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, 2015
or
[_] 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 [_]
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). Yes [X] No [_]
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 | [_] | Accelerated filer | [_] |
| Non-accelerated filer | [_] | 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 [_] No [X]
As of February 12, 2016, 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 | 12 |
| ITEM 3. | Quantitative and Qualitative Disclosures About Market Risk - N/A | 14 |
| ITEM 4. | Controls and Procedures | 14 |
| PART II. | Other Information | 15 |
| ITEM 1. | Legal Proceedings | 15 |
| ITEM 1A. | Risk Factors - N/A | 15 |
| ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 15 |
| ITEM 3. | Defaults Upon Senior Securities | 15 |
| ITEM 4. | Mine Safety Disclosures | 15 |
| ITEM 5. | Other Information | 15 |
| ITEM 6. | Exhibits | 15 |
| SIGNATURES | 16 | |
| 2 |
PART I -FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
TRIMEDYNE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| December 31, 2015 | September 30, 2015 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 386,000 | $ | 365,000 | ||||
| Trade accounts receivable, net of allowance for doubtful accounts of $11,000 at December 31, 2015 and September 30, 2015, respectively | 407,000 | 416,000 | ||||||
| Inventories | 1,563,000 | 1,808,000 | ||||||
| Other current assets | 119,000 | 96,000 | ||||||
| Total current assets | 2,475,000 | 2,685,000 | ||||||
| Property and equipment, net | 437,000 | 480,000 | ||||||
| Other | 73,000 | 75,000 | ||||||
| Goodwill | 544,000 | 544,000 | ||||||
| Total Assets | $ | 3,529,000 | $ | 3,784,000 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 172,000 | $ | 138,000 | ||||
| Accrued expenses | 354,000 | 426,000 | ||||||
| Deferred revenue | 20,000 | 26,000 | ||||||
| Accrued warranty | 61,000 | 50,000 | ||||||
| Taxes payable | 10,000 | 8,000 | ||||||
| Current portion of note payable and capital leases | 70,000 | 68,000 | ||||||
| Total current liabilities | 687,000 | 716,000 | ||||||
| Deferred rent | 3,000 | 5,000 | ||||||
| Long-term debt | – | 4,000 | ||||||
| Total liabilities | 690,000 | 725,000 | ||||||
| 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, 2015 and September 30, 2015, respectively | 186,000 | 186,000 | ||||||
| Additional paid-in capital | 51,359,000 | 51,356,000 | ||||||
| Accumulated deficit | (47,993,000 | ) | (47,770,000 | ) | ||||
| 3,552,000 | 3,772,000 | |||||||
| Treasury stock, at cost (101,609 shares) | (713,000 | ) | (713,000 | ) | ||||
| Total stockholders' equity | 2,839,000 | 3,059,000 | ||||||
| Total liabilities and stockholder's equity | $ | 3,529,000 | $ | 3,784,000 | ||||
See accompanying notes to condensed consolidated financial statements
| 3 |
TRIMEDYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| For the Three Months Ended December 31, | ||||||||
| 2015 | 2014 | |||||||
| Net revenues | $ | 1,408,000 | $ | 1,352,000 | ||||
| Cost of revenues | 1,099,000 | 912,000 | ||||||
| Gross profit | 309,000 | 440,000 | ||||||
| Operating expenses: | ||||||||
| Selling, general and administrative | 437,000 | 478,000 | ||||||
| Research and development | 92,000 | 128,000 | ||||||
| Total operating expenses | 529,000 | 606,000 | ||||||
| (Loss) from operations | (220,000 | ) | (166,000 | ) | ||||
| Other expense, net | (1,000 | ) | (1,000 | ) | ||||
| (Loss) before income taxes | (221,000 | ) | (167,000 | ) | ||||
| Provision for income taxes | 2,000 | 2,000 | ||||||
| Net (loss) | $ | (223,000 | ) | $ | (169,000 | ) | ||
| Net (loss) per share: | ||||||||
| Basic | $ | (0.01 | ) | $ | (0.01 | ) | ||
| Diluted | $ | (0.01 | ) | $ | (0.01 | ) | ||
| 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
| 4 |
TRIMEDYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Three Months Ended December 31, | ||||||||
| 2015 | 2014 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (223,000 | ) | (169,000 | ) | |||
| Adjustments to reconcile net loss to net (cash used) provided by in operating activities: | ||||||||
| Stock-based compensation | 3,000 | 1,000 | ||||||
| Depreciation and amortization | 43,000 | 53,000 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Trade accounts receivable | 9,000 | (59,000 | ) | |||||
| Inventories | 245,000 | (225,000 | ) | |||||
| Other assets | 13,000 | 27,000 | ||||||
