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, 2009
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 Number: 0-10581
TRIMEDYNE, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Nevada 36-3094439
(State or other jurisdiction (IRS Employer Identification Number)
of incorporation or organization)
25901 Commercentre Dr., Lake Forest, CA 92630
(Address of principal executive offices) (Zip Code)
(949/951-3800)
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate 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 [ ] 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
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] (Do not check if a smaller reporting company) 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).
Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the last practicable date.
Class Outstanding at August 14, 2009
- ----------------------------- ------------------------------------
Common Stock, $0.01 par value 18,365,960 shares
TRIMEDYNE, INC.
Page Number
-----------
PART I. Financial Information 3
ITEM 1. Condensed Consolidated 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 14
ITEM 3. Quantitative and Qualitative Disclosures About
Market Risk 16
ITEM 4T Controls and Procedures 16
PART II. Other Information 17
ITEM 1. Legal Proceedings 17
ITEM 1A. Risk Factors 17
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 17
ITEM 3. Defaults Upon Senior Securities 17
ITEM 4. Submission of Matters to a Vote of Security Holders 17
ITEM 5. Other Information 17
ITEM 6. Exhibits 17
SIGNATURE PAGE 18
CERTIFICATIONS 19
2
TRIMEDYNE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
June 30, 2009 September 30, 2008
--------------- ---------------
Current assets:
Cash and cash equivalents $ 2,076,000 $ 2,007,000
Trade accounts receivable, net of allowance
for doubtful accounts of $16,000 and
$12,000, respectively 695,000 954,000
Inventories 2,082,000 2,584,000
Other current assets 276,000 171,000
--------------- ---------------
Total current assets 5,129,000 5,716,000
Property and equipment, net 1,250,000 1,382,000
Other 84,000 83,000
Goodwill 544,000 544,000
--------------- ---------------
Total Assets $ 7,007,000 $ 7,725,000
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 399,000 $ 256,000
Accrued expenses 552,000 469,000
Deferred revenue 115,000 75,000
Accrued warranty 50,000 54,000
Current portion of note payable and capital leases 236,000 237,000
--------------- ---------------
Total current liabilities 1,352,000 1,091,000
Note payable and capital leases, net of current portion 279,000 400,000
Deferred rent 58,000 73,000
--------------- ---------------
Total liabilities 1,689,000 1,564,000
--------------- ---------------
Commitments and contingencies (Note 4)
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,
18,467,569 shares issued, 18,365,960 shares outstanding at
June 30, 2009 and September 30, 2008 186,000 186,000
Additional paid-in capital 51,454,000 51,425,000
Accumulated deficit (45,609,000) (44,737,000)
--------------- ---------------
6,031,000 6,874,000
Treasury stock, at cost (101,609 shares) (713,000) (713,000)
--------------- ---------------
Total stockholders' equity 5,318,000 6,161,000
--------------- ---------------
Total liabilities and stockholder's equity $ 7,007,000 $ 7,725,000
=============== ===============
See accompanying notes to condensed consolidated financial statements
3
TRIMEDYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
June 30, June 30,
2009 2008 2009 2008
------------ ------------ ------------ ------------
Net revenues $ 2,068,000 $ 1,385,000 $ 5,310,000 $ 4,090,000
Cost of revenues 1,250,000 1,017,000 3,400,000 2,897,000
------------ ------------ ------------ ------------
Gross profit 818,000 368,000 1,910,000 1,193,000
Operating expenses:
Selling, general and administrative 653,000 602,000 2,042,000 1,780,000
Research and development 317,000 419,000 931,000 994,000
------------ ------------ ------------ ------------
Total operating expenses 970,000 1,021,000 2,973,000 2,774,000
------------ ------------ ------------ ------------
Loss from operations (152,000) (653,000) (1,063,000) (1,581,000)
Other income, net 74,000 81,000 199,000 340,000
------------ ------------ ------------ ------------
Loss before provision for income taxes (78,000) (572,000) (864,000) (1,241,000)
Provision for income taxes 4,000 13,000 8,000 13,000
------------ ------------ ------------ ------------
Net loss $ (82,000) $ (585,000) $ (872,000) $ (1,254,000)
============ ============ ============ ============
Net loss:
Basic $ (0.00) $ (0.03) $ (0.05) $ (0.07)
============ ============ ============ ============
Diluted $ (0.00) $ (0.03) $ (0.05) $ (0.07)
============ ============ ============ ============
Weighted average number of shares outstanding:
Basic 18,365,960 18,365,960 18,365,960 18,365,960
============ ============ ============ ============
Diluted 18,365,960 18,365,960 18,365,960 18,365,960
============ ============ ============ ============
See accompanying notes to condensed consolidated financial statements
4
TRIMEDYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
June 30,
2009 2008
----------- -----------
Cash flows from operating activities:
Net loss $ (872,000) $(1,254,000)
Adjustment to reconcile net loss to net cash
provided by operating activities:
Stock-based compensation 29,000 47,000
Depreciation and amortization 271,000 226,000
(Gain) loss on disposal of property and equipment (12,000) 17,000
