February 10, 2009
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Mail Stop 3030
United States Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
RE: TRIMEDYNE, INC.
FILE NO. 0-10581
FORM 10-K FOR FISCAL YEAR ENDED SEPTEMBER 30, 2008
Dear Mr. Atallah:
This letter responds to your comment letter dated January 30, 2009 regarding the
above referenced Annual Report of Trimedyne, Inc. (the "Company"). To facilitate
your review of this response, each of the Company's responses is
cross-referenced to the numbered comments in your letter, and the text of each
of your comments precedes our response.
FORM 10-K FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2008
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ITEM 8A. CONTROLS AND PROCEDURES, PAGE 17
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COMMENT NO. 1. IT DOES NOT APPEAR THAT YOUR MANAGEMENT HAS COMPLETED ITS
ASSESSMENT OF INTERNAL CONTROL OVER FINANCIAL REPORTING AS OF SEPTEMBER 30,
2008. SINCE YOU WERE REQUIRED TO FILE OR FILED AN ANNUAL REPORT FOR THE PRIOR
FISCAL YEAR, IT APPEARS YOU ARE REQUIRED TO REPORT ON YOUR MANAGEMENT'S
ASSESSMENT OF INTERNAL CONTROL OVER FINACIAL REPORTING.
IF YOUR MANAGEMENT HAS NOT YET COMPLETED ITS ASSESSMENT, WE ASK THAT YOU
COMPLETE YOUR EVALUATION AND AMEND YOUR FILING WITHIN 30 CALENDAR DAYS TO
PROVIDE THE REQUIRED MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING.
IN ADDITION, PLEASE CONSIDER WHETHER MANAGEMENT'S FAILURE TO PERFORM OR COMPLETE
ITS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING IMPACTS ITS CONCLUSIONS
REGARDING THE EFFECTIVENESS OF YOUR DISCLOSURE CONTROLS AND PROCEDURES AS OF THE
END OF THE FISCAL YEAR COVERED BY THE REPORT AND REVISE YOUR DISCLOSURE AS
APPROPRIATE. IN PARTICULAR, PLEASE EXPLAIN HOW YOU CONSIDERED THE DEFINITION OF
DISCLOSURE CONTROLS AND PROCEDURES DESCRIBED IN RULE 13A-15(E), WHICH INDICATES
THAT EFFECTIVE CONTROLS AND PROCEDURES WOULD INSURE THAT INFORMATION REQUIRED TO
BE DISCLOSED BY THE ISSUER IS RECORDED, PROCESSED, SUMMARIZED AND REPORTED
WITHIN THE TIME PERIODS SPECIFIED IN THE COMMISSION'S RULES AND FORMS.
FINALLY, WE NOTED THAT YOU FILED YOUR PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL
FINANCIAL OFFICER CERTIFICATIONS UNDER ITEM 601(B)(31) OF REGULATION S-K. PLEASE
REVISE THESE CERTIFICATIONS TO INCLUDE THE INTRODUCTORY LANGUAGE OF PARAGRAPH 4
OF ITEM 601(B)(31) OF REGULATION S-K.
Management completed its assessment of internal controls over financial
reporting as of the end of the fiscal year, but we inadvertently omitted the
assessment from our annual report. We have included the assessment in Amendment
No. 1 to Form 10-K. As requested, we have amended the certifications under Item
601(b)(31) to include the introductory language of paragraph 4 of Item
601(b)(31) of Regulation S-K in our Amendment #1 to Form 10-K.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, PAGE F-8
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GOODWILL, PAGE 9
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COMMENT 2. PLEASE TELL US AND REVISE THIS NOTE IN FUTURE FILINGS TO DISCLOSE IN
GREATER DETAIL HOW YOU EVALUATE YOUR GOODWILL FOR IMPAIRMENT. IN THIS REGARD,
PLEASE ALSO ADDRESS THE FOLLOWING IN THE CRITICAL ACCOUNTING POLOCIES SECTION OF
MD&A IN FUTURE FILINGS:
DISCLOSE THE NUMBER OF REPORTING UNITS THAT YOU HAVE IDENTIFIED PURSUANT TO
PARAGRAPH 30 OF SFAS 142.
DISCUSS THE TWO-STEP IMPAIRMENT TESTING THAT YOU PERFORM PURSUANT TO PARAGRAPHS
19-22 OF SFAS 142.
DISCLOSE YOUR VALUATION METHODOLOGY AND ANY SIGNIFICANT ASSUMPTIONS USED TO
VALUE GOODWILL. TO THE EXTENT THAT YOUR VALUATION METHODOLOGY HAS CHANGED FROM
PRIOR PERIODS, DISCLOSE THIS FACT AND THE REASONS FOR THE CHANGE.
See our response in Comment 3, below.
COMMENT 3. AS A RELATED MATTER WE NOTE THE SIGNIFICANT DISCREPANCY BETWEEN YOUR
MARKET CAPITALIZATION AS OF SEPTEMBER 30,2008 (APPPROXIMATELY $3.9 MILLION) AND
THE BOOK VALUE OF YOUR EQUITY AS OF SEPTEMBER 30, 2008 ($6.2 MILLION). PLEASE
EXPALIN TO US HOW YOU DETERMINED THAT YOUR GOODWILL WAS NOT IMPAIRED. PLEASE
ADDRESS THE FOLLOWING:
1
TELL US AND REVISE FUTURE FILINGS TO DISCLOSE THE DATE AT WHICH YOU PERFORM YOUR
ANNUAL GOODWILL IMPAIRMENT ANALYSIS.
