research and development | | | 343,000 | | | | – | | | | 343,000 | | | | 324,000 | | | | – | | | | 324,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Income (loss) from operations | | $ | (585,000 | ) | | $ | 120,000 | | | | (465,000 | ) | | $ | (496,000 | ) | | $ | 199,000 | | | | (297,000 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Other: | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest expense | | | | | | | | | | | (4,000 | ) | | | | | | | | | | | (2,000 | ) |
| Royalty income | | | | | | | | | | | 74,000 | | | | | | | | | | | | 73,000 | |
| Gain on disposal of equipment | | | | | | | | | | | -- | | | | | | | | | | | | 11,000 | |
| Other income | | | | | | | | | | | 14,000 | | | | | | | | | | | | 181,000 | |
| Income taxes | | | | | | | | | | | (7,000 | ) | | | | | | | | | | | (7,000 | ) |
| Net loss | | | | | | | | | | $ | (388,000 | ) | | | | | | | | | | $ | (41,000 | ) |
Sales and gross profit to customers by similar products and services for the three and nine months ended June 30, 2014 and 2013 were as follows:
| | | For the Three Months Ended June 30, | | | For the Nine Months Ended June 30, | |
| | | 2014 | | | 2013 | | | 2014 | | | 2013 | |
| By similar products and services: | | | | | | | | | | | | | | | | |
| Revenues: | | | | | | | | | | | | | | | | |
| Products: | | | | | | | | | | | | | | | | |
| Laser equipment and accessories | | $ | 203,000 | | | $ | 284,000 | | | $ | 569,000 | | | $ | 501,000 | |
| Delivery and disposable devices | | | 462,000 | | | | 661,000 | | | | 1,660,000 | | | | 2,064,000 | |
| Service and rental | | | 674,000 | | | | 736,000 | | | | 1,891,000 | | | | 2,161,000 | |
| Total | | $ | 1,339,000 | | | $ | 1,681,000 | | | $ | 4,120,000 | | | $ | 4,726,000 | |
| | | | | | | | | | | | | | | | | |
| Gross profit | | | | | | | | | | | | | | | | |
| Products: | | | | | | | | | | | | | | | | |
| Laser equipment and accessories | | $ | 13,000 | | | $ | 64,000 | | | $ | 65,000 | | | $ | 107,000 | |
| Delivery and disposable devices | | | 166,000 | | | | 338,000 | | | | 702,000 | | | | 1,006,000 | |
| Service and rental | | | 236,000 | | | | 249,000 | | | | 575,000 | | | | 726,000 | |
| Total | | $ | 415,000 | | | $ | 651,000 | | | $ | 1,342,000 | | | $ | 1,839,000 | |
Sales in foreign countries for the three months ended June 30, 2014 and 2013, accounted for approximately 28% and 31%, respectively, of the Company's total sales. Sales in foreign countries for the nine months ended June 30, 2014 and 2013 accounted for approximately 23% and 23%, respectively, of the Company's total sales. The breakdown by geographic region is as follows:
| | | Three Months | | | Three Months | | | Nine Months | | | Nine Months | |
| | | Ended
June 30, 2014 | | | Ended
June 30, 2013 | | | Ended
June 30, 2014 | | | Ended
June 30, 2013 | |
| Asia | | $ | 255,000 | | | $ | 366,000 | | | $ | 711,000 | | | $ | 505,000 | |
| Europe | | | 23,000 | | | | 145,000 | | | | 46,000 | | | | 304,000 | |
| Latin America | | | 75,000 | | | | 5,000 | | | | 125,000 | | | | 222,000 | |
| Middle East | | | – | | | | 2,000 | | | | 1,000 | | | | 3,000 | |
| Australia | | | 20,000 | | | | 11,000 | | | | 43,000 | | | | 31,000 | |
| Other | | | – | | | | – | | | | 1,000 | | | | 2,000 | |
| | | $ | 373,000 | | | $ | 529,000 | | | $ | 927,000 | | | $ | 1,067,000 | |
During the three and nine months ended June 30, 2014 and 2013, one Laser was located in Canada and three Lasers, one located in Brazil, Canada and India, respectively.
Total segment assets at June 30, 2014 and 2013 for the Products segment were $2,774,000 and $2,692,000, respectively, and for the Service and Rental segment were $1,665,000 and $1,581,000, respectively. The $82,000 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.
NOTE 6 - Subsequent Events
In August 2010, we entered into a Settlement and a Non-Exclusive License Agreement with Lumenis, Ltd. of Yokneam, Israel (“Lumenis”), covering two of our patents. This License Agreement expired on July 31, 2014, the date on which the last of the patents expired, and no more royalty payments will be received per the License Agreement after that date.