Changes in operating assets and liabilities:
Trade accounts receivable 259,000 (59,000)
Inventories 502,000 113,000
Other assets (106,000) 130,000
Note due from related party -- 9,000
Accounts payable 143,000 74,000
Accrued expenses 83,000 (68,000)
Deferred revenue 40,000 29,000
Accrued warranty (4,000) 2,000
Deferred rent (15,000) (13,000)
----------- -----------
Net cash provided by (used in) operating activities 318,000 (747,000)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (127,000) (64,000)
----------- -----------
Net cash used in investing activities (127,000) (64,000)
----------- -----------
Cash flows from financing activities:
Payments on debt (122,000) (71,000)
----------- -----------
Net cash used in financing activities (122,000) (71,000)
----------- -----------
Net (decrease) increase in cash and cash equivalents 69,000 (882,000)
Cash and cash equivalents at beginning of period 2,007,000 3,179,000
----------- -----------
Cash and cash equivalents at end of period $ 2,076,000 $ 2,297,000
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for income taxes during the three months ended June 30, 2009 and 2008
was $8,000 and $13,000, respectively. Cash paid for interest during the nine
months ended June 30, 2009 and 2008 was approximately $36,000 and $21,000,
respectively.
Supplemental disclosure of non-cash investing activity:
During the nine months ended June 30, 2008, the Company financed the purchase of
equipment with $651,000 in lease agreements.
During the nine months ended June 30, 2009, the Company financed the purchase of
certain insurance policies with a $85,000 note. During the nine months ended
June 30, 2008, the Company financed the purchase of certain insurance policies
with a $134,000 note.
See accompanying notes to condensed consolidated financial statements
5
TRIMEDYNE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009
(UNAUDITED)
NOTE 1 - Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying condensed consolidated financial statements include the
accounts of Trimedyne, Inc., its wholly owned subsidiary, Mobile Surgical
Technologies, Inc. ("MST"), and its 90% owned inactive subsidiary, Cardiodyne,
Inc. ("Cardiodyne") (collectively, the "Company"). All intercompany accounts and
transactions have been eliminated in consolidation.
Managements' Plans
The Company has incurred losses from operations for the past two years. However,
the Company believes that existing cash flows are sufficient enough to fund
operations through June 30, 2010. However, there can be no assurance that we
will be able to create more sales to maintain the current level of sales in the
next 12 months, or that the Company will be profitable. It is possible that
additional working capital in the next 12 months may be required. If necessary,
the Company will attempt to raise additional debt and/or equity capital and
reduce its costs by eliminating certain personnel positions and certain overhead
costs in order to fund operations. There is no assurance that management's
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, 2009 and the results of its
operations and its cash flows for the nine months ended June 30, 2009 and 2008.
Results for the nine months ended June 30, 2009 are not necessarily indicative
of the results to be expected for the year ending September 30, 2009.
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 2008
annual report on Form 10-K for the year ended September 30, 2008.
Stock-Based Compensation
The fair value of stock-based awards is calculated using the Black-Scholes
option pricing model. The Black-Scholes model requires subjective assumptions
regarding future stock price volatility and expected time to exercise, which
greatly affect the calculated values. The expected term of options granted is
derived from historical data on employee exercises and post-vesting employment
termination behavior. The risk-free rate selected to value any particular grant
is based on the U.S. Treasury rate that corresponds to the pricing term of the
grant effective as of the date of the grant. The expected volatility is based on
the Company's historical volatilities of its common stock. These factors could
change in the future, affecting the determination of stock-based compensation
expense in future periods. During the nine months ended June 30, 2009, there
were no stock options granted.
As of June 30, 2009, there was approximately $89,422 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 4.50 years.
The following table summarizes stock-based compensation expense related to
employee and director stock options under SFAS No. 123(R) for the three and nine
months ended June 30, 2009 and 2008, which was allocated as follows:
Three Months Ended Nine Months Ended
June 30, 2009 June 30, 2008 June 30, 2009 June 30, 2008
-------------- -------------- -------------- --------------
Stock-based compensation included in:
Cost of revenues $ 3,000 $ 3,000 $ 9,000 $ 9,000
Research and development expenses $ 1,000 $ 1,000 $ 3,000 $ 3,000
Selling, general, and administrative expenses $ 3,000 $ 13,000 $ 18,000 $ 35,000
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, losses for contingencies and certain accrued liabilities.
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, accounts payable, accrued expenses and
long-term debt. The carrying amounts of the Company's financial instruments
generally approximate their fair values as of March 31, 2009 because of the
short maturity of these instruments.
