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 December 31, 2009
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________________ to _______________________
COMMISSION FILE 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 February 12, 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 13
ITEM 3. Quantitative and Qualitative Disclosures About Market
Risk - N/A 16
ITEM 4T. Controls and Procedures 16
PART II. Other Information 17
ITEM 1. Legal Proceedings 17
ITEM 1A. Risk Factors - N/A 17
ITEM 2. Unregistered Sales of Equity Securities and Use of
Proceeds 17
ITEM 3. Defaults Upon Senior Securities 17
ITEM 4. Submission of Matters to a Vote of Security Holders 17
ITEM 5. Other Information 17
ITEM 6. Exhibits
SIGNATURES 18
2
TRIMEDYNE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
December 31, 2009 September 30, 2009
------------------ ------------------
Current assets:
Cash and cash equivalents $ 1,131,000 $ 1,621,000
Trade accounts receivable, net of allowance
for doubtful accounts of $12,000 at December 31
and September 30, 2009 936,000 988,000
Inventories 2,576,000 2,266,000
Other current assets 141,000 226,000
------------------ ------------------
Total current assets 4,784,000 5,101,000
Property and equipment, net 1,115,000 1,168,000
Other 82,000 87,000
Goodwill 544,000 544,000
------------------ ------------------
Total Assets $ 6,525,000 $ 6,900,000
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 427,000 $ 449,000
Accrued expenses 513,000 497,000
Deferred revenue 100,000 100,000
Accrued warranty 49,000 54,000
Income tax payable 25,000 20,000
Current portion of note payable and capital leases 187,000 209,000
------------------ ------------------
Total current liabilities 1,301,000 1,329,000
Note payable and capital leases, net of current portion 188,000 232,000
Deferred rent 42,000 51,000
Long term warrant liability 33,000 --
------------------ ------------------
Total liabilities 1,564,000 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 December 31, 2009 and
September 30, 2009, 18,365,960 shares outstanding at
December 31, 2009 and September 30, 2009 186,000 186,000
Additional paid-in capital 51,228,000 51,461,000
Accumulated deficit (45,740,000) (45,646,000)
------------------ ------------------
5,674,000 6,001,000
Treasury stock, at cost (101,609 shares) (713,000) (713,000)
------------------ ------------------
Total stockholders' equity 4,961,000 5,288,000
------------------ ------------------
Total liabilities and stockholder's equity $ 6,525,000 $ 6,900,000
================== ==================
See accompanying notes to condensed consolidated financial statements
3
TRIMEDYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months Ended
December 31,
2009 2008
------------ ------------
Net revenues $ 1,654,000 $ 1,610,000
Cost of revenues 1,076,000 1,076,000
------------ ------------
Gross profit 578,000 534,000
Operating expenses:
Selling, general and administrative 629,000 716,000
Research and development 305,000 296,000
------------ ------------
Total operating expenses 934,000 1,012,000
------------ ------------
(Loss) from operations (356,000) (478,000)
Other income, net 61,000 38,000
------------ ------------
(Loss) before income taxes (295,000) (440,000)
Provision for income taxes 5,000 5,000
------------ ------------
Net (loss) $ (300,000) $ (445,000)
============ ============
Net (loss) per share:
Basic $ (0.02) $ (0.02)
============ ============
Diluted $ (0.02) $ (0.02)
============ ============
Weighted average number of shares outstanding:
Basic 18,365,960 18,365,960
============ ============
Diluted 18,365,960 18,365,960
============ ============
See accompanying notes to condensed consolidated financial statements
4
TRIMEDYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
December 31,
2009 2008
----------- -----------
Cash flows from operating activities:
Net loss (300,000) (445,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Stock-based compensation 6,000 11,000
Depreciation and amortization 78,000 90,000
Changes in operating assets and liabilities:
Trade accounts receivable 52,000 4,000
Inventories (310,000) 106,000
Other assets 90,000 47,000
Accounts payable (22,000) (8,000)
Accrued expenses 16,000 (31,000)
Income tax payable 5,000 --
Deferred revenue -- 3,000
Accrued warranty (5,000) (3,000)
Deferred rent (9,000) (5,000)
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Net cash used in operating activities (399,000) (231,000)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (25,000) (22,000)
----------- -----------
Net cash used in investing activities (25,000) (22,000)
----------- -----------
Cash flows from financing activities:
Payments on debt (66,000) (77,000)
----------- -----------
Net cash used in financing activities (66,000) (77,000)
----------- -----------
Net decrease in cash and cash equivalents (490,000) (330,000)
Cash and cash equivalents at beginning of period 1,621,000 2,007,000
----------- -----------
Cash and cash equivalents at end of period $ 1,131,000 $ 1,677,000
=========== ===========
Supplemental disclosure of cash flow information:
No cash was paid for income taxes during the three months ended December
31,2009. Cash paid for income taxes during the three months ended December 31,
2008 was $5,000. Cash paid for interest during the three months ended December
31, 2009 and 2008 was approximately $10,000 and $13,000, respectively.
