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 March 31, 2010
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________________ to _______________________
COMMISSION FILE NO. 0-10581
----------------------
TRIMEDYNE, INC.
---------------
(Exact Name of Registrant as Specified in its Charter)
NEVADA 36-3094439
------ ----------
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION) IDENTIFICATION NO.)
25901 COMMERCENTRE DRIVE 92630
LAKE FOREST, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
Registrant's Telephone Number, Including Area Code:
(949) 951-3800
----------------------
Securities Registered Pursuant to Section 12(b) of the Act:
NONE
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value per Share
(Title of Class)
----------------------
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [_]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss. 232.405
of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes [ ] No [_]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer |_| Accelerated filer |_|
Non-accelerated filer |_| Smaller reporting company |X|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act of 1934). Yes [ ] No [X]
As of May 21, 2010, there were outstanding 18,365,960 shares of
registrant's Common Stock.
TRIMEDYNE, INC.
Page Number
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PART I. Financial Information 3
ITEM 1. Financial Statements (Unaudited)
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 - N/A 17
ITEM 4T. Controls and Procedures 17
PART II. Other Information 18
ITEM 1. Legal Proceedings 18
ITEM 1A. Risk Factors - N/A 18
ITEM 2. Unregistered Sales of Equity Securities and Use of
Proceeds 18
ITEM 3. Defaults Upon Senior Securities 18
ITEM 4. [Removed and Reserved] 18
ITEM 5. Other Information 18
ITEM 6. Exhibits 18
SIGNATURES 19
2
TRIMEDYNE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
March 31, 2010 March 31, 2009
------------------ ------------------
Current assets:
Cash and cash equivalents $ 822,000 $ 1,621,000
Trade accounts receivable, net of allowance
for doubtful accounts of $12,000 at March 31, 2010
and September 30, 2009 774,000 988,000
Inventories 2,656,000 2,266,000
Other current assets 122,000 226,000
------------------ ------------------
Total current assets 4,374,000 5,101,000
Property and equipment, net 1,030,000 1,168,000
Other 80,000 87,000
Goodwill 544,000 544,000
------------------ ------------------
Total Assets $ 6,028,000 $ 6,900,000
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 384,000 $ 449,000
Accrued expenses 455,000 497,000
Deferred revenue 84,000 100,000
Accrued warranty 40,000 54,000
Income tax payable 29,000 20,000
Current portion of note payable and capital leases 164,000 209,000
------------------ ------------------
Total current liabilities 1,156,000 1,329,000
Note payable and capital leases, net of current portion 151,000 232,000
Deferred rent 34,000 51,000
Long term warrant liability 29,000 --
------------------ ------------------
Total liabilities 1,370,000 1,612,000
------------------ ------------------
Commitments and contingencies
Stockholders' equity:
Preferred stock - $0.01 par value, 1,000,000 shares
authorized, none issued and outstanding -- --
Common stock - $0.01 par value, 30,000,000 shares authorized,
18,467,569 shares issued at March 31, 2010 and
September 30, 2009, 18,365,960 shares outstanding at
March 31, 2010 and September 30, 2009 186,000 186,000
Additional paid-in capital 51,232,000 51,461,000
Accumulated deficit (46,047,000) (45,646,000)
------------------ ------------------
5,371,000 6,001,000
Treasury stock, at cost (101,609 shares) (713,000) (713,000)
------------------ ------------------
Total stockholders' equity 4,658,000 5,288,000
------------------ ------------------
Total liabilities and stockholder's equity $ 6,028,000 $ 6,900,000
================== ==================
See accompanying notes to condensed consolidated financial statements
3
TRIMEDYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
March 31, March 31,
2010 2009 2010 2009
------------ ------------ ------------ ------------
Net revenues $ 1,727,000 $ 1,632,000 $ 3,381,000 $ 3,242,000
Cost of revenues 1,126,000 1,074,000 2,202,000 2,150,000
------------ ------------ ------------ ------------
Gross profit 601,000 558,000 1,179,000 1,092,000
Operating expenses:
Selling, general and administrative 659,000 673,000 1,288,000 1,389,000
Research and development 316,000 318,000 621,000 614,000
------------ ------------ ------------ ------------
Total operating expenses 975,000 991,000 1,909,000 2,003,000
------------ ------------ ------------ ------------
Loss from operations (374,000) (433,000) (730,000) (911,000)
Other income, net 71,000 87,000 132,000 125,000
------------ ------------ ------------ ------------
Loss before provision for income taxes (303,000) (346,000) (598,000) (786,000)
Provision (benefit)for income taxes 4,000 (1,000) 9,000 4,000
------------ ------------ ------------ ------------
Net loss $ (307,000) $ (345,000) $ (607,000) $ (790,000)
============ ============ ============ ===========
Net loss per share:
Basic $ (0.02) $ (0.02) $ (0.03) $ (0.04)
============ ============ ============ ============
Diluted $ (0.02) $ (0.02) $ (0.03) $ (0.04)
============ ============ ============ =============
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)
Six Months Ended
March 31,
2010 2009
----------- -----------
Cash flows from operating activities:
Net loss (607,000) (790,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Stock-based compensation 10,000 23,000
Depreciation and amortization 167,000 181,000
Change in fair value of warrant liability (4,000) --
Gain on disposal of assets -- (12,000)
Changes in operating assets and liabilities:
Trade accounts receivable 214,000 141,000
Inventories (390,000) 274,000
Other assets 111,000 84,000
Accounts payable (65,000) 119,000
Accrued expenses (41,000) 22,000
Income tax payable 9,000 13,000
Deferred revenue (16,000) --