Effective October 1, 2008, the first day of the Company's fiscal year 2009, the
Company adopted SFAS 157 and SFAS 159, "The Fair Value Option for Financial
Assets and Financial Liabilities - Including an Amendment of FASB Statement No.
115," for financial assets and liabilities. The Company did not record an
adjustment to retained earnings as a result of the adoption of SFAS 157, and the
adoption did not have a material effect on the Company's results of operations.
SFAS 159 provides companies the irrevocable option to measure many financial
assets and liabilities at fair value with changes in fair value recognized in
earnings. The Company has not elected to measure any financial assets or
liabilities at fair value that were not previously required to be measured at
fair value.
Concentration of Credit Risk and Customer Concentration
Cash balances are maintained at various financial institutions. The Federal
Deposit Insurance Corporation ("FDIC") insures accounts at each institution for
up to $250,000. From time to time, the Company maintains cash balances at
certain institutions in excess of the FDIC limit.
The Company generates revenues principally from sales of products in the medical
field. As a result, the Company's trade accounts receivable are concentrated
primarily in this industry. As of June 30, 2009 five customers accounted for 22%
of the Company's receivables.
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.
7
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 June 30, 2009 and
2008, outstanding options of 25,043 and 21,043, respectively, were excluded from
the diluted net loss per share as the effects would have been anti-dilutive.
Segment Information
The Company reports information about operating segments, as well as disclosures
about products and services, geographic areas and major customers (see Note 7).
Operating segments are defined as revenue-producing components of the
enterprise, which are generally used internally for evaluating segment
performance.
Recently Issued/Adopted Accounting Pronouncements
In April 2008, the FASB issued FSP No. 142-3, "Determination of the Useful Life
of Intangible Assets". FSP 142-3 amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset under Financial Accounting Standard No. 142,
"Goodwill and Other Intangible Assets". FSP 142-3 is effective for fiscal years
beginning after December 15, 2008. Therefore, we will be required to adopt FSP
142-3 for the fiscal year beginning October 1, 2010. We are currently evaluating
the impact of FSP No. 142-3 on our consolidated financial position and results
of operations.
In May 2008, the FASB issued SFAS No. 162 (SFAS 162), The Hierarchy of Generally
Accepted Accounting Principles. SFAS 162 sets forth the level of authority to a
given accounting pronouncement or document by category. Where there might be
conflicting guidance between two categories, the more authoritative category
will prevail. SFAS 162 becomes effective 60 days after the SEC approves the
PCAOB's amendments to AU Section 411 of the AICPA Professional Standards. SFAS
162 is not expected to have a material impact on our financial statements.
In June 2008, FASB issued EITF Issue No. 07-5 (EITF 07-5), Determining whether
an Instrument (or Embedded Feature) is indexed to an Entity's Own Stock. EITF
No. 07-5 is effective for financial statements issued for fiscal years beginning
after December 15, 2008, and interim periods within those fiscal years. Early
application is not permitted. Paragraph 11(a) of SFAS No. 133 - specifies that a
contract that would otherwise meet the definition of a derivative but is both
(a) indexed to the Company's own stock and (b) classified in stockholders'
equity in the statement of financial position would not be considered a
derivative financial instrument. EITF 07-5 provides a new two-step model to be
applied in determining whether a financial instrument or an embedded feature is
indexed to an issuer's own stock and thus able to qualify for the SFAS No. 133
paragraph 11(a) scope exception. The adoption of EITF 07-5 is not expected to
have a material impact on our financial statements.
In May 2009, the FASB issued SFAS No. 165, "Subsequent Events" ("SFAS 165"),
which modifies the subsequent event guidance in AICPA AU Section 560. The three
modifications to the subsequent events guidance in AU Section 560 are: 1) To
name the two types of subsequent events either as recognized or non-recognized
subsequent events, 2) To modify the definition of subsequent events to refer to
events or transactions that occur after the balance sheet date, but before the
financial statement are issued or available to be issued and 3) To require
entities to disclose the date through which an entity has evaluated subsequent
events and the basis for that date, i.e. whether that date represents the date
the financial statements were issued or were available to be issued. The Company
adopted this standard, as required, for the period ended June 30, 2009. Adoption
of SFAS No. 165 did not have a material impact on the Company's consolidated
financial statements.