See accompanying notes to condensed consolidated financial statements
5
TRIMEDYNE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009
(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 has depleted working capital and incurred losses from operations for
the past two years. There can be no assurance that the Company will be able to
maintain or achieve sales growth to offset these deficiencies, or that the
Company will be profitable at all. Based on current cash flow projections, the
Company believes that existing cash flows are sufficient enough to fund
operations through September 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 intends to
take various steps to reduce losses by reducing its costs through reduction of
personnel positions and overhead costs. The Company plans to raise additional
capital through the sale of debentures, equity capital or other Company assets.
There are no assurances that the management's plans 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 December 31, 2009 and the
results of its operations and its cash flows for the three months ended December
31, 2009 and 2008. Results for the three months ended December 31, 2009 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 December 31, 2009,
there were no stock options granted.
As of December 31, 2009, there was approximately $35,017 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.
The following table summarizes stock-based compensation expense related to
employee and director stock options under ASC No. 718 for the three months
ended December 31, 2009 and 2008, which was allocated as follows:
6
Three Months Ended Three Months Ended
December 31, 2009 December 31, 2008
------------------ -----------------
Stock-based compensation included in:
Cost of revenues $ 1,000 $ 3,000
Research and development expenses $ 1,000 $ 1,000
Selling, general, and administrative expenses $ 4,000 $ 7,000
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
payableapproximate their respective fair values due to the short-term nature of
these instruments. At December 31, 2009, 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. As of December 31, 2009 one customer accounted for
23% of the Company's receivables.
At December 31, 2009, the Company had cash balances of $789,000 in excess of
federally insured limits.
Goodwill
The Company accounts for goodwill and acquired intangible assets in accordance
with ASC No. 350 "Intangible and Other", whereby goodwill is not amortized, and
is tested for impairment at the reporting unit level annually during the fourth
quarter and in interim periods if certain events occur indicating that the
carrying value of goodwill may be impaired. A reporting unit is an operating
segment for which discrete financial information is available and is regularly
reviewed by management. The Company has one reporting unit, our service and
rental group, to which goodwill is assigned.
ASC No. 350 requires a two-step approach to test goodwill for impairment for
each reporting unit. The first step tests for impairment by applying fair
value-based tests to a reporting unit. The second step, if deemed necessary,
measures the impairment by applying fair value-based tests to specific assets
and liabilities within the reporting unit. Application of the goodwill
impairment tests require judgment, including identification of reporting units,
assignment of assets and liabilities to each reporting unit, assignment of
goodwill to each reporting unit, and determination of the fair value of each
reporting unit. The determination of fair value for a reporting unit could be
materially affected by changes in these estimates and assumptions.