Accrued warranty (14,000) (9,000)
Deferred rent (17,000) (10,000)
----------- -----------
Net cash used in operating activities (644,000) 36,000
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (29,000) (112,000)
----------- -----------
Net cash used in investing activities (29,000) (112,000)
----------- -----------
Cash flows from financing activities:
Payments on debt (126,000) (150,000)
----------- -----------
Net cash used in financing activities (126,000) (150,000)
----------- -----------
Net decrease in cash and cash equivalents (799,000) (226,000)
Cash and cash equivalents at beginning of period 1,621,000 2,007,000
----------- -----------
Cash and cash equivalents at end of period $ 822,000 $ 1,781,000
=========== ===========
Supplemental disclosure of cash flow information:
No cash was paid for income taxes during the six months ended March 31, 2010 and
cash paid during the prior year six-month period ended March 31, 2009 was
$5,000. Cash paid for interest during the six months ended March 31, 2010 and
2009 was approximately $18,000 and $25,000, respectively.
See accompanying notes to condensed consolidated financial statements
5
TRIMEDYNE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010
(UNAUDITED)
NOTE 1 - Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying condensed consolidated financial statements include the
accounts of Trimedyne, Inc., a Nevada corporation, its wholly owned subsidiary,
Mobile Surgical Technologies, Inc. ("MST"), a Texas corporation, and its 90%
owned inactive subsidiary, Cardiodyne, Inc. ("Cardiodyne"), a Nevada
corporation, (collectively, the "Company"). All intercompany accounts and
transactions have been eliminated in consolidation.
Managements' Plans
The Company's working capital has declined and we have incurred losses from
developing a new side firing optical fiber device and from operations during the
past four years. There can be no assurance that the Company will be able to
maintain or achieve sales growth to offset these losses, or that the Company
will again become profitable. Based on its current cash flow projections, the
Company expects its existing resources will be sufficient to fund operations
through November 30, 2010. The accompanying financial statements have been
prepared assuming the Company will continue as a going concern. However,
management is unsure if the Company's liquidity and anticipated revenues will be
sufficient to meet its obligations as they become due for the next 12 months
from the balance sheet date. This raises substantial doubt about the Company's
ability to continue as a going concern. The Company has taken various steps to
reduce its costs through a reduction in personnel positions and overhead costs
and deferring partial salaries of some of the members of its management
beginning in April. The Company renegotiated its lease on its facility in Lake
Forest, California and signed a new lease agreement which will result in a
savings of over $111,000 in rent expense through the next twelve months. The
Company plans to raise additional capital through the sale of notes, debentures,
equity capital or other Company assets. There is no assurances that these
efforts 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 March 31, 2010 and the
results of its operations and its cash flows for the six months ended March 31,
2010 and 2009. Results for the six months ended March 31, 2010 are not
necessarily indicative of the results to be expected for the year ending
September 30, 2010.
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 2009
annual report on Form 10-K for the year ended September 30, 2009.
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 three months ended March 31, 2010,
there were no stock options granted.
As of March 31, 2010, there was approximately $12,655 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 three years.
6
The following table summarizes stock-based compensation expense related to
employee and director stock options under ASC No. 718 for the six months
ended March 31, 2010 and 2009, which was allocated as follows:
Three Months Ended Six Months Ended
March 31, 2010 March 31, 2009 March 31, 2010 March 31, 2009
-------------- -------------- -------------- --------------
Stock-based compensation included in:
Cost of revenues $ 1,000 $ 3,000 $ 2,000 $ 6,000
Research and development expenses $ 1,000 $ 1,000 $ 2,000 $ 2,000
Selling, general, and administrative expenses $ 3,000 $ 8,000 $ 7,000 $ 15,000
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
In September 2006, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards ("SFAS") No. 157, "Fair Value
Measurements", which has been codified into Accounting Standards Codification
825 ("ASC 825"). The standard defines fair value, establishes a framework for
measuring fair value in GAAP, and expands disclosures about fair value
measurements. ASC 825 does not require any new fair value measurements, but
provides guidance on how to measure fair value by providing a fair value
hierarchy used to classify the source of the information. In February 2008, the
FASB deferred the effective date of ASC 825 by one year for certain
non-financial assets and non-financial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually). On October 1, 2008, we adopted the provisions of ASC
825, except as it applies to those nonfinancial assets and nonfinancial
liabilities for which the effective date has been delayed by one year, which we
adopted on October 1, 2009. The adoption of ASC 825 did not have a material
effect on our financial position or results of operations. The book values of
cash, accounts receivable inventory, accounts payable and notes payable
approximate their respective fair values due to the short-term nature of these
instruments. At March 31, 2010, the warrant liability was recorded under a level
two assumption; see Note 4 for discussion of the valuation techniques used to
measure the fair value of the warrant liability.