NOTE 2 - Composition of Certain Balance Sheet Captions
Inventories, net of reserves, consist of the following:
June 30, September 30,
2009 2008
---------- ----------
Raw materials $ 772,000 $1,036,000
Work-in-process 708,000 722,000
Finished goods 602,000 826,000
---------- ----------
$2,082,000 $2,584,000
========== ==========
8
For the nine months ended June 30, 2009 and 2008, 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, September 30,
2009 2008
----------- ------------
Prepaid insurance $ 92,000 $ 86,000
Royalty receivable 80,000 58,000
Prepaid Expenses 94,000 13,000
Short-term deposits 8,000 9,000
Prepaid income tax 2,000 5,000
----------- ------------
Total other current assets $ 276,000 $ 171,000
=========== ============
Property and equipment consist of the following:
June 30, September 30,
2009 2008
----------- ------------
Furniture and equipment $ 3,347,000 $ 3,216,000
Leasehold improvements 619,000 619,000
Other 244,000 282,000
------------ -----------
4,210,000 4,117,000
Less accumulated depreciation and amortization (2,960,000) (2,735,000)
------------ -----------
Total property and equipment $ 1,250,000 $ 1,382,000
============ ===========
Accrued expenses consist of the following:
June 30, September 30,
2009 2008
----------- ------------
Accrued vacation $ 183,000 $ 187,000
Accrued commissions 148,000 51,000
Customer deposits 104,000 13,000
Sales and use tax 69,000 67,000
Accrued salaries and wages 37,000 130,000
Accrued payroll taxes 3,000 8,000
Accrued professional expenses -- 4,000
Other 8,000 9,000
----------- -----------
Total accrued expenses $ 552,000 $ 469,000
=========== ===========
NOTE 3 - Notes Payable and Capital leases
Notes payable and capital leases consisted of the following at June 30, 2009 and
September 30, 2008:
June 30, September 30,
2009 2008
----------- ------------
Capital lease agreement in connection with the purchasing of equipment bearing
an effective interest rate of 8.69% per annum. The lease requires monthly
payments of $3,147 through September 2012. $ 77,000 $ 99,000
Capital lease agreement in connection with the purchasing of equipment bearing
an effective interest rate of 9.25% per annum. The lease requires monthly
payments of $4,979 through January 2013. 182,000 213,000
Capital lease agreement in connection with the purchasing of ERP software
bearing an effective interest rate of 9.23% per annum. The lease requires
monthly payments of $526 through February 2013. 20,000 23,000
Capital lease agreement in connection with the purchasing of equipment bearing
an effective interest rate of 8.82% per annum. The lease requires monthly
payments of $2,403 through March 2012. 70,000 87,000
Capital lease agreement in connection with the purchasing of equipment bearing
an effective interest rate of 8.66% per annum. The lease requires monthly
payments of $2,386 through October 2010. 34,000 52,000
Capital lease agreement in connection with the purchasing of ERP software
bearing an effective interest rate of 8.51% per annum. The lease requires
monthly payments of $3,195 through April 2011. 62,000 89,000
Finance agreement issued in connection with the purchasing of certain insurance
policies. The note bears interest at 6.8% per annum and require monthly
principal and interest payments of $12,631 through March 2009. -- 74,000
9
Finance agreement issued in connection with the purchasing of certain insurance
policies. The note bears interest at 6.5% per annum and require monthly
principal and interest payments of $8,018 through March 2010. 70,000 --
----------- ------------
515,000 637,000
Less: current portion (236,000) (237,000)
----------- ------------
$ 279,000 $ 400,000
=========== ============
NOTE 4 - Commitments and Contingencies
Litigation
In February 2008, the Company and other manufacturers of lasers were named as
defendants in a lawsuit in the State Court of Massachusetts by CardioFocus, Inc.
as allegedly infringing three of their now expired patents in 2002 -2006. The
Company and two of the other defendants submitted a petition to the U.S. Patent
and Trademark Office ("USPTO") to re-examine the patents to determine if they
are valid, as did several of the other defendants. The Company and the other
defendants petitioned the Court to stay the action, which is commonly done in
patent cases, to save the court time in conducting a case on patents which may
be later invalidated by the USPTO. The court granted the request of the Company
and other defendants to stay the case for at least one year. The USPTO usually
takes two to three years to reach a decision on the validity of patents. If the
USPTO should find any of the patents to be valid, the Company has other defenses
that we believe will enable it to successfully defend against any claims by
CardioFocus, Inc. As of June 30, 2009, the Company has not recorded a provision
for potential losses.
The Company is subject to various claims and actions which arise in the ordinary
course of business. The litigation process is inherently uncertain, and it is
possible that the resolution of any of the Company's existing and future
litigation may adversely affect the Company. Management is unaware of any
matters which are not reflected in the condensed consolidated statements of
operations that may have material impact on the Company's financial position,
results of operations or cash flows.
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 sheets.
Risks and Uncertainties
The Centers for Medicare and Medicaid Services (CMS), the agency of the U.S.
Government that administers the Medicare Program, recently announced a decision
to deny reimbursement for thermal intradiscal procedures (TIPs). Thermal
procedures to treat spinal discs typically entail the use of electrothermal (ET)
or radiofrequency (RF) energy to heat or coagulate the nucleus of the disc, a
spongy, gelatinous material that absorbs shocks when people run, jump or are
injured, to prevent damage to the vertebra.