7
As part of the first step, the Company generally estimates the fair value of the
reporting unit based on market prices (i.e., the amount for which the assets
could be bought by or sold to a third party), when available. When market prices
are not available, we estimate the fair value of the reporting unit using the
income approach. The income approach uses cash flow projections. Inherent in our
development of cash flow projections are assumptions and estimates derived from
a review of our historical operating results, future business plans, expected
growth rates, cost of capital, future economic conditions, etc. Many of the
factors used in assessing fair value are outside the control of management, and
these assumptions and estimates can change in future periods. During the first
quarter ended December 31, 2009, the Company conducted a goodwill
impairment test for its service and rental group using a combination of the
market and income approach. As a result of the first step analysis, the expected
cash flows to be generated by the service and rental were sufficient enough to
support the carrying value of the goodwill. Thus, the Company determined there
was no impairment of the goodwill as of December 31, 2009.
Shipping and Handling Costs
Costs incurred for shipping and handling are included in cost of equipment and
services revenues at the time the related revenue is recognized. Amounts billed
to a customer for shipping and handling are reported as revenues.
Per Share Information
Basic per share information is computed based upon the weighted average number
of common shares outstanding during the period. Diluted per share information
consists of the weighted average number of common shares outstanding, plus the
dilutive effects of options and warrants calculated using the treasury stock
method. In loss periods, dilutive common equivalent shares are excluded as the
effect would be anti-dilutive. During the three months ended December 31, 2009
and 2008, outstanding options of 65,000 and 75,056, respectively, were excluded
from the diluted net loss per share as the effects would have been
anti-dilutive.
Segment Information
The Company reports information about operating segments, as well as disclosures
about products and services, geographic areas and major customers (see Note 7).
Operating segments are defined as revenue-producing components of the
enterprise, which are generally used internally for evaluating segment
performance.
Recently Issued 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.
NOTE 2 - Composition of Certain Balance Sheet Captions
Inventories, net of reserves, consist of the following:
December 31, September 30,
2009 2009
----------- -----------
Raw materials $ 1,018,000 $ 848,000
Work-in-process 923,000 800,000
Finished goods 635,000 618,000
----------- ------------
$ 2,576,000 $ 2,266,000
=========== ============
For the three months ended December 31, 2009 and 2008, the aggregate net
realizable value of demonstration and evaluation lasers did not comprise a
material amount in inventories.
8
Other current assets consist of the following:
December 31, September 30,
2009 2009
----------- -----------
Royalty receivable $ 68,000 $ 93,000
Prepaid insurance 43,000 66,000
Other receivables -- 34,000
Prepaid other 20,000 20,000
Prepaid income tax 2,000 5,000
Short-term deposits 8,000 8,000
----------- -----------
Total other current assets $ 141,000 $ 226,000
=========== ===========
Property and equipment consist of the following:
December 31, September 30,
2009 2009
----------- -----------
Furniture and equipment $ 3,356,000 $ 3,354,000
Leasehold improvements 642,000 619,000
Other 244,000 244,000
------------ -----------
4,242,000 4,217,000
Less accumulated depreciation and amortization (3,127,000) (3,049,000)
------------ -----------
Total property and equipment $ 1,115,000 $ 1,168,000
============ ===========
Accrued expenses consist of the following:
December 31, September 30,
2009 2009
------------ -------------
Accrued vacation $ 174,000 $ 182,000
Accrued salaries and wages 87,000 62,000
Sales and use tax 70,000 75,000
Customer deposits 31,000 4,000
Accrued commissions 109,000 145,000
Accrued payroll taxes 23,000 11,000
Accrued 401(k) 8,000 9,000
Other 11,000 9,000
----------- -----------
Total accrued expenses $ 513,000 $ 497,000
=========== ===========
NOTE 3 - Notes Payable and Capital leases
Notes payable and capital leases consists of the following at December 31, 2009 and
September 30, 2009:
December 31, September 30,
2009 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. $ 61,000 $ 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. 156,000 170,000
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. 17,000 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. 59,000 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. 21,000 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. 45,000 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. 16,000 39,000
----------- ----------
$ 375,000 $ 441,000
Less: current portion (187,000) (209,000)
----------- ----------
$ 188,000 $ 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 $33,000 as of December 31, 2009. As such, we
recognized a gain of approximately $2,000 from the change in fair value of these
warrants for the three months ended December 31, 2009.
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:
December 31, October 1,
2009 2009.