| Accounts payable | 34,000 | (77,000 | ) | |||||
| Accrued expenses | (72,000 | ) | (78,000 | ) | ||||
| Income taxes | 2,000 | – | ||||||
| Deferred revenue | (6,000 | ) | 38,000 | |||||
| Accrued warranty | 11,000 | 3,000 | ||||||
| Deferred rent | (2,000 | ) | (2,000 | ) | ||||
| Net cash provided by (used in) operating activities | 57,000 | (488,000 | ) | |||||
| Cash flows from investing activities: | ||||||||
| Purchase of property and equipment | – | (26,000 | ) | |||||
| Net cash used in investing activities | – | (26,000 | ) | |||||
| Cash flows from financing activities: | ||||||||
| Principal payments on notes payable and capital leases | (36,000 | ) | (27,000 | ) | ||||
| Net cash used in financing activities | (36,000 | ) | (27,000 | ) | ||||
| Net (decrease) increase in cash and cash equivalents | 21,000 | (541,000 | ) | |||||
| Cash and cash equivalents at beginning of period | 365,000 | 1,292,000 | ||||||
| Cash and cash equivalents at end of period | $ | 386,000 | $ | 751,000 | ||||
Supplemental disclosure of cash flow information:
No cash was paid for income taxes during the three months ended December 31, 2015 and 2014. Cash paid for interest during the three months ended December 31, 2015 and 2014 was approximately $1,000 and $1,000, respectively.
During December of the current year quarter, the Company financed an additional insurance policy for approximately $30,000.
See accompanying notes to condensed consolidated financial statements
| 5 |
TRIMEDYNE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
(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.
Going Concern
At December 31, 2015, we had working capital of $1,788,000 compared to $1,969,000 at the end of the previous fiscal year ended September 30, 2015. Cash increased by $21,000 to $386,000 at December 31, 2015 from $365,000 at the fiscal year ended September 30, 2015.
As of December 31, 2015 we had cash on hand of $386,000. We intend to fund operations with cash on hand and from operations; however, additional working capital in the next 12 months may be required based upon our current expenditure rate. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The Company will attempt to lower our overhead costs on less profitable segments, raise additional debt and/or equity capital, sell some of our assets including utilization of current inventory, outsource some of our manufacturing processes and/or reduce our costs by eliminating certain personnel in order to reduce our cash consumption levels to a supportable level. There can be no assurances that we will be successful in those efforts. If we are unsuccessful in our efforts, we may be forced to reduce or curtail certain operational segments.
The Company's continuation as a going concern is dependent on its ability to meet its obligations, to obtain additional financing as may be required and ultimately to attain profitability. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
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 and Fibers in the fields of Laser Spinal Endoscopy, Laser Lithotripsy in the laser treatment of other conditions. Additionally, we expect the global trend toward single-use, disposable laser delivery devices will improve sales and profit margins as more hospitals convert from multi-use devices, due to concerns for sterility and handling costs incurred in product sterilization, and we hope to develop more single-use medical devices.
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, 2015 and the results of its operations and its cash flows for the three months ended December 31, 2015 and 2014. Results for the three months ended December 31, 2015 are not necessarily indicative of the results to be expected for the year ending September 30, 2016.
| 6 |
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 2015 annual report on Form 10-K for the year ended September 30, 2015.
Stock-Based Compensation
Stock-based compensation was $3,000 and $1,000 during the quarters ended December 31, 2015 and 2014, respectively. As of December 31, 2015, there was approximately $17,000 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, 2015 and 2014, outstanding options of 1,681,000 and 801,900, 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 were in excess of the average closing price of the Company’s common stock for the quarter ended December 31, 2015 and 2014.
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.