CMS, however, included the use of laser energy in its denial of reimbursement,
as the early lasers used in spinal disc treatment, Nd:YAG and KTP lasers, emit
continuous wave (CW) energy at a constant level, which is thermal, like ET or RF
energy. The Company's pulsed Holmium Lasers emit pulsed energy, which is highly
absorbed by water in the cells, which is rapidly turned to steam, vaporizing the
tissue. The tissue cools between the pulses, which last a few hundred
microseconds (millionths of a second), and only a small amount of heating or
coagulation occurs.
The Company filed an objection to CMS' lumping its pulsed Holmium Lasers with
ET, RF and older, thermal Nd:YAG and KTP lasers, few if any of which are still
in use in the treatment of spinal discs, and the Company attached ten (10)
published papers on clinical studies of Holmium laser energy that support our
position.
While the Company disagrees with CMS' decision, very few disc treatments with
its lasers are performed on persons of Medicare age (65 and older), as herniated
and ruptured discs typically affect people of an average age of about 45. As a
result, the effect of CMS' decision is not expected to significantly affect
sales of lasers and side firing laser needles used in such procedures.
10
NOTE 5 - Other Income
During the three month period ended June 30, 2009 and 2008, the Company recorded
$80,000 and $94,000, respectively, in royalties in connection with the terms of
a settlement agreement. During the nine month period ended June 30, 2009 and
2008, the Company recorded $202,000 and $314,000, respectively, in royalties in
connection with the terms of the same settlement agreement. These royalties are
included in other income in the accompanying condensed consolidated financial
statements.
NOTE 6 - Related Party Transactions
Cardiomedics, Inc. ("Cardiomedics"), a privately held corporation in which the
Chairman/CEO of Trimedyne, Inc. holds a majority interest and is a member of the
Board of Directors. The COO/President of the Company is also a board member of
Cardiomedics.
On April 7, 2006, the Company entered into an agreement to employ Cardiomedics
as a consultant to provide graphics arts services, since the Company did not
have any employees with experience in the design and production of brochures and
other marketing materials. Under this agreement, Cardiomedics will provide the
services of a graphics art specialist at a rate comparable to those presently
prevailing in the market in the design and production of marketing materials.
During the nine months ended June 30, 2009 and 2008, the Company incurred $7,000
and $28,000, respectively in expense for the services provided under the
agreement.
NOTE 7 - 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, 2009 and 2008 are as follows:
For the Three Months Ended June 30, 2009 For the Three Months Ended June 30, 2008
(Unaudited) (Unaudited)
Service and Service and
Products Rental Total Products Rental Total
--------------------------------------- ----------------------------------------
Net revenues $ 1,364,000 $ 704,000 $ 2,068,000 $ 778,000 $ 607,000 $ 1,385,000
Cost of revenues 858,000 392,000 1,250,000 606,000 411,000 1,017,000
--------------------------------------- ----------------------------------------
Gross profit 506,000 312,000 818,000 172,000 196,000 368,000
Operating expenses:
Selling, general and
administrative 501,000 152,000 653,000 486,000 116,000 602,000
Research and development 317,000 -- 317,000 419,000 -- 419,000
--------------------------------------- ----------------------------------------
Income (loss) from operations $ (312,000) $ 160,000 (152,000) $ (733,000) $ 80,000 (653,000)
========================= ==========================
Other:
Interest income 4,000 6,000
Interest expense (11,000) (10,000)
Loss on disposal of equipment -- (17,000)
Royalty income 80,000 94,000
Settlements and recoveries 1,000 8,000
Income taxes (4,000) (13,000)
----------- -----------
Net loss $ (82,000) $ (585,000)
=========== ===========
11
For the Nine Months Ended June 30, 2009 For the Nine Months Ended June 30, 2008
(Unaudited) (Unaudited)
Service and Service and
Products Rental Total Products Rental Total
--------------------------------------- ---------------------------------------
Net revenues $ 3,386,000 $ 1,924,000 $ 5,310,000 $ 2,603,000 $ 1,487,000 $ 4,090,000
Cost of revenues 2,228,000 1,172,000 3,400,000 1,768,000 1,129,000 2,897,000
--------------------------------------- ---------------------------------------
Gross profit 1,158,000 752,000 1,910,000 835,000 358,000 1,193,000
Expenses:
Selling, general and
administrative 1,585,000 457,000 2,042,000 1,435,000 345,000 1,780,000
Research and development 931,000 -- 931,000 994,000 -- 994,000
--------------------------------------- ---------------------------------------
Income (loss) from operations $(1,358,000) $ 295,000 (1,063,000) $(1,594,000) $ 13,000 (1,581,000)
========================= =========================
Other:
Interest income 11,000 48,000
Interest expense (36,000) (21,000)
Gain (loss) on disposal of equipment 12,000 (17,000)
Royalty income 202,000 314,000
