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TMED > SEC Filings for TMED > Form 10-Q on 19-Feb-2014All Recent SEC Filings

Show all filings for TRIMEDYNE INC

Form 10-Q for TRIMEDYNE INC


19-Feb-2014

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, 2013, contained in our 2013 Annual Report on Form 10-K.

The statements contained in this Quarterly Report on Form 10-Q that are not historical facts may contain forward-looking statements that involve a number of known and unknown risks and uncertainties that could cause actual results to differ materially from those discussed or anticipated by management. Potential risks and uncertainties include, among other factors, general business conditions, government regulations governing medical device approvals and manufacturing practices, competitive market conditions, success of the Company's business strategy, delay of orders, changes in the mix of products sold, availability of suppliers, concentration of sales in markets and to certain customers, changes in manufacturing efficiencies, development and introduction of new products, fluctuations in margins, timing of significant orders, and other risks and uncertainties currently unknown to management. We do not undertake any duty to update forward-looking statements after the date they are made or to conform them to actual results or to changes in circumstances or expectations.

OVERVIEW

Trimedyne, Inc. (the "Company", "we", "our" or "us") is engaged in the development, manufacturing and marketing of 80 and 30 watt Holmium "cold" pulsed lasers ("Lasers") and a variety of disposable and reusable, fiber optic laser energy delivery devices ("Fibers", "Needles" and "Tips") for use in a broad array of medical applications.

Our Lasers, Fibers, Needles and Tips have been cleared for sale by the U.S. Food and Drug Administration for use in orthopedics, urology, ear, nose and throat surgery, gynecology, gastrointestinal surgery, general surgery and other medical specialties. Many of the medical procedures in which our Lasers, Fibers, Needles and Tips are used are being reimbursed by Medicare and many insurance companies and health plans.

Our 100% owned subsidiary, Mobile Surgical Technologies, Inc. ("MST"), is engaged in the rental of lasers, along with the services of a trained operator and, if requested, the provision of applicable Fibers, Needles or Tips, on a "fee per case" basis to hospitals, surgery centers, group practices and individual physicians in Texas and nearby areas.

The principal market for our Lasers and Side Firing Needles is presently in orthopedics to treat herniated (bulging) and ruptured lumbar, thoracic and cervical discs in the spine, two of the four major causes of lower back, neck and leg pain, typically on an outpatient basis. Our Lasers and Tips are also used in orthopedics to treat damage in joints, such as 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.

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, 2013 Compared to Quarter Ended December 31, 2012

During the quarter ended December 31, 2013, net revenues were $1,399,000 as compared to $1,475,000 for the same period of the previous year, a $76,000 or 5% decrease. Net sales from Lasers and accessories increased by $235,000 or 490% to $283,000 during the three months ended December 31, 2013 from $48,000 in the same period of the prior year. The increase in Laser revenues was due to the sale of four lasers during the current quarter as compared to one Laser sold during the comparable prior period. 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 Fibers, Needles and Tips decreased $197,000, or 29% to $477,000 during the current period ended December 31, 2013 as compared to $674,000 in the same period of the prior year. The decrease in sales was primarily the result of production delays resulting from setting up of our new production facility which created a temporary supply issue. Net sales from service and rental decreased by $114,000, or 15%, to $639,000 from $753,000 for the same quarters. The decrease was primarily due to a decrease in total fee-per-case revenues provided by MST.

Cost of sales during the quarter ended December 31, 2013, was 73% of net revenue as compared to 64% of net revenues for the prior year quarter. Gross profit from the sale of Lasers and accessories was 20% as compared to (25%) for the prior year three-month period. During the current three-month period 80 watt Lasers were sold, which carry a higher profit margin, compared with one 30 watt Laser sold during the prior year three-month period. Gross profit from the sale of Fibers, Needles and Tips was 37% for the current three-month period as compared to 45% for the same period of the prior year. The lower gross profit during the current period ended December 31, 2013 was primarily due to a volumizing difference created by the lower sales volume as compared to the comparable prior year period combined with the accrual of medical device tax resulting from the sales of Fibers, Needles and Tips. Gross profit from revenue received from service and rentals was 22% in the current quarter, as compared to 33% 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 a volumizing difference created by the decrease in revenues from MST combined with an increase in property tax on fixed assets allocated to sales and the increase of health insurance for the laser technicians.

Selling, general and administrative expenses decreased in the current quarter to $549,000 from $573,000 in the prior year quarter, a decrease of $24,000 or 4%. The decrease in selling, general and administrative expenses was primarily the result of decreases of $27,000 in payroll related expense, $26,000 in allocated property tax, $12,000 in rent expense, $5,000 in utilities expense, $3,000 in commission expense, and $3,000 in auto expense, , offset by increases of $19,000 in audit fees, $19,000 legal expense and $17,000 in outside services for administration. 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 $124,000 or 2% for the quarter ended December 31, 2013, as compared $126,000 for the quarter ended December 31, 2012. During the period ended December 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 increased by $18,000 or 90% to $38,000 in the first quarter ended December 31, 2013 from $20,000 in the first quarter of the prior year. Other income during the quarter ended December 31, 2013 primarily consisted of $30,000 of royalty income from Lumenis. The increase of other income during the current year quarter as compared to the prior quarter was primarily the result of an $13,000 increase in royalties received from Lumenis to $30,000 during the current year period from $17,000 during the comparable prior year comparable period combined with the receipt of $4,000 resulting from the prior litigation of a patent infringement.

For the current quarter, the Company had a net loss of $259,000, or $0.014 per share, as compared to net loss of $144,000, or $0.008 per share during the same period of the prior year, based on 18,395,960 basic weighted average number of common shares outstanding. The loss was primarily the result of lower revenues of Fibers, Needles and Tips due to the delaying of shipments. The delaying of shipments was the result of our moving to a new facility in June of 2013 which created a temporary shortage of product on hand. Management does not expect this trend to continue as we expect a return to normal inventory levels and shipments in the future.

Liquidity and Capital

At December 31, 2013, the Company had working capital of $2,435,000 compared to $2,711,000 at the end of the fiscal year ended September 30, 2013. Cash increased by $27,000 to $1,599,000 from $1,572,000 at September 30, 2013. Cash used in financing activities was $37,000 which was the result of payment on notes payable and a lease. During November 2013, the Company entered into an agreement to finance the purchase of an additional insurance policy for $21,000 and financed the upgrade of its IT infrastructure with a lease agreement for $119,000.

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 applied to Spinal Endoscopy and Laser Lithotripsy. 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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