The Company maintains its cash with a major financial institution located in the United States of America which it believes to be credit worthy. Balances are insured by the Federal Deposit Insurance Corporation up to $250,000. At times, the Company maintains balances in excess of the federally insured limits.
| 7 |
NOTE 2 - Composition of Certain Balance Sheet Captions
Inventories, net of reserves, consist of the following:
| December 31, 2015 | September 30, 2015 | |||||||
| Raw materials | $ | 673,000 | $ | 616,000 | ||||
| Work-in-process | 117,000 | 288,000 | ||||||
| Finished goods | 773,000 | 904,000 | ||||||
| $ | 1,563,000 | $ | 1,808,000 | |||||
For the three months ended December 31, 2015 and 2014, 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, 2015 | September 30, 2015 | |||||||
| Prepaid insurance | 62,000 | 49,000 | ||||||
| Prepaid income tax | 3,000 | 3,000 | ||||||
| Prepaid rent | 13,000 | 13,000 | ||||||
| Short-term deposits | 7,000 | 7,000 | ||||||
| Other | 34,000 | 24,000 | ||||||
| Total other current assets | $ | 119,000 | $ | 96,000 | ||||
Property and equipment consist of the following:
| December 31, 2015 | September 30, 2015 | |||||||
| Furniture and equipment | $ | 3,478,000 | $ | 3,478,000 | ||||
| Leasehold improvements | 62,000 | 62,000 | ||||||
| Other | 325,000 | 325,000 | ||||||
| 3,865,000 | 3,865,000 | |||||||
| Less accumulated depreciation and amortization | (3,428,000 | ) | (3,385,000 | ) | ||||
| Total property and equipment | $ | 437,000 | $ | 480,000 | ||||
Accrued expenses consist of the following:
| December 31, 2015 | September 30, 2015 | |||||||
| Accrued vacation | $ | 198,000 | $ | 203,000 | ||||
| Accrued salaries and wages | 26,000 | 60,000 | ||||||
| Accrued compensation | 38,000 | 20,000 | ||||||
| Accrued bonus | 4,000 | 23,000 | ||||||
| Sales and use tax | 50,000 | 51,000 | ||||||
| Customer deposits | – | 30,000 | ||||||
| Commissions | 22,000 | 16,000 | ||||||
| Other | 16,000 | 23,000 | ||||||
| Total accrued expenses | $ | 354,000 | $ | 426,000 | ||||
| 8 |
NOTE 3 - Note Payable and Capital Lease
Note payable and capital leases consist of the following:
| December 31, 2015 | September 30, 2015 | |||||||
| 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 | $ | 36,000 | $ | 47,000 | ||||
| Finance agreement issued in connection with the purchasing of an insurance policy. The note bears interest at 4.9% per annum and requires monthly payments principal and interest payments of $2,191 through December 2016. | 28,000 | – | ||||||
| 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 $5,890 through March 2016. | 6,000 | 25,000 | ||||||
| $ | 70,000 | $ | 72,000 | |||||
| Less: current portion | (70,000 | ) | (68,000 | ) | ||||
| $ | – | $ | 4,000 | |||||
On November 12, 2015, the Company signed an amendment to its existing lease at its facility in Irvine, California extending the term until April 30, 2019. The amendment contains an increase in the base monthly rent beginning May 1, 2016 to $8,754 with two annual base rent increases on May 1, 2017 and May 1, 2018 of $9,017 and $9,287, respectively.
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.
| 9 |
NOTE 5 - Segment Information
The Company's segments consist of individual companies managed separately with each manager reporting to the Principal 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, 2015 and 2014 are as follows:
| For the Three Months Ended December 31, 2015 | For the Three Months Ended December 31, 2014 | |||||||||||||||||||||||
| Products | Service and Rental | Total | Products | Service and Rental | Total | |||||||||||||||||||
| Revenue | $ | 798,000 | $ | 610,000 | $ | 1,408,000 | $ | 669,000 | $ | 683,000 | $ | 1,352,000 | ||||||||||||
| Cost of sales | 618,000 | 481,000 | 1,099,000 | 414,000 | 498,000 | 912,000 | ||||||||||||||||||
| Gross profit | 180,000 | 129,000 | 309,000 | 255,000 | 185,000 | 440,000 | ||||||||||||||||||
| Expenses: | ||||||||||||||||||||||||
| Selling, general and administrative | 280,000 | 157,000 | 437,000 | 320,000 | 158,000 | 478,000 | ||||||||||||||||||
| Research and development | 92,000 | – | 92,000 | 128,000 | – | 128,000 | ||||||||||||||||||
| Income (loss) from operations | $ | (192,000 | ) | $ | (28,000 | ) | (220,000 | ) | $ | (193,000 | ) | $ | 27,000 | (166,000 | ) | |||||||||
| Other: | ||||||||||||||||||||||||
| Interest expense | (1,000 | ) | (1,000 | ) | ||||||||||||||||||||
| Royalty income | – | – | ||||||||||||||||||||||
| Other income | – | – | ||||||||||||||||||||||
| Provision for income tax | 2,000 | 2,000 | ||||||||||||||||||||||
| Net loss | $ | (223,000 | ) | $ | (169,000 | ) | ||||||||||||||||||
Sales and gross profit to customers by similar products and services for the three months ended December 31, 2015 and 2014 were as follows:
| For the Three Months Ended December 31, | ||||||||
| 2015 | 2014 | |||||||