Concentration of Credit Risk and Customer Concentration
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. No customer concentrations noted as of March 31,
2010.
At March 31, 2010, the Company had cash balances of $595,000 in excess of
federally insured limits.
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 six months ended March 31, 2010 and
2009, outstanding options of 80,000 and 65,000, 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.
7
Recently Issued or Adopted Accounting Pronouncements
In April 2008 the FASB issued FASB Staff Position No. FAS 142-3, "Determination
of the Useful Life of Intangible Assets" ("FSP 142-3"). This pronouncement
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 Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("FAS 142"). This pronouncement aims to improve the
consistency between the useful life of a recognized intangible asset under FAS
142 and the period of expected cash flows used to measure the fair value of the
asset under FAS 141(R). The provisions of FSP 142-3 were incorporated into the
Codification within ASC Subtopic 350-30 "General Intangibles other than
Goodwill" and are effective for fiscal years beginning after December 15, 2008.
On October 1, 2009, the Company adopted the standard with no impact on its
financial statements.
Effective October 1, 2009, the Company adopted the provisions of Emerging
Issues Task Force 07-5, "Determining Whether an Instrument (or Embedded Feature)
is Indexed to an Entity's Own Stock" ("EITF 07-5"), which has been codified into
ASC 815. The guidance applies to any freestanding financial instruments or
embedded features that have the characteristics of a derivative, as defined by
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
(which was codified into ASC 815) and to any freestanding financial instruments
that are potentially settled in an entity's own common stock. The guidance
had an impact on the Company's financial statements and position
due to certain warrants in which the exercise price resets upon certain events.
See Note 4 for discussion.
In January 2010, the FASB amended authoritative guidance for improving
disclosures about fair-value measurements. The updated guidance requires new
disclosures about recurring or nonrecurring fair-value measurements including
significant transfers into and out of Level 1 and Level 2 fair-value
measurements and information on purchases, sales, issuances, and settlements on
a gross basis in the reconciliation of Level 3 fair-value measurements. The
guidance also clarified existing fair-value measurement disclosure guidance
about the level of disaggregation, inputs, and valuation techniques. The
guidance became effective for interim and annual reporting periods beginning on
or after December 15, 2009, with an exception for the disclosures of purchases,
sales, issuances and settlements on the roll-forward of activity in Level 3
fair-value measurements. Those disclosures will be effective for fiscal years
beginning after December 15, 2010 and for interim periods within those fiscal
years. The Company does not exp ect that the adoption of this guidance will have
a material impact on the consolidated financial statements.
NOTE 2 - Composition of Certain Balance Sheet Captions
Inventories, net of reserves, consist of the following:
March 31, September 30,
2010 2009
----------- -----------
Raw materials $ 1,069,000 $ 848,000
Work-in-process 916,000 800,000
Finished goods 671,000 618,000
----------- ------------
$ 2,656,000 $ 2,266,000
=========== ============
For the six months ended March 31, 2010 and 2009, 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:
March 31, September 30,
2010 2009
----------- -----------
Royalty receivable $ 73,000 $ 93,000
Prepaid insurance 13,000 66,000
Other receivables -- 34,000
Prepaid other 24,000 20,000
Prepaid income tax 2,000 5,000
Prepaid Rent 2,000 --
Short-term deposits 8,000 8,000
----------- -----------
Total other current assets $ 122,000 $ 226,000
=========== ===========
8
Property and equipment consist of the following:
March 31, September 30,
2010 2009
----------- -----------
Furniture and equipment $ 3,360,000 $ 3,354,000
Leasehold improvements 642,000 619,000
Other 244,000 244,000
------------ -----------
4,246,000 4,217,000
Less accumulated depreciation and amortization (3,216,000) (3,049,000)
------------ -----------
Total property and equipment $ 1,030,000 $ 1,168,000
============ ===========
Accrued expenses consist of the following:
March 31, September 30,
2010 2009
------------ -------------
Accrued vacation $ 176,000 $ 182,000
Accrued salaries and wages 64,000 62,000
Sales and use tax 68,000 75,000
Customer deposits 29,000 4,000
Accrued commissions 74,000 145,000
Accrued bonuses 20,000 --
Accrued payroll taxes 12,000 11,000
Accrued 401(k) -- 9,000
Other 12,000 9,000
----------- -----------
Total accrued expenses $ 455,000 $ 497,000
=========== ===========
NOTE 3 - Notes Payable and Capital leases
Notes payable and capital leases consists of the following at March 31, 2010 and
September 30, 2009:
March 31, September 30,
2010 2009
----------- ------------
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. $ 53,000 $ 69,000
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. 145,000 170,000
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. 16,000 19,000
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. 53,000 64,000
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. 12,000 27,000
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. 36,000 53,000
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. -- 39,000
----------- ----------
$ 315,000 $ 441,000
Less: current portion (164,000) (209,000)
----------- ----------
$ 151,000 $ 232,000
=========== ==========
9
NOTE 4 - Outstanding Warrant Liability
Effective October 1, 2009 we adopted the provisions of EITF 07-5, "Determining
Whether an Instrument (or Embedded Feature) is Indexed to an Entity's Own Stock"
("EITF 07-5"). EITF 07-5 applies to any freestanding financial instruments or
embedded features that have the characteristics of a derivative, as defined by
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
and to any freestanding financial instruments that are potentially settled in an
entity's own common stock. Both standards were codified into ASC 815. As a
result of adopting EITF 07-5, 212,000 of our issued and outstanding common stock
purchase warrants previously treated as equity pursuant to the derivative
treatment exemption were no longer afforded equity treatment. These warrants
have an exercise price of $1.14 and expire in January 2012. As such, effective
October 1, 2009 we reclassified the fair value of these common stock purchase
warrants, which have exercise price reset features, from equity to liability
status as if these warrants were treated as a derivative liability since their
date of issue in January 2007. On October 1, 2009, we reclassified from
additional paid-in capital, as a cumulative effect adjustment, $204,000 to
beginning retained earnings and $35,000 to a long-term warrant liability to
recognize the fair value of such warrants on such date. The fair value of these
common stock purchase warrants declined to $29,000 as of March 31, 2010. As
such, we recognized a gain of approximately $6,000 from the change in fair value
of these warrants for the six months ended March 31, 2010.