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 in the spine, the knee, shoulder, elbow, hip, ankle and wrist, in outpatient, arthroscopic and orthopedic/neurosurgical 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 was developed 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." Our VaporMAX(R) Side Firing Optical Fiber device is made with proprietary connectors that fit our Lasers and with conventional SMA connectors that fit certain lasers made by others.
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 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 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 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, our most critical estimates assumptions include inventory valuation, allowances for doubtful accounts and deferred income tax assets, recoverability of goodwill and long-lived assets, losses for contingencies and certain accrued liabilities, as well as the valuation of equity compensation. 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 financial statements appearing elsewhere in this quarterly report and our annual audited 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.
Three months ended June 30, 2014 compared to three months ended June 30, 2013
During the quarter ended June 30, 2014, net revenues were $1,339,000 as compared to $1,681,000 for the same period of the previous year, a $342,000 or 20% decrease primarily due to a decrease in revenues from Fibers, Needles and Tips. Net sales from lasers and accessories decreased by $81,000 or 29% to $203,000 during the three months ended June 30, 2014 from $284,000 in the same period of the prior year. Net sales from Fibers, Needles and Tips decreased by $199,000 or 30% to $462,000 during the three months ended June 30, 2014 from $661,000 in the same period of the prior year. The decrease in sales during the current period was primarily the result of customer demand issues resulting from production issues created by the relocation of our California operations to a smaller facility. We are continuing to adapt and, as a result, have created a second shift for production to meet our customers’ demands for product. Export sales decreased by $156,000 or 30% to $373,000 from $529,000 for the same quarter of the prior year. The decrease in export sales was primarily due to a decrease in laser sales to Asia as compared to the prior year quarter ended June 30, 2013. Net sales from service and rental during the current quarter decreased by $62,000 or 8% to $674,000 from $736,000 for the same quarter of the prior year. This decrease was primarily due to a decrease in fee-per-case revenues from MST.
Cost of sales during the quarter ended June 30, 2014 was $924,000 or 69% of net revenues as compared to $1,030,000 or 61% during the prior year quarter. Gross profit from the sale of lasers and accessories was $13,000 or 6% as compared to 23% for the prior year three-month period. The decrease in gross profit for lasers and accessories during the current year period was primarily the result of the sale of discounted lasers combined with a volumizing difference created by lower production during the current year. Gross profit from the sale of delivery and disposable devices was 36% as compared to 51% for the prior year three-month period. The decrease in gross profit during the current three-month period as compared to the prior year was primarily due to a volumizing difference created by lower production during the current year quarter resulting from the 30% decrease in sales. Gross profit from revenue received from service and rentals during the current three-month period was 35% as compared to 34% for the prior year three month-period.
For the quarter ended June 30, 2014, selling, general and administrative decreased $224,000 or 34% to $443,000 as compared to the prior year quarter of $667,000. The decrease in selling, general and administrative expenses during the current three-month period was primarily due to the following:
| Expense Description | | (Decrease) |
| Relocation | | (112,000) |
| Payroll related | | (34,000) |
| Rent | | (32,000) |
| Commissions and bonus | | (20,000) |
| Insurance | | (10,000) |
| Utilities | | (8,000) |
| Bad debt and collections | | (8,000) |
Research and development expenditures for the quarter ended June 30, 2014 increased $34,000 or 47% to $107,000 as compared to $73,000 in the quarter ended June 30, 2013. The increase in expenditure during the current year three-month period as compared to the prior year three-month period was due to the addition of staff during the current year three-month period and a one-time adjustment combined with the temporary ceasing of the department’s activities to prepare for the relocation of our California operations in the prior year three-month period.
Other income, net, decreased during the quarter ended June 30, 2014 by $13,000 to $21,000 from $34,000 in the same quarter of the prior year. The decrease in other income was primarily the result of $11,000 received from the disposal of assets during the prior year period. Royalty payments received from Lumenis during the quarters ended June 30, 2014 and 2013 were $20,000 and $22,000, respectively.
For the current quarter, the Company had a net loss of $118,000 or $0.01 per share, based on 18,395,960 basic weighted average number of common shares outstanding, as compared to a net loss of $58,000 or $0.00 per share, based on 18,395,960 basic weighted average number of common shares outstanding in the same quarter of the previous year.
Nine months ended June 30, 2014 compared to nine months ended June 30, 2013
During the nine months ended June 30, 2014, net revenues were $4,120,000 as compared to $4,726,000 for the same period of the previous year, a $606,000 or 13% decrease. Net revenues from lasers and accessories increased by $68,000 or 14% to $569,000 during the nine months ended June 30, 2014 from $501,000 in the same period of the prior year. Net revenues from Fibers, Needles and Tips decreased by $404,000 or 20% to $1,660,000 during the nine months ended June 30, 2014 from $2,064,000 for the same period of the prior year. The decrease in sales during the current period was primarily the result of customer demand issues resulting from production issues created by the relocation of our California operations to a smaller facility. We are continuing to adapt and, as a result, have created a second shift for production to meet our customers’ demands for product. During the nine months ended June 30, 2014, export sales decreased $140,000 or 13% to $927,000 from $1,067,000 during the same period of the prior year. The decrease in export sales was primarily the result of a $355,000 decrease in sales to Europe and Latin America offset by an increase of $206,000 in sales to Asia. Net sales from service and rental decreased by $270,000 or 13% to $1,891,000 from $2,161,000 for the same quarters in the prior year. This decrease was primarily due to a decrease in fee-per-case revenues generated from MST.