| By similar products and services: | ||||||||
| Revenues: | ||||||||
| Laser equipment and accessories | $ | 403,000 | $ | 247,000 | ||||
| Delivery and disposable devices | 395,000 | 422,000 | ||||||
| Service and rental | 610,000 | 683,000 | ||||||
| Total | $ | 1,408,000 | $ | 1,352,000 | ||||
| Gross profit | ||||||||
| Laser equipment and accessories | $ | 18,000 | $ | 27,000 | ||||
| Delivery and disposable devices | 162,000 | 228,000 | ||||||
| Service and rental | 129,000 | 185,000 | ||||||
| Total | $ | 309,000 | $ | 440,000 | ||||
| 10 |
Sales in foreign countries for the three months ended December 31, 2015 and 2014 accounted for approximately 36% and 26%, respectively, of the Company's total sales. The breakdown by geographic region is as follows:
| Three Months Ended December 31, | ||||||||
| 2015 | 2014 | |||||||
| Asia | $ | 434,000 | $ | 254,000 | ||||
| Europe | 14,000 | 11,000 | ||||||
| Latin America | 27,000 | 88,000 | ||||||
| Australia | 27,000 | – | ||||||
| $ | 502,000 | $ | 353,000 | |||||
Total segment assets at December 31, 2015 and 2014 for the Product segment were $1,988,000 and $2,846,000, respectively, and for the Service and Rental segment were $1,520,000 and $1,553,000, respectively. The $858,000 difference between the Products segment at December 31, 2015 and 2014 was primarily the result of a decrease in cash and inventory at the quarter ended December 31, 2015 as compared to the quarter ended December 31, 2014. 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.
NOTE 6 - Subsequent Events
On February 10, 2016, Marvin P. Loeb resigned as Chairman of the Board and was elected Chairman Emeritus by the Board of Directors. In addition, Glenn D. Yeik was elected to the additional offices of Chairman of the Board and Chief Executive Officer by the Board of Directors.
| 11 |
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, 2015, contained in our 2015 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.
| 12 |
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, 2015 Compared to Quarter Ended December 31, 2014
During the quarter ended December 31, 2015, net revenues were $1,408,000 as compared to $1,352,000 for the same period of the previous year, a $56,000 or 4.1% increase. Net sales from Lasers and accessories increased by $156,000 or 63% to $403,000 during the three months ended December 31, 2015 from $247,000 in the same period of the prior year. The increase in Laser revenues were primarily the result the sale of six Lasers as compared to three Lasers sold during the quarters ended December 31, 2015 and 2014, respectively. Net sales from Fibers, Needles and Tips decreased $27,000, or 6% to $395,000 during the current period ended December 31, 2015 as compared to $422,000 in the same period of the prior year.The decrease in sales from Fibers, Needles and Tips was primarily the result of a decrease in domestic sales of Fibers, Needles and Tips during the current quarter ended December 31, 2015 as compared to the prior year quarter. Net sales from service and rental decreased by $73,000, or 11%, to $610,000 from $683,000 for the same quarters. The decrease was primarily due to a decrease in revenues from billable service and service parts from our facility in California.
Cost of sales during the quarter ended December 31, 2015 was 78% of net revenue as compared to 67% of net revenues for the prior year quarter. The higher cost of sales in the current quarter as compared to the prior year quarter was primarily the result of the sale of discounted Lasers to facilitate the growth of new markets in Asia. Gross profit as a percentage of sales from the sale of Lasers and accessories was 4% as compared to 11% for the prior year three-month period. The decrease in gross profit from the sale of Lasers in the current period as compared to the prior period was primarily the result of the sale of discounted Lasers to facilitate the growth of new markets in Asia. Gross profit as a percentage of sales from the Fibers, Needles and Tips was 42% for the quarter as compared to 54% for the same period of the prior fiscal year. The lower gross profit from the sale of Fibers, Needles and Tips was primarily a result of the over-absorption of manufacturing overhead during the current year quarter ended December 31, 2015 as compared to an under-absorption during the prior year quarter. Manufacturing overhead is absorbed by a percentage of manufacturing wages paid which decreased as a result of the discontinuance of a second manufacturing shift that was present during the prior year quarter. Gross profit as a percentage of sales from revenue received from service and rentals was 20% in the current quarter, as compared to 35% 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 the 15% decrease in the sales of service parts and revenue from billable service from our California facility, while maintaining fixed overhead expense.