These common stock purchase warrants were initially issued in connection with
our January 2007 issuance and sale of 2.65 million shares of common stock. The
common stock purchase warrants were not issued with the intent of effectively
hedging any future cash flow, fair value of any asset, liability or any net
investment in a foreign operation. The warrants do not qualify for hedge
accounting, and as such, all future changes in the fair value of these warrants
will be recognized currently in earnings until such time as the warrants are
exercised or expire. These common stock purchase warrants do not trade in an
active securities market, and as such, we estimate the fair value of these
warrants using the Black-Scholes option pricing model using the following
assumptions:
March 31, October 1,
2010 2009
------------ -----------
Annual dividend yield -- --
Expected life (in years) 1.76 2.26
Risk free interest rate 1.02% 2.20%
Expected annual volatility 113.7% 103.0%
Expected volatility is based primarily on historical volatility. Historical
volatility was computed using weekly pricing observations for recent periods
that correspond to expected remaining life of the warrant. We believe this
method produces an estimate that is representative of our expectations of future
volatility over the expected term of these warrants. We currently have no reason
to believe future volatility over the expected remaining life of these warrants
is likely to differ materially from historical volatility. The expected life is
based on the remaining term of the warrants. The risk-free interest rate is
based on U.S. Treasury securities.
NOTE 5 - Commitments and Contingencies
Litigation
We are subject to various claims and actions that arise in the ordinary course
of business. The litigation process is inherently uncertain, and it is possible
that the resolution of any future litigation may adversely affect us.
The Company had no product liability lawsuits commenced against it during the
three months ended March 31, 2010. The Company has insurance to cover product
liability claims. This insurance provides the Company with $5,000,000 of
coverage for each occurrence with a general aggregate coverage of $5,000,000.
Trimedyne's liability is limited to a maximum of $50,000 per occurrence unless
the judgment against the Company exceeds the $5,000,000 insurance coverage. In
such case, Trimedyne would be liable for any liability in excess of $5,000,000.
In February, 2008, the Company and six other laser manufacturers were sued in
the district court of Massachusetts by CardioFocus, Inc., alleging infringement
of three of their now expired U.S. Patents, which limits their claim for
royalties to six years prior to their date of expiration. The Company and two
other laser companies joined in a petition to the U.S. Patent & Trademark Office
("USPTO") to re-examine these patents and declare them invalid. The other four
defendants likewise individually requested a re-examination of these patents and
a declaration of invalidity by the USPTO. One of Cardiofocus' patents was
declared invalid and an aggregate of three claims of the other two patents were
declared valid by the USPTO, only one of which may pertain to the type of laser
we manufacture.
10
The court issued a stay of the proceedings until October 14, 2009. On October
14, 2009, the defendants (including Trimedyne) sought to extend the stay of the
proceedings until October 14, 2010, or until the USPTO's reexamination
proceedings have concluded. In March 2010, the court refused to extend the stay
and allowed the lawsuit to proceed.
As of March 31, 2010, the Company believes it has adequate defenses to this
lawsuit and intends to defend itself vigorously and thus has not provided a
provision for losses.
Guarantees and Indemnities
The Company has made certain indemnities and guarantees, under which it may be
required to make payments to a guaranteed or indemnified party. The Company
indemnifies its directors, officers, employees and agents to the maximum extent
permitted under the laws of the State of California. In connection with its
facility leases, the Company has indemnified its users of lasers for certain
claims arising from the use of the lasers. The duration of the guarantees and
indemnities varies, and in many cases is indefinite. These guarantees and
indemnities do not provide for any limitation of the maximum potential future
payments the Company could be obligated to make. Historically, the Company has
not been obligated to make any payments for these obligations and no liabilities
have been recorded for these indemnities and guarantees in the accompanying
condensed consolidated balance sheet.
