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TMED > SEC Filings for TMED > Form 10-Q on 20-May-2013All Recent SEC Filings

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Form 10-Q for TRIMEDYNE INC


20-May-2013

Quarterly Report


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, 2012, contained in our 2012 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 financial statements require the use of estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Our management periodically evaluates the estimates and judgments made. Management bases its estimates and judgments on historical experience and on various factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates as a result of different assumptions or conditions.

The methods, estimates, and judgment we use in applying our most critical accounting policies have a significant impact on the results we report in our financial statements. The SEC has defined "critical accounting policies" as those accounting policies that are most important to the portrayal of our financial condition and results, and require us to make our most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based upon this definition, our most critical estimates relate to the fair value of warrant liabilities. We also have other key accounting estimates and policies, but we believe that these other policies either do not generally require us to make estimates and judgments that are as difficult or as subjective, or it is less likely that they would have a material impact on our reported results of operations for a given period. For additional information see Note 2, "Summary of Significant Accounting Policies" in the notes to our reviewed financial statements appearing elsewhere in this quarterly report and our annual audited financial statements appearing on Form 10-K. Although we believe that our estimates and assumptions are reasonable, they are based upon information presently available, and actual results may differ significantly from these estimates.

RESULTS OF OPERATIONS

Method of Presentation

The unaudited condensed consolidated financial statements include the accounts of Trimedyne, Inc., its wholly owned subsidiary Mobile Surgical Technologies, Inc. ("MST") and its 90% owned subsidiary, Cardiodyne.

Three months ended March 31, 2013 compared to three months ended March 31, 2012

During the quarter ended March 31, 2013, net revenues were $1,570,000 as compared to $1,526,000 for the same period of the previous year, a $44,000 or 2.9% increase. Net sales from lasers and accessories decreased by $113,000 or 40.1% to $169,000 during the quarter ended March 31, 2013 from $282,000 in the same period of the previous year. Lasers carry a high selling price and are subject to a longer, less predictable closing period, which as a result, can create larger variances between periods. Net sales from delivery and disposable devices increased by $62,000 or 9.3% to $729,000 in the quarter ended March 31, 2013 from $667,000 in the same period of the previous year. During the quarter ended March 31, 2013, net sales from service and rental increased by $95,000 or 16.5% to $672,000 from $577,000 for the same quarter of the prior year. The decrease in service and rental revenue was primarily due to a decrease in fee-per-case revenue from MST for certain procedures. Revenue from export sales increased by $165,000 or 69.9% to $401,000 during the quarter ended March 31, 2013 from $236,000 during the same quarter of the previous year, primarily due to an increase in Laser sales in during the current three-month period.

Cost of sales during the quarter ended March 31, 2013 was $919,000 or 58.5% of net revenues as compared to $1,051,000 or 68.9% the same period of the previous year, primarily due the sale of two fully amortized demo Lasers and more efficient production running closer to capacity to increase inventory levels. Gross profit as a percentage of sales from the sale of Lasers and accessories was 32.5% as compared to a gross profit of 9.2% for the same quarter of the previous year, primarily due to the sale of two fully amortized demo Lasers during the current quarter. The gross profit as a percentage of sales from the sale of Fibers, Needles and Tips was 50.5% as compared to 37.9% for the same quarter of the previous year. The increase in gross profit from the sale of Fibers, Needles and Tips was primarily due to more efficient production running closer to capacity to increase inventory levels. Gross profit from revenue received from service and rentals remained at 34% for the quarters ended March 31, 2013 and 2012.

Selling, general and administrative expenses decreased in the quarter ended March 31, 2013 to $572,000 from $622,000 in the same period of the previous year, a decrease of $50,000 or 8.0%. The decrease in selling, general and administrative expenses during the quarter ended March 31, 2013 compared to the same period of the previous year was primarily the result of decreases in commission expense of $26,000, outside administrative services of $12,000, payroll related expense of $7,000, employee health insurance of $6,000, rent expense of $4,000, and marketing expense of $4,000, offset by an increase in MST bonus expense of $9,000.

Research and development expenditures for the quarter ended March 31, 2013, decreased $24,000 or 16.1% to $125,000 as compared to $149,000 in the same period of the previous year. The decrease was primarily due to the reduction of staff. During the period ended March 31, 2013, R&D activities consisted of producing samples and documentation for interstitial fiber optic delivery systems, expanding the existing line of single use and reusable bare fibers, optimizing label production and inspection for existing products, and updating risk management files in compliance with current international standards.

Other income, net, decreased by $18,000 or 7.9% to $209,000 in the quarter ended March 31, 2013 from $227,000 in the same period of the previous year. This decrease was primarily the result of the receipt of $166,000 from our liability insurance company, MedMarc Insurance Group, as cash consideration to its eligible members resulting from its acquisition by Pro Assurance Corporation in exchange for extinguishing all membership interests during the current year quarter as compared to $200,000 resulting from the Company entering into an agreement for the sale of certain patents to a third party during the prior year quarter.

For the quarters ended March 31, 2013 and 2012, the Company had net income of $161,000 or $0.01 per share, as compared to a net loss of $69,000 or $0.00 per share, respectively, based on 18,395,960 basic weighted average number of common shares outstanding, resulting from the above mentioned factors.