Settlements and recoveries 10,000 16,000
Income taxes (8,000) (13,000)
----------- ----------
Net loss $ (872,000) $(1,254,000)
=========== ===========
Sales and gross profit to customers by similar products and services for the
three and nine months ended June 30, 2009 and 2008 were as follows:
For the three months ended June 30, For the nine months ended June 30,
(Unaudited) (Unaudited)
2009 2008 2009 2008
----------- ----------- ------------ -----------
By similar products and services:
Revenues:
Products:
Laser equipment and accessories $ 467,000 $ 182,000 $ 1,107,000 $ 613,000
Delivery and disposable devices 897,000 596,000 2,279,000 1,990,000
Service and rental 704,000 607,000 1,924,000 1,487,000
----------- ----------- ------------ -----------
Total $ 2,068,000 $ 1,385,000 $ 5,310,000 $ 4,090,000
=========== =========== ============ ===========
Gross profit
Products:
Laser equipment and accessories $ 147,000 $ 22,000 $ 253,000 $ 76,000
Delivery and disposable devices 359,000 150,000 905,000 759,000
Service and rental 312,000 196,000 752,000 358,000
----------- ----------- ------------ -----------
Total $ 818,000 $ 368,000 $ 1,910,000 $ 1,193,000
=========== =========== ============ ===========
Sales in foreign countries for the quarters ended June 30, 2009 and June 30,
2008 accounted for approximately 29% and 13% of the Company's total sales,
respectively. Sales in foreign countries for the nine months ended June 30, 2009
and June 30, 2008 accounted for approximately 26% and 21% of the Company's total
sales, respectively. The breakdown by geographic region is as follows:
Three months Three months Nine months Nine months
ended June ended June ended June ended June
30, 2009 30, 2008 30, 2009 30, 2008
------------ ------------ ------------- ------------
Asia $ 327,000 $ 44,000 $ 873,000 $ 361,000
Europe 235,000 38,000 335,000 176,000
Latin America 15,000 3,000 19,000 28,000
Middle East 2,000 -- 3,000 80,000
Australia 18,000 96,000 127,000 109,000
Africa 1,000 -- 1,000 --
Other -- -- -- 99,000
------------ ------------ ------------- ------------
$ 598,000 $ 181,000 $ 1,358,000 $ 853,000
============ ============ ============= ============
12
All long-lived assets were located in the United States during the nine months
ended June 30, 2009 and 2008. Total segment assets for the Products segment were
$5,310,000 and Service and Rental were $1,675,000 at June 30, 2009. 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.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The statements, other than statements of historical fact, included in this
report are forward-looking statements. Forward-looking statements generally can
be identified by the use of forward-looking terminology such as "may," "will,"
"expect," "intend," "estimate," "anticipate," "plan," "seek," or "believe." We
believe that the expectations reflected in such forward-looking statements are
accurate. However, we cannot assure you that such expectations will occur. Our
actual future performance could differ materially from such statements.
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. You should not
unduly rely on these forward-looking statements, which speak only as of the date
of this report. Except as required by law, we are not obligated to release
publicly any revisions to these forward-looking statements to reflect events or
circumstances occurring after the date of this report or to reflect the
occurrence of unanticipated events.
This section should be read in conjunction with our condensed unaudited
consolidated financial statements and the related notes thereto as of March 31,
2009 and for the three and six months then ended, which are included elsewhere
in this report, with the audited consolidated financial statements and related
notes thereto as of September 30, 2008 and for the year then ended, included in
our Form 10-K filed with the Securities and Exchange Commission ("SEC") on
January 13, 2009 and with other company filings made with the SEC.
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 June 30, 2009 Compared to Quarter ended June 30, 2008
During the quarter ended June 30, 2009, net revenues were $2,068,000 as compared
to $1,385,000 for the same period of the previous year, a $683,000 or 49%
increase. Net sales from lasers and accessories increased by $285,000 or 157% to
$467,000 during the three months ended June 30, 2009 from $182,000 in the same
period of the prior year. Net sales from delivery and disposable devices
increased by $301,000 or 51% to $897,000 during the three months ended June 30,
2009 from $596,000 in the same period of the prior year. Export sales increased
by $417,000 or 230% to $598,000 from $181,000 for the same quarter of the prior
year. The increases in export sales was primarily due to an increase in laser
sales to the international market primarily for use in spine procedures. Net
sales from service and rental increased by $97,000 or 16% to $704,000 from
$607,000 for the same quarters. This increase was primarily due to an increase
in case revenues from MST as a result of the addition of sales personnel and the
expansion of its service business.