Risks and Uncertainties
The Centers for Medicare and Medicaid Services (CMS), the agency of the U.S.
Government that administers the Medicare Program, does not reimburse for thermal
intradiscal procedures to treat spinal discs including the use of the Company's
pulsed Holmium Lasers. Since most people suffering from a herniated or ruptured
spinal disc are below Medicare age, we do not believe CMS's decision will have
an adverse impact on our business.
NOTE 6 - Other Income
During the six months ended March 31, 2010 and 2009, the Company recognized
$141,000 and $122,000, respectively, in royalties in connection with the terms
of a 2005 OEM agreement from Lumenis, Inc. These royalties are included in other
income in the accompanying statements of operations.
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 six months
ended March 31, 2010 and 2009 are as follows:
For the Three Months Ended March 31, 2010 For the Three Months Ended March 31, 2009
(Unaudited) (Unaudited)
Service and Service and
Products Rental Total Products Rental Total
---------------------------------------- ----------------------------------------
Revenue $ 1,067,000 $ 660,000 $ 1,727,000 $ 1,038,000 $ 594,000 $1,632,000
Cost of sales 746,000 380,000 1,126,000 708,000 366,000 1,074,000
---------------------------------------- ----------------------------------------
Gross profit 321,000 280,000 601,000 330,000 228,000 558,000
Expenses:
Selling, general and
administrative 492,000 167,000 659,000 523,000 150,000 673,000
Research and development 316,000 -- 316,000 318,000 -- 318,000
---------------------------------------- ----------------------------------------
Net Income (loss) from operations $ (487,000) $ 113,000 (374,000) $ (511,000) $ 78,000 (433,000)
========================== ==========================
Other:
Interest income 1,000 3,000
Interest expense (8,000) (12,000)
Royalty income 73,000 77,000
Gain on disposal of assets -- 12,000
Other income 1,000 7,000
Gain on change in fair value of warrant laibility 4,000 --
Income taxes 4,000 (1,000)
----------- ----------
Net loss $ (307,000) $ (345,000)
=========== ==========
11
For the Six Months Ended March 31, 2010 For the Six Months Ended March 31, 2009
(Unaudited) (Unaudited)
Service and Service and
Products Rental Total Products Rental Total
--------------------------------------- ----------------------------------------
Revenue $ 2,018,000 $ 1,363,000 $ 3,381,000 $ 2,022,000 $ 1,220,000 $ 3,242,000
Cost of sales 1,428,000 774,000 2,202,000 1,370,000 780,000 2,150,000
--------------------------------------- ----------------------------------------
Gross profit 590,000 589,000 1,179,000 652,000 440,000 1,092,000
Expenses:
Selling, general and
administrative 954,000 334,000 1,288,000 1,084,000 305,000 1,389,000
Research and development 621,000 -- 621,000 614,000 -- 614,000
--------------------------------------- ----------------------------------------
Income (loss) from operations $ (985,000) $ 255,000 (730,000) $(1,046,000) $ 135,000 (911,000)
========================= =========================
Other:
Interest income 1,000 7,000
Interest expense (18,000) (25,000)
Royalty income 141,000 122,000
Gain on disposal of equipment -- 12,000
Gain on change in fair value of warrant liability 6,000 --
Other income 4,000 9,000
Income taxes 9,000 4,000
----------- ----------
Net loss $ (607,000) $ (790,000)
=========== ==========
Sales and gross profit to customers by similar products and services for the
three and six months ended March 31, 2009 and 2008 were as follows:
For the Three Months Ended March 31, For the Six Months Ended March 31,
(Unaudited) (Unaudited)
2010 2009 2010 2009
------------ ------------ ------------ ------------
By similar products and services:
Revenues:
Products:
Laser equipment and accessories $ 252,000 $ 315,000 $ 513,000 $ 640,000
Delivery and disposable devices 815,000 723,000 1,505,000 1,382,000
Service and rental 660,000 594,000 1,363,000 1,220,000
------------ ------------ ------------ ------------
Total $ 1,727,000 $ 1,632,000 $ 3,381,000 $ 3,242,000
============ ============ ============ ============
Gross profit
Products:
Laser equipment and accessories $ 30,000 $ 35,000 $ 60,000 $ 118,000
Delivery and disposable devices 291,000 295,000 530,000 534,000
Service and rental 280,000 228,000 589,000 440,000
------------ ------------ ------------ ------------
Total $ 601,000 $ 558,000 $ 1,179,000 $ 1,092,000
============ ============ ============ ============
Sales in foreign countries for the quarters ended March 31, 2010 and 2009,
accounted for approximately 24% and 20%, respectively, of the Company's total
sales. Sales in foreign countries for the six months ended March 31, 2010 and
2009 accounted for approximately 21% and 23%, respectively, of the Company's
total sales. The breakdown by geographic region is as follows:
Three Months Three Months Six Months Six Months
Ended March Ended March Ended March Ended March
31, 2010 31, 2009 31, 2010 31, 2009
----------- ------------ ------------ ------------
Asia $ 336,000 $ 183,000 $ 468,000 $ 547,000
Europe 46,000 51,000 108,000 100,000
Latin America 26,000 4,000 40,000 4,000
Middle East 1,000 1,000 4,000 1,000
Australia 14,000 98,000 103,000 109,000
Other -- -- 2,000 --
----------- ----------- ------------ ------------
$ 423,000 $ 337,000 $ 725,000 $ 761,000
=========== =========== ============ ============
12
All long-lived assets were located in the United States during the six months
ended March 31, 2010 and 2009. Total segment assets for the Products segment
were $4,469,000 and Service and Rental were $1,537,000 at March 31, 2010. 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.