Selling, general and administrative expenses decreased in the current quarter to $437,000 from $478,000 in the prior year quarter, a decrease of $41,000 or 9%. The decrease in selling, general and administrative expenses was primarily the result of decreases of $23,000 in payroll related expense, $11,000 in professional fees, $9,000 in outside administrative services and $6,000 in travel expense, offset by increases of $7,000 in bank fees. 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 $92,000 or 28% for the quarter ended December 31, 2015, as compared $128,000 for the quarter ended December 31, 2014. During the current quarter ended December 31, 2015, R&D activities consisted of updating documentation for existing products due to design changes, renewal of foreign approvals, supplier and third party audits, and updating risk management files in compliance with current international standards.
Other income and expense, remained unchanged to a net expense of $1,000 incurred for interest on notes payable during the current quarter ended December 31, 2015 and in the first quarter of the prior year.
For the current quarter, the Company had a net loss of $223,000, or $0.01 per share, as compared to net loss of $169,000, or $0.01 per share during the same period of the prior year, based on 18,395,960 basic weighted average number of common shares outstanding. The increase in loss for the current quarter was primarily the result of the decrease in net sales combined with less favorable margins from the sale of Lasers and Fibers, Needles and tips.
Liquidity and Capital
At December 31, 2015, the Company had working capital of $1,788,000 compared to $1,969,000 at the end of the fiscal year ended September 30, 2015. Cash increased by $21,000 to $386,000 from $365,000 at September 30, 2015. Cash used in financing activities was $36,000 which was the result of payment on notes payable and a lease. During the quarter ended December 31, 2015 and 2014, the Company financed an additional insurance policy for $30,000 and $22,000, respectively.
Management's Plans
At December 31, 2015, we had working capital of $1,788,000 compared to $1,969,000 at the end of the previous fiscal year ended September 30, 2015. Cash increased by $21,000 to $386,000 at December 31, 2015 from $365,000 at the fiscal year ended September 30, 2015.
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As of December 31, 2015 we had cash on hand of $386,000. We intend to fund operations with cash on hand and from operations; however, additional working capital in the next 12 months may be required based upon our current expenditure rate. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The Company will attempt to lower our overhead costs on less profitable segments, raise additional debt and/or equity capital, sell some of our assets including utilization of current inventory, outsource some of our manufacturing processes and/or reduce our costs by eliminating certain personnel in order to reduce our cash consumption levels to a supportable level. There can be no assurances that we will be successful in those efforts. If we are unsuccessful in our efforts, we may be forced to reduce or curtail certain operational segments.
The Company's continuation as a going concern is dependent on its ability to meet its obligations, to obtain additional financing as may be required and ultimately to attain profitability. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. If necessary, we will also attempt to raise additional debt and/or equity capital, sell some of our assets, reduce our costs by eliminating certain personnel positions and continue to reduce certain overhead costs in order to reduce our consumption levels.
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 and Fibers in the fields of Laser Spinal Endoscopy, Laser Lithotripsy in the laser treatment of other conditions. Additionally, we expect the global trend toward single-use, disposable laser delivery devices will improve sales and profit margins as more hospitals convert from multi-use devices, due to concerns for sterility and handling costs incurred in product sterilization, and we hope to develop more single-use medical devices.
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 principal 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 principal 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 principal 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.
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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 Glenn D. Yeik |
| 31.2 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Jeffrey S. Rudner |
| 32.1 | Principal 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 |
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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 16, 2016 | By: | /s/ Glenn D. Yeik | |
| Glenn D. Yeik | |||
| Chief Executive Officer | |||
| TRIMEDYNE, INC. | |||
| Date: February 16, 2016 | By: | /s/ Jeffrey S. Rudner | |
| Jeffrey S. Rudner | |||
| Principal Financial Officer | |||
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