Six months ended March 31, 2013 compared to six months ended March 31, 2012

During the six months ended March 31, 2013, net revenues increased to $3,045,000 as compared to $2,916,000 for the same period of the previous year, a $129,000 or 4.4% increase. Net sales from Lasers and accessories decreased by $167,000 or 43.5% to $217,000 during the six months ended March 31, 2013 from $384,000 in the same period of the previous year. Lasers carry a high selling price and are subject to a longer, less predictable closing period, which as a result, can create larger variances between periods. Net revenues from Fibers, Needles and Tips increased by $62,000 or 4.6% to $1,403,000 during the six months ended March 31, 2013 from $1,341,000 for the same period of the previous year. Net revenues from service and rental increased by $234,000, or 19.6%, to $1,425,000 from $1,191,000 for the same six-month period of the previous year. The increase in service and rental revenue was primarily due to an increase in fee-per-case revenue during the current six-month period as compared to the same period of the previous year. Revenue from export sales decreased by $52,000 to $538,000 during the six-month period ended March 31, 2013 from $590,000 during the same period of the previous year, primarily due to a decrease in Laser sales in during the current six-month period.

Cost of sales during the six months ended March 31, 2013 were $1,857,000 or 61.0% of net revenues as compared to $1,921,000 or 65.9% for the same period of the previous year. Gross profit as a percentage of sales from the sale of Lasers and accessories was 19.8% as compared to 2.9% for the same six-month period of the previous year, primarily due to the sale of two fully amortized demo Lasers during the current six-month period. Gross profit as a percentage of sales from the sale of Fibers, Needles and Tipswas 47.6% as compared to 41.2% for the same six-month period of the previous year. The increase in gross profit was primarily due to more efficient production running closer to capacity to increase inventory levels. Gross profit from revenue received from service and rentals were 33.5% as compared to 36.2% for the same six-month period of the previous year. This decrease in gross profit was primarily due to an increase in payroll expense resulting from annual compensation increases and the addition of personnel at MST.

For the six months ended March 31, 2013, selling, general and administrative expenses totaled $1,145,000 as compared to $1,280,000 for the same period of the previous year, a $135,000 or 10.5% decrease. The decrease in selling, general and administrative expenses during the six-month period ended March 31, 2013 was primarily the result of decreases in marketing expense of $52,000, commissions expense of $36,000, outside administrative services expense of $29,000 and rent expense of $16,000.

During the six months ended March 31, 2013, research and development expenses decreased to $251,000 from $359,000 in the same six-month period of the previous year, a decrease of $108,000 or 30.1%. The decrease was primarily due to the reduction of staff. During the period ended March 31, 2013, R&D activities consisted of producing samples and documentation for interstitial fiber optic delivery systems, expanding the existing line of single use and reusable bare fibers, optimizing label production and inspection for existing products, and updating risk management files in compliance with current international standards.

Other income decreased by $61,000 or 21.0% to $229,000 in the six-month period ended March 31, 2013 from $290,000 in the same six-month period of the previous year. This decrease was primarily the result of the receipt of an insurance settlement of $35,000 and $200,000 resulting from the Company entering into an agreement for the sale of certain patents to a third party during the prior year six-month period offset by the receipt of $166,000 from our insurance carrier due to its acquisition from another party during the current six-month period.

For the six months ended March 31, 2013 and 2012, the Company had net income of $17,000 or $0.00 per share, as compared to a net loss of $354,000 or $0.02 per share, respectively, based on 18,395,960 basic weighted average number of common shares outstanding, resulting from the above mentioned factors.

Liquidity and Capital

At March 31, 2013, the Company had working capital of $2,435,000 compared to $2,325,000 at the end of the fiscal year ended September 30, 2012. Cash increased by $112,000 to $584,000 from $472,000 during the six months ended March 31, 2013.

On January 15, 2013, the Company received $166,000 from our liability insurance company, MedMarc Insurance Group, as cash consideration to its eligible members resulting from its acquisition by Pro Assurance Corporation in exchange for extinguishing all membership interests. As a result of further cost reductions, we had cash on hand of $848,000 on May 17, 2013. We intend to fund operations with cash on hand and from continuing operations, however, additional working capital in the next 12 months may be required based upon our current expenditure rate.

We will 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. During the quarter ended December 31, 2012, the lease for the facility at Lake Forest, California was amended resulting in a savings of $48,000 in rent expense through May 31, 2013. Subsequently, on April 16, 2013, we executed a new lease to move our operations in California to a smaller facility (see "Subsequent Events", Note 5) commencing May 9, 2013, which will result in a savings in rent expense of approximately $550,000 over a period of three years as compared to the prior three-year period. We also have significantly reduced our staff to continue reducing costs.

During the three months December 30, 2011, we received purchase orders for future delivery of 19 Lasers and shipped nine (9) of these Lasers during fiscal 2012. During the six-month period ended March 31, 2013, we shipped one (1) Laser relating to the above purchase order. We expect to ship more of the Lasers relating to the above purchase orders during the current fiscal year ending September 30, 2013.

The Company is currently pursuing market development efforts in growth markets in Pacific Rim countries, Latin America and Eastern Europe. We believe that by expanding healthcare infrastructure in these markets we will create a sustained demand for Holmium Lasers applied to Spinal Endoscopy, Laser Lithotripsy and Laser prostate ablation. Additionally, we expect the global trend toward single-use disposable laser delivery products will improve sales and profit margins as more hospitals convert from multi-use products, due to concerns for sterility, and interests to reduce handling costs incurred in product sterilization and we are developing more single-use products.

OFF BALANCE SHEET ARRANGEMENTS

None.

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