The Company evaluated subsequent events through the issuance date of the
financial statements, May 21, 2010, and has disclosed the events identified
within this filing.
NOTE 8 - Related Party Transactions
During the six-month period ended March 31, 2010, the Company has a receivable
of $15,000 in connection with services performed for Cardiomedics, Inc., a
company owned by our Chief Executive Officer.
NOTE 9 - Subsequent Events
On May 5, 2010, the Company signed an agreement to renew the lease for its
facility located at 25901 Commercentere Drive in Lake Forest California. The
lease begins June 1, 2010, expires on May 31, 2013, and contains two sixty-month
options to extend the lease at the then prevailing market rent. The rent for the
first year is at $24,108 per month, a decrease of $6,314 or 21.8% from the
present lease rate, with the first four months at $12,054, a decrease of $18,368
or 60.4% from the present lease rate. The reduction will result in a savings of
over $111,000 during the next twelve months. The lease contains two increases
occuring at the end of 12 months and 24 months, for $29,561 and $30,422,
respectively, with the first increase including a month's free rent.
13
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, 2009 contained in our
2009 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 most 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.
CRITICAL ACCOUNTING POLICIES
Revenue Recognition
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.
14
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., MST and its 90% owned subsidiary, Cardiodyne.
Quarter ended March 31, 2010 compared to quarter ended March 31, 2009
During the quarter ended March 31, 2010, net revenues were $1,727,000 as
compared to $1,632,000 for the same period of the previous year, a $95,000 or
5.8% increase. Net sales from lasers and accessories decreased by $63,000 or
20.0% to $252,000 during the three months ended March 31, 2010 from $315,000 in
the same period of the prior 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 $92,000 or 12.7% to $723,000 in the current quarter from
$723,000 in the same quarter of the prior year. Net sales from service and
rental increased by $66,000 or 11.1% to $660,000 from $594,000 for the same
quarters. The increase in service and rental revenue was primarily due to an
increase in per case revenues from MST as a result of the addition of sales
personnel and the expansion of its service business during the latter part of
the prior fiscal year. Export sales increased by $86,000 or 25.5%.
Cost of sales during the quarter ended March 31, 2010 was $1,126,000 or 65.2% of
net revenues as compared to $1,074,000 or 65.8% the prior year three-month
period. Gross profit from the sale of lasers and accessories was 11.9% as
compared to a gross profit of 11.1% for the prior year three-month period The
gross profit from the sale of delivery and disposable devices was 35.7% as
compared to 40.8% for the prior year three-month period. This decrease in gross
profit was primarily due to lower production rates resulting from a temporary
shutdown of production due to repairs in the manufacturing facility. Gross
profit from revenue received from service and rentals were 42.4% as compared to
38.3% for the prior year three-month period. This increase in gross profit was
primarily due to MST's changing its product mix which resulted in higher
revenues with greater margins while maintaining its existing overhead.
Selling, general and administrative expenses decreased in the current quarter to
$659,000 from $673,000 in the prior year quarter, an decrease of $14,000 or
2.1%. The decrease in selling, general and administrative expenses during the
current three-month period compared to the prior year quarter was primarily the
result of decreases in commissions expense of $23,000, insurance related expense
of $17,000, outside administrative services of $16,000, payroll related expense
of $10,000, professional fees related to accounting of $6,000, and a reduction
of bad debt expense of $6,000, offset by increases in marketing expense of
$16,000, taxes and licenses expense of $12,000 and recruiting expense related to
MST, Inc. of $6,000.
Research and development expenditures for the quarter ended March 31, 2010,
decreased $2,000 or 0.6% to $316,000 as compared to $318,000 in the quarter
ended March 31, 2009. The continuing expenditure for research and development
was primarily a result of the Company continuing its product development efforts
in developing its new Side-Firing Laser Fibers for sale by the Company, Lumenis,
Ltd. and Boston Scientific Corporation.
Other income, net, decreased by $16,000 or 18.4% to $71,000 in the quarter ended
March 31, 2010 from $87,000 in the same quarter of the prior year. During the
three months ended March 31, 2010, royalty income decreased $4,000 to $73,000 as
compared to $77,000 in the prior year three-month period. During the prior year
quarter ended March 31, 2009, $12,000 was recognized as gain on depreciated
equipment used as a trade-in on newer equipment for MST.