TELL US AND REVISE FUTURE FILINGS TO DISCLOSE THE RESULTS OF THE FIRST STEP OF
YOUR GOODWILL IMPAIRMENT TEST. TO THE EXTENT THAT YOU ARE REQUIRED TO PERFORM
THE SECOND STEPOF THE IMPARMENT TEST, DISCLOSE THIS FACT IN FUTURE FILINGS.
PROVIDE US WITH A SUMMARY OF THE RESULTS OF YOUR GOODWILL IMPAIRMENT EVALUATION.
In response to Comments 2 and 3 above, we will revise in future filings our
disclosures regarding goodwill as follows:
Goodwill
The Company accounts for goodwill and acquired intangible assets in accordance
with Statement of Financial Accounting Standards ("SFAS")No. 142 "Goodwill and
Other Intangible Assets", whereby goodwill is not amortized, and is tested for
impairment at the reporting unit level annually during the fourth quarter and in
interim periods if certain events occur indicating that the carrying value of
goodwill may be impaired. A reporting unit is an operating segment for which
discrete financial information is available and is regularly reviewed by
management. The Company has one reporting unit, our service and rental group, to
which goodwill is assigned.
SFAS 142 requires a two-step approach to test goodwill for impairment for each
reporting unit. The first step tests for impairment by applying fair value-based
tests to a reporting unit. The second step, if deemed necessary, measures the
impairment by applying fair value-based tests to specific assets and liabilities
within the reporting unit. Application of the goodwill impairment tests require
judgment, including identification of reporting units, assignment of assets and
liabilities to each reporting unit, assignment of goodwill to each reporting
unit, and determination of the fair value of each reporting unit. The
determination of fair value for a reporting unit could be materially affected by
changes in these estimates and assumptions.
As part of the first step, the Company generally estimates the fair value of the
reporting unit based on market prices (i.e., the amount for which the assets
could be bought by or sold to a third party), when available. When market prices
are not available, we estimate the fair value of the reporting unit using the
income approach. The income approach uses cash flow projections. Inherent in our
development of cash flow projections are assumptions and estimates derived from
a review of our historical operating results, future business plans, expected
growth rates, cost of capital, future economic conditions, etc. Many of the
factors used in assessing fair value are outside the control of management, and
these assumptions and estimates can change in future periods. During the fourth
quarter of the year ended September 30, 2008, the Company conducted a goodwill
impairment test for its service and rental group using a combination of the
market and income approach. As a result of the first step analysis, the expected
cash flows to be generated by the service and rental were sufficient enough to
support the carrying value of the goodwill. Thus, the Company determined there
was no impairment of the goodwill as of September 30, 2008.
SHIPPING AND HANDLING COSTS, PAGE 11
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COMMENT NO. 4. WE NOTE THAT SHIPPING AND HANDLING COSTS BILLED TO CUSTOMERS ARE
REPORTED AS AN OFFSET TO COST OF GOODS SOLD. PLEASE REVISE FUTURE FILINGS TO
PRESENT THESE AMOUNTS AS REVENUES.
As requested, in future filings we will report all shipping and handling charges
billed to customers as revenue.
NOTE 10. SEGMENT INFORMATION, PAGE 20
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COMMENT NO. 5. WE NOTE THAT YOU HAVE IDENTIFIED "OPERATING UNITS" THAT DO NOT
CONSTITUTE OPERATING SEGMENTS UNDER SFAS 131. PLEASE TELL US WHAT OPERATING
UNITS YOU HAVE INDENTIFIED AND CLEARLY EXPLAIN WHY THESE UNITS DO NOT CONSTITUTE
REPORTABLE SEGMENTS UNDER SFAS 131.
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information", requires that business segment information used by the chief
operating decision maker to assess performance and manage company resources be
the source for segment information disclosure. Based on the provisions of SFAS
131, the Company operates in two reportable segments consisting of (1) Product
Sales and (2) Service and Rental Services. We have revised the disclosure on
page F-20 of the Amendment #1 to Form 10-K to reflect these segments as follows:
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.
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EXHIBIT 31.1 AND 31.2
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COMMENT NO. 6. WE NOTE THAT YOU HAVE MADE NUMEROUS CHANGES TO THE CERTIFICATIONS
FILED AS EXHIBITS 31.1 AND 31.2. THE REQUIRED CERTIFICATIONS MUST BE IN THE
EXACT FORM PRESCRIBED BY ITEM 601(B)(31) OF REGULATION S-K. ACCORDINGLY PLEASE
FILE AN AMENDMENT TO YOUR FORM 10-K THAT INCLUDES THE ENTIRE FILING TOGETHER
WITH THE CERTIFICATIONS OF EACH OF YOUR CURRENT CEO AND CFO IN THE FORM
CURRENTLY SET FORTH IN ITEM 601(B)(31) OF REGULATION S-K.
We have revised Exhibit 31.1 and 31.2 of the Amendment #1 to Form 10-K to
conform to the prescribed form.
COMMENT 7. FURTHER TO THE ABOVE, WE NOTE THAT THE CERTIFICATIONS FILED IN
EXHIBIT 31.2 AND 32.1 ARE SIGNED BY YOUR "CHIEF ACCOUNTING OFFICER." PLEASE
CONFIRM TO US THAT YOUR CHIEF ACCOUNTING OFFICER IS YOUR PRINCIPAL FINANCIAL
OFFICER. CONSIDER REVISING THE CERTIFICATIONS IN FUTURE FILINGS TO CLEARLY
INDENTIFY YOUR CHIEF ACCOUNTING OFFICER AS YOUR PRINCIPAL FINANCIAL OFFICER AS
APPROPRIATE.
Our Chief Accounting Officer is our Principal Financial Officer. We have revised
the certifications to reflect this.
Sincerely,
/s/ Jeffrey S Rudner
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Principal Financial Officer
Trimedyne, Inc.
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