------------ -----------
Annual dividend yield -- --
Expected life (in years) 2.01 2.26
Risk free interest rate 2.69% 2.20%
Expected annual volatility 107.4% 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 December 31, 2009. 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, we 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 from their date of expiration. We 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. 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 reexamination proceedings have concluded for all three
patents-in-suit, whichever is sooner. CardioFocus has opposed the defendant's
motion and, as of this filing, we have not received any determination from the
court.
10
No amount of monetary or other damages is stated in CardioFocus's preliminary
case filings and, because the patents have expired, CardioFocus is not entitled
to anything other than monetary damages. We have not established a reserve for
any damages in the event these patents are finally declared valid by the USPTO
in a non-appealable decision.
In the event the litigation is restarted, the Company intends to defend itself
vigorously.
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 three months ended December 31, 2009 and 2008, the Company recognized
$68,000 and $45,000, 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 months ended
December 31, 2009 and 2008 are as follows:
For the Three Months Ended For the Three Months Ended
December 31, 2009 December 31, 2008
Service and Service and
Products Rental Total Products Rental Total
--------------------------------------- -----------------------------------------
Revenue $ 951,000 $ 703,000 $ 1,654,000 $ 984,000 $ 626,000 $ 1,610,000
Cost of sales 682,000 394,000 1,076,000 662,000 414,000 1,076,000
--------------------------------------- -----------------------------------------
Gross profit 269,000 309,000 578,000 322,000 212,000 534,000
Expenses:
Selling, general and
administrative 462,000 167,000 629,000 561,000 155,000 716,000
Research and development 305,000 -- 305,000 296,000 -- 296,000
--------------------------------------- -----------------------------------------
Income (loss) from operations $ (498,000) $ 142,000 (356,000) $ (535,000) $ 57,000 (478,000)
========================= ==========================
Other:
Interest income -- 4,000
Interest expense (10,000) (13,000)
Royalty income 68,000 45,000
Other income 3,000 2,000
Provision for income tax (5,000) (5,000)
----------- -----------
Net loss $ (300,000) $ (445,000)
=========== ===========
11
Sales and gross profit to customers by similar products and services for the
three months ended December 31, 2009 and 2008 were as follows:
For the Three Months
Ended December 31,
2009 2008
---------- ----------
By similar products and services:
Revenues:
Laser equipment and accessories $ 261,000 $ 325,000
Delivery and disposable devices 690,000 659,000
Service and rental 703,000 626,000
---------- ----------
Total $1,654,000 $1,610,000
========== ==========
Gross profit
Laser equipment and accessories $ 15,000 $ 83,000
Delivery and disposable devices 254,000 239,000
Service and rental 309,000 212,000
---------- ----------
Total $ 578,000 $ 534,000
========== ==========
Sales in foreign countries for the quarters ended December 31, 2009 and 2008
accounted for approximately 18% and 26%, respectively, of the Company's total
sales. The breakdown by geographic region is as follows:
Three Months Ended Three Months Ended
December 31, 2009 December 31, 2008
----------------- -----------------
Asia $ 132,000 $ 364,000
Europe 62,000 49,000
Latin America 14,000 --
Australia 89,000 10,000
Middle East 3,000 --
Other 2,000 --
----------------- -----------------
$ 302,000 $ 423,000
================= =================
All long-lived assets were located in the United States during the three months
ended December 31, 2009 and 2008. Total segment assets at December 31, 2009 and
2008 for the Products segment were $4,841,000 and $5,550,000, respectively, and
for the Service and Rental segment were $1,663,000 and $1,602,000, respectively.
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, January 13, 2010, and has disclosed the events identified
within this filing.
12
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 ("FDA") for use in orthopedics, urology, ear, nose and
throat ("ENT") 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
The Company's net revenues include revenues from the sale of delivery and
disposable devices, the sale and rental of laser equipment and accessories, and
service contracts for lasers manufactured by the Company.
In accordance with Staff Accounting Bulletin 104, "Revenue Recognition," the
Company recognizes revenue from products sold once all of the following criteria
for revenue recognition have been met: (i) persuasive evidence that an
arrangement exists, (ii) the products have been shipped, (iii) the prices are
fixed and determinable and not subject to refund or adjustment, and (iv)
collection of the amounts due is reasonably assured.