For the quarters ended March 31, 2010 and 2009, the Company had a net loss of
$307,000 or $0.02 per share, as compared to a net loss of $345,000 or $0.02 per
share, respectively, based on 18,365,960 basic weighted average number of common
shares outstanding, resulting from the above mentioned factors.
15
Six months ended March 31, 2010 compared to six months ended March 31, 2009
During the six months ended March 31, 2010, net revenues increased to $3,381,000
as compared to $3,242,000 for the same period of the previous year, a $139,000
or 4.3% increase. Net sales from lasers and accessories decreased by $127,000 or
19.8% to $513,000 during the six months ended March 31, 2010 from $640,000 in
the same period of the prior 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 delivery and
disposable devices increased by $123,000 or 8.9% to $1,505,000 during the six
months ended March 31, 2010 from $1,382,000 for the same period decreased by
$30,000 or 3.9% to $731,000 as compared to $761,000 in the same period of the
prior year. Net revenues from service and rental increased by $143,000 or 11.7%
to $1,363,000 from $1,220,000 for the same quarter of the prior year. The
increase in service and rental revenue was primarily due to an increase in per
case revenues from MST as a result of the addition of sales personnel and the
expansion of its service business during the latter part of the prior fiscal
year.
Cost of sales during the six months ended March 31, 2010 were $2,202,000 or
65.1% of net revenues as compared to $2,150,000 or 66.3% for the same period of
the prior year. Gross profit from the sale of lasers and accessories was 11.7%
as compared to 18.5% for the prior year six-month period. The decrease in gross
profit was due to a higher percentage of overhead being absorbed in a lower
production level as a result of decreasing laser sales. Gross profit from the
sale of delivery and disposable devices was 35.2% as compared to 38.6% for the
prior year six-month period. This decrease in gross profit was primarily due to
due to a higher percentage of overhead being absorbed by lower production rates
resulting from a temporary shutdown of production due to repairs in the
manufacturing facility during the current quarter. Gross profit from revenue
received from service and rentals were 43.2% as compared to 36.1% for the prior
year six-month period. This increase in gross profit was primarily due to MST's
chang ing its product mix which resulted in higher revenues with greater margins
while maintaining its existing overhead.
For the six months ended March 31, 2010, selling, general and administrative
expenses totaled $1,288,000 as compared to $1,389,000 for the same period of the
previous year, a $101,000 or 7.3% decrease. The decrease in selling, general and
administrative expenses during the current six-month period was primarily the
result of decreases in commissions expense of $44,000, accounting fees of
$27,000, outside services of $27,000, , insurance expense of $18,000, legal
expense of $12,000, travel expense of $11,000, and $7,000 for bad debt, offset
by increases payroll related expenses of $25,000,taxes and licenses expense of
$14,000 and $6,000 in employee recruiting expense, specifically for MST.
During the six months ended March 31, 2010, research and development expenses
increased to $621,000 from $614,000 in the prior year six-month period, an
increase of $7,000 or 1.4%. This increase was a result the Company continuing
its product development efforts in developing its new Side-Firing Laser
Fibers for sale by the Company, Lumenis, Ltd. and Boston Scientific Corporation.
Other income increased by $7,000 or 5.6% to $132,000 in the current six-month
period from $125,000 in the previous six-month period. During the six months
ended March 31, 2010, royalty income increased $19,000 to $141,000 as compared
to $122,000 in the prior year six-month period. Interest income decreased $6,000
to $1,000 as compared to $7,000 during the same prior year period as a result of
lower maintained balances in interest bearing accounts along with declining
interest rates. During the current six-month period ended March 31, 2009, a gain
of $7,000 was recorded for the decrease in fair market value of liability for
long term warrants. During the prior year $12,000 was recognized as gain on
depreciated equipment used as a trade-in on newer equipment for MST.
For the six months ended March 31, 2010 and 2009, the Company had a net loss of
$607,000 or $0.03 per share, as compared to a net loss of $790,000 or $0.04 per
share, respectively, based on 18,365,960 basic weighted average number of common
shares outstanding, resulting from the above mentioned factors.
Liquidity and Capital
At March 31, 2010, the Company had working capital of $3,218,000 compared to
$3,772,000 at the end of the fiscal year ended September 30, 2009. Cash
decreased by $799,000 to $822,000 from $1,621,000 at the fiscal year ended
September 30, 2009. During the six month period ended March 31, 2010, net
cash used in operating activities was $644,000. Net cash used in investing
activities was $29,000 for the purchase of equipment. Net cash used in financing
activities during the same three month period was $126,000, which was the result
of payments on debt incurred for the servicing of loans for equipment and
certain insurance policies.