Cost of sales during the nine months ended June 30, 2014 was $2,778,000 or 67% of net revenues as compared to $2,887,000 or 61% for the same period of the prior year. Gross profit from the sale of Lasers and accessories was 11% as compared to 21% for the prior year nine-month period. The decrease in gross profit for lasers and accessories during the current year period was primarily the result of the sale of discounted lasers combined with the accrual of the federal medical device excise tax for two quarters. Gross profit from the sale of Fibers, Needles and Tips was 42% during the current nine-month period as compared to 49% during the prior year nine-month period. The decrease in gross profit during the current three-month period as compared to the prior year was primarily due to a volumizing difference created by lower production during the current year quarter resulting from the 20% decrease in sales combined with the accrual of the federal medical device tax for two quarters. Gross profit from revenue received from service and rentals during the current nine-month period was 30% as compared to 34% for the prior year nine-month period. This decrease in gross profit was primarily due to a decrease in fee-per-case revenue from MST while maintaining existing overhead combined with a decrease in billable service revenue from our California facility while maintaining existing overhead.
For the nine months ended June 30, 2014, selling, general and administrative expenses totaled $1,464,000 as compared to $1,812,000 for the same period of the previous year, a $348,000 or 19% decrease. The decrease in selling, general and administration expense was primarily due to the following:
| Expense Description | | (Decrease)/Increase |
| Relocation | | (115,000) |
| Payroll related | | (99,000) |
| Rent | | (65,000) |
| Commissions and bonus | | (53,000) |
| Employee benefits | | (17,000) |
| Utilities | | (16,000) |
| Certifications and licenses | | (15,000) |
| Other savings, net | | (33,000) |
| Outside administrative services | | 36,000 |
| Legal | | 18,000 |
| Bank charges and fees | | 11,000 |
During the nine months ended June 30, 2014, research and development expenses increased to $343,000 from $324,000 in the prior year nine-month period, an increase of $19,000 or 6%. During the nine-month period ended June 30, 2014, R&D activities consisted of producing samples and documentation for gas cannula and 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 decreased by $179,000 or 68% to $84,000 in the current nine-month period from $263,000 in the previous nine-month period of fiscal 2013. This decrease was primarily the result of the receipt of $166,000 from our insurance carrier due to its acquisition from another party during the prior year nine-month period. Interest expense increased by $2,000 to $4,000 or 100% during the current nine-month period as compared to $2,000 during the same period during the prior year, resulting from the payments on leases and certain notes payable. Royalty payments received from Lumenis during the nine-month periods ended June 30, 2014 and 2013 were $74,000 and $73,000, respectively.
For the nine months ended June 30, 2014, the Company had net loss of $388,000 or $0.02 per share, based on 18,395,960 basic weighted average number of common shares outstanding, as compared to a net loss of $41,000 or $0.00 per share, based on 18,395,960 basic weighted average number of common shares outstanding in the same period of the previous year, resulting from the above mentioned factors.
Liquidity and Capital
At June 30, 2014, the Company had working capital of $2,374,000 compared to $2,711,000 at the end of the fiscal year ended September 30, 2013. Cash decreased by $254,000 to $1,318,000 from $1,572,000 at September 30, 2013. Cash used in investing was $16,000 for the purchase of additional fixed assets. Cash used in financing activities was $118,000 which was the result of payments on notes payable and a lease.
The Company is currently pursuing market development efforts in growth markets in Pacific Rim countries, Latin America and Eastern Europe. We believe that by expanding healthcare infrastructure in these markets we will create a sustained demand for Holmium Lasers applied to Spinal Endoscopy, Laser Lithotripsy and Laser prostate ablation. 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 to reduce costs incurred in product sterilization and, as a result, we are developing more single-use products.
OFF BALANCE SHEET ARRANGEMENTS
None.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures. Our management has evaluated, under the supervision and with the participation of our 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 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: August 14, 2014 | By: | /s/ Marvin P. Loeb | |
| | | Marvin P. Loeb | |
| | | Chairman and Chief Executive Officer | |
| | | | |
| | TRIMEDYNE, INC. | |
| | | | |
| Date: August 14, 2014 | By: | /s/ Jeffrey S. Rudner | |
| | | Jeffrey S. Rudner | |
| | | Principal Financial Officer | |
| | | | |