Cost of sales during the quarter ended June 30, 2009 was $1,250,000 or 60% of
net revenues as compared to $1,017,000 or 73% the prior year quarter. Gross
profit from the sale of lasers and accessories was 31% as compared to 12% for
the prior year three-month period. The increase in gross profit for lasers and
accessories was primarily the result of a volumizing difference due to a higher
production of units created by the 157% increase in sales during the current
year quarter as compared to the prior year quarter. Gross profit from the sale
of delivery and disposable devices was 40% as compared to 25% for the prior year
three-month period. The increase in gross profit was primarily the result of a
volumizing difference due to a higher production of units created by the 51%
increase in sales of delivery systems during the current year quarter as
compared to the prior year quarter. Gross profit from revenue received from
service and rentals was 44% as compared to 32% for the prior year three-month
period. The higher gross profit for the current nine-month period was primarily
attributable to a lower cost of sales for our subsidiary, MST, which was the
result of decreased repairs to MST's laser fleet combined with higher margins
received from increases in procedures which have a higher bill rate.
Selling, general and administrative expenses increased in the current quarter to
$653,000 from $602,000 in the prior year quarter, an increase of $51,000 or 8%.
The increase in selling, general and administrative expenses during the current
three-month period was primarily due to increases of $89,000 in commission
expense, which was the result of an increase in commissionable revenues combined
with new agreements with our international distributors, property tax of $6,000,
depreciation expense of $4,000, $4,000 in payroll related expenses, and bad debt
expense of $11,000, offset by decreases in $26,000 in legal expense, $20,000 in
accounting fees, and marketing expense of $17,000.
14
Research and development expenditures for the quarter ended June 30, 2009
decreased $102,000 or 24% to $317,000 as compared to $419,000 in the quarter
ended June 30, 2008. This decrease was primarily the result of extraordinary
expenses incurred during the prior year quarter ended June 30, 2008 relating to
the development of our VaporMax(R) product combined with a temporary turnover in
staff during the current year quarter ended June 30, 2009.
Other income, net, decreased by $7,000 or 9% to $74,000 in the quarter ended
June 30, 2009 from $81,000 in the same quarter of the prior year.
For the current quarter, the Company had a net loss of $82,000 or $0.00 per
share, based on 18,365,960 basic weighted average number of common shares
outstanding, as compared to a net loss of $585,000 or $0.03 per share, based on
18,365,960 basic weighted average number of common shares outstanding in the
same quarter of the previous year.
Nine Months Ended June 30, 2009 Compared to Nine Months Ended June 30, 2008
During the nine months ended June 30, 2009, net revenues were $5,310,000 as
compared to $4,090,000 for the same period of the previous year, a $1,220,000 or
30% increase. Net revenues from lasers and accessories increased by $494,000 or
81% to $1,107,000 during the nine months ended June 30, 2009 from $613,000 in
the same period of the prior year. Net revenues from delivery and disposable
devices increased by $289,000 or 15% to $2,279,000 during the nine months ended
June 30, 2009 from $1,990,000 for the same period of the prior year. During the
nine months ended June 30, 2009 export sales increased by $505,000 or 59% to
$1,358,000 as compared to $853,000 in the same period of the prior year. The
increases in export sales was primarily due to an increase in laser sales to the
international market primarily for use in spine procedures. Net sales from
service and rental increased by $437,000 or 29% to $1,924,000 from $1,487,000
for the same quarters in the prior year. This increase was primarily due to an
increase in case revenues from MST as a result of the addition of sales
personnel and the expansion of its service business.
Cost of sales during the nine months ended June 30, 2009 was $3,400,000 or 64%
of net revenues as compared to $2,897,000 or 71% for the same period of the
prior year. Gross profit from the sale of lasers and accessories was 23% as
compared to 12% for the prior year nine-month period. The increase in gross
profit for lasers and accessories was primarily the result of a volumizing
difference due to a higher production of units created by the 81% increase in
sales during the current nine-month period as compared to the prior nine-month
period. Gross profit from the sale of delivery and disposable devices was 40% as
compared to 38% for the prior year nine-month period. The increase in gross
profit was primarily the result of a volumizing difference due to a higher
production of units created by the 15% increase in sales of delivery systems
during the current nine-month period as compared to the prior nine-month period.
Gross profit from revenue received from service and rentals was 39% as compared
to 24% for the prior year nine-month period. The higher gross profit for the
current nine-month period was primarily attributable to a lower cost of sales
for our subsidiary, MST, which was the result of decreased repairs to MST's
laser fleet combined with higher margins received from increases in procedures
which have a higher bill rate.