16
The Company's working capital has declined and we have incurred losses from
developing a new side firing optical fiber device and from operations during the
past four years. There can be no assurance that the Company will be able to
maintain or achieve sales growth to offset these losses, or that the Company
will again become profitable. Based on its current cash flow projections, the
Company expects its existing resources will be sufficient to fund operations
through November 30, 2010. The accompanying financial statements have been
prepared assuming the Company will continue as a going concern. However,
management is unsure if the Company's liquidity and anticipated revenues will be
sufficient to meet its obligations as they become due for the next 12 months
from the balance sheet date. This raises substantial doubt about the Company's
ability to continue as a going concern. The Company has taken various steps to
reduce its costs through a reduction in personnel positions and overhead costs
and deferring partial salaries of some of the members of its management
beginning in April. The Company renegotiated its lease on its facility in Lake
Forest, California and signed a new lease agreement which will result in a
savings of over $111,000 in rent expense through the next twelve months. The
Company plans to raise additional capital through the sale of notes, debentures,
equity capital or other Company assets. There is no assurances that these
efforts will be successful.
As the result of the Company and Lumenis, Ltd. of Yokneam, Israel ("Lumenis")
settling the Company's lawsuit against Lumenis for patent infringement, unfair
competition and trade libel, in June 2003, the Company entered into a Terms of
Settlement Agreement, and two years later, on August 24, 2005, the Company
entered into an OEM Agreement with Lumenis. Under these Agreements, Lumenis is
required to purchase all of its requirements for side firing optical fiber
devices (emitting laser energy at an angle less than 75 degrees or greater) and
75% of its requirements for angled firing optical devices (emitting laser energy
at an angle less than 75 degrees) from the Company, subject to certain
conditions, and to pay the Company a royalty of 7.5% of its quarterly sales for
all such devices not purchased from the Company through July 21, 2014.
Lumenis is one of the world's largest manufacturers of medical lasers with
annual sales of approximately $250 million. Lumenis markets certain of its
products through Boston Scientific Corporation in the United States and Japan
and through Lumenis' direct sales force and distributors in other countries.
The Company has spent a significant amount of money to complete the development
of its new reliable, durable and fast-vaporizing side firing optical fiber
device, primarily for sale to Lumenis under the above Agreements. As of the date
of this report, however, Lumenis has not completed certain of the requirements
called for under the OEM Agreement necessary to the Company's commencing sales
of its devices to Lumenis, including the testing of 30 of the Company's devices
and reporting the results to the Company within the proscribed time period, and
Lumenis has not commenced its audit of the Company's quality system.
In response to this, in February 2010, the Company submitted an addendum to the
OEM Agreement to Lumenis, setting forth firm timelines for completion of the
above steps and Lumenis' commencing the purchasing of these devices from the
Company, with monetary penalties during the implementation of the timelines and
larger monetary penalties if these timelines are missed. As of this date,
Lumenis has not agreed to the terms of such addendum, and therefore, the Company
has given Lumenis until May 31, 2010 to execute this addendum, with whatever
reasonable changes are made in the timelines to which the parties may mutually
agree.
OFF BALANCE SHEET ARRANGEMENTS
None.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. N/A
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures. Our management has evaluated, under the
supervision and with the participation of our chief 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 principal financial officer
have concluded that, as of the end of the period covered by this report, our
disclosure controls and procedures are effective in ensuring that information
required to be disclosed in our Exchange Act reports is (1) recorded, processed,
summarized and reported in a timely manner, and (2) accumulated and communicated
to our management, including our chief executive officer and principal financial
officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting. There have been no changes
in our internal control over financial reporting that occurred during the period
covered by this report that have materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.
17
PART II Other Information
ITEM 1. Legal Proceedings
In February, 2008, the Company and six other laser manufacturers were sued in
the district court of Massachusetts by CardioFocus, Inc., alleging infringement
of three of their now expired U.S. Patents, which limits their claim for
royalties to six years prior to their date of expiration. The Company and two
other laser companies joined in a petition to the U.S. Patent & Trademark Office
("USPTO") to re-examine these patents and declare them invalid. The other four
defendants likewise individually requested a re-examination of these patents and
a declaration of invalidity by the USPTO. One of Cardiofocus' patents was
declared invalid and an aggregate of three claims of the other two patents were
declared valid by the USPTO, only one of which may pertain to the type of laser
we manufacture.
The court issued a stay of the proceedings until October 14, 2009. On October
14, 2009, the defendants (including Trimedyne) sought to extend the stay of the
proceedings until October 14, 2010, or until the USPTO's reexamination
proceedings have concluded. In March 2010, the court refused to extend the stay
and allowed the lawsuit to proceed.
As of March 31, 2010, the Company believes it has adequate defenses to this
lawsuit and intends to defend itself vigorously and thus has not provided a
provision for losses.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Removed and Reserved
Item 5. Other Information
None
Item 6. Exhibits
(a) Exhibits
31.1 Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 for Marvin P. Loeb
31.2 Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 for Jeffrey S. Rudner
32.1 Chief Executive Officer Certification pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
32.2 Principal Financial Officer Certification pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
18
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: May 24, 2010 /s/ Marvin P. Loeb
------------------- -----------------------------------
Marvin P. Loeb
Chairman and
Chief Executive Officer
Date: May 24, 2010 /s/ Jeffrey S. Rudner
------------------- -----------------------------------
Jeffrey S. Rudner
Principal Financial Officer
19