For the nine months ended June 30, 2009, selling, general and administrative
expenses totaled $2,042,000 as compared to $1,780,000 for the same period of the
previous year, a $262,000 or an 15% increase. The increase in selling, general
and administration expense was primarily due to increases in commissions expense
of $135,000, which was the result of an increase in commissionable revenues
combined with new agreements with our international distributors, payroll
related expenses of $42,000, accounting and audit expense of $42,000, property
tax of $16,000, depreciation expense of $36,000, professional certifications
expense of $6,000, bank charges of $5,000, and bad debt expense of $21,000,
offset by decreases in sales and marketing expense of $34,000 and legal expense
of $13,000.
During the nine months ended June 30, 2009, research and development expenses
decreased to $931,000 from $994,000 in the prior year nine-month period, a
decrease of $63,000 or 6%.
Other income decreased by $142,000 or 37% to $191,000 in the current nine-month
period from $327,000 in the previous nine-month period of fiscal 2008. During
the nine months ended June 30, 2009, royalty income decreased $112,000 to
$202,000 or 36% as compared to $314,000 in the prior year nine-month period.
Interest income decreased $37,000 or 77% to $11,000 as compared to $48,000
during the same prior year period due to lower bank interest rates combined with
a lower cash balance in interest bearing accounts. The decreases in other income
were offset by a $12,000 gain of the disposal of assets combined with $10,000 in
settlements and recoveries.
For the nine months ended June 30, 2009, the Company had net loss of $872,000 or
$0.05 per share, based on 18,365,960 basic weighted average number of common
shares outstanding, as compared to a net loss of $1,254,000, or $0.07 per share,
based on 18,365,960 basic weighted average number of common shares outstanding
in the same period of the previous year, resulting from the above mentioned
factors.
15
Liquidity and Capital Resources
- -------------------------------
At June 30, 2009, the Company had working capital of $3,777,000 compared to
$4,625,000 at September 30, 2008. Cash increased by $69,000 to $2,076,000 from
$2,007,000 at the fiscal year ended September 30, 2008. We believe our existing
working capital will be sufficient to meet Trimedyne's operating needs, and the
operating needs of our 100% owned laser rental subsidiary for the next twelve
months. During the nine-month period ended June 30, 2009, net cash provided
operating activities was $318,000, which was the result of a lower net loss and
the significant decrease in accounts receivable and inventory balances from year
end. Net cash used in investing activities was $127,000 due to the purchase of
equipment. Net cash used in financing activities during the current nine-month
period was $122,000, which was the result of payments on debt. If we fail to
operate profitability, or if we undertake the development, testing and marketing
of additional new products in the future, we will likely need to raise
substantial additional capital. There can be no assurance that we will be able
to operate profitably in the future.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not hold any derivative instruments and do not engage in any hedging
activities.
ITEM 4T. 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 chief
executive officer and chief 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 chief 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.
LIMITATIONS ON THE EFFECTIVENESS OF INTERNAL CONTROLS
The Company's management, including the Chief Executive Officer, does not expect
that our disclosure controls and procedures or our internal control over
financial reporting will necessarily prevent all fraud and material error. An
internal control system, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the control
system are met. Further, the design of the control system must reflect the fact
that there are resource constraints and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, within the Company have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty and that breakdowns can occur because of simple
error or mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management
override of the internal control. The design of any system of controls also is
based in part upon certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions. Over time, control may
become inadequate because of changes in conditions, and/or the degree of
compliance with the policies or procedures may deteriorate.
16
PART II Other Information
ITEM 1. Legal Proceedings
In February 2008, the Company and other manufacturers of lasers were named as
defendants in a lawsuit in the State Court of Massachusetts by CardioFocus, Inc.
as allegedly infringing three of their now expired patents in 2002 -2006. The
Company and two of the other defendants submitted a petition to the U.S. Patent
and Trademark Office ("USPTO") to re-examine the patents to determine if they
are valid, as did several of the other defendants. The Company and the other
defendants petitioned the Court to stay the action, which is commonly done in
patent cases, to save the court time in conducting a case on patents which may
be later invalidated by the USPTO. The court granted the request of the Company
and the other defendants to stay the case for at least one year. The USPTO
usually takes two to three years to reach a decision on the validity of patents.
If the USPTO should find any of the patents to be valid, the Company has other
defenses that we believe will enable it to successfully defend against any
claims by CardioFocus, Inc.
ITEM 1A. Risk Factors. Not Applicable.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
ITEM 3. Defaults Upon Senior Securities
None
ITEM 4. Submission of Matters to Vote of Security Holders
None
ITEM 5. Other Information
None
ITEM 6. Exhibits
(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 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 for Marvin P. Loeb
32.2 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 for Jeffrey S. Rudner
17
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, 2009 /s/ Marvin P. Loeb
--------------- -----------------------------------
Marvin P. Loeb
Chairman and
Chief Executive Officer
Date: August 14, 2009 /s/ Jeffrey S. Rudner
--------------- -----------------------------------
Jeffrey S. Rudner
Principal Accounting Officer
18