Revenues from the sale of delivery and disposable devices and lasers are
recognized upon shipment and passage of title of the products, provided that all
other revenue recognition criteria have been met. Generally, customers are
required to insure the goods from the Company's place of business. Accordingly,
the risk of loss transfers to the customer once the goods have been shipped from
the Company's warehouse. The Company sells its products primarily through
commission sales representatives in the United States and distributors in
foreign countries. In cases where the Company utilizes distributors, it
recognizes revenue upon shipment, provided that all other revenue recognition
criteria have been met, and ownership risk has transferred. In general, the
Company does not have any post shipment obligations such as installation or
acceptance provisions. All domestic laser systems are sold with a one year
warranty which includes parts and labor. All international lasers systems are
sold with a one year parts only warranty. As each laser sale is recognized, a
liability is accrued for estimated future warranty costs.
13
The Company utilizes distributors for international sales only. All laser system
sales are non-returnable. Our international distributors typically locate
customers for laser systems before ordering and in general do not maintain
inventories. The Company's return policy for laser accessories, delivery and
disposable devices sold to distributors is as follows: 1) The Company will
accept returns of any unopened, undamaged, standard catalogue items (except
laser systems) within sixty (60) days of invoice date. Acceptable returned
products will be subject to a 20% restocking fee. 2) A return authorization
number is required for all returns. The number can be obtained by contacting the
Customer Service Department. 3) Should a product be found defective at the time
of initial use, the Company will replace it free of charge.
The Company offers service contracts on its lasers. These service contracts are
offered at different pricing levels based on the level of coverage, which
include periodic maintenance and different levels of parts and labor to be
provided. Since the service contracts have a twelve month term, the revenue of
each service contract is deferred and recognized ratably over the term of each
service contract.
Trimedyne, Inc. rents its lasers for a flat monthly charge for a period of
years, on a month-to-month basis, or on a fee-per-case basis, sometimes with a
minimum monthly rental fee. During the three months ended December 31, 2009 and
2008, two lasers were being rented from Trimedyne, Inc., each on a
month-to-month basis, respectively. For these lasers, rental revenue is recorded
ratably over the rental period. MST generally enters into rental service
contracts with customers for a two year period, which unless cancelled, are
renewed on an annual basis after the initial period. During the rental service
contract period customers do not maintain possession of any rental equipment
unless it is for the Company's convenience. Customers are billed on a
"fee per case" basis for rentals, which includes the services of the laser
operator and, in some cases, the use of a reusable or disposable (single use)
laser delivery device. Revenue from these rental service contracts is recognized
as the cases are performed.
Allowance for Doubtful Accounts
The Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of the Company's customers to make required
payments. The allowance for doubtful accounts is based on specific
identification of customer accounts and the Company's best estimate of the
likelihood of potential loss, taking into account such factors as the financial
condition and payment history of major customers. The Company evaluates the
collectibility of our receivables at least quarterly. If the financial condition
of the Company's customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be required. The
differences could be material and could significantly impact cash flows from
operating activities.
Inventories
Inventories consist of raw materials and component parts, work in process and
finished good lasers and dispensing systems. Inventories are recorded at the
lower of cost or market, cost being determined principally by use of the
average-cost method, which approximates the first-in, first-out method. Cost is
determined at the actual cost for raw materials, and at production cost
(materials, labor and indirect manufacturing overhead) for work-in-process and
finished goods.
Goodwill
We account for goodwill and acquired intangible assets in accordance with ASC
No. 350 "Intangible Goodwill and Other", whereby goodwill is not amortized, and
is tested for impairment at the reporting unit level annually during the fourth
quarter and in interim periods if certain events occur indicating that the
carrying value of goodwill may be impaired. A reporting unit is an operating
segment for which discrete financial information is available and is regularly
reviewed by management. We have one reporting unit, our service and rental
group, to which goodwill is assigned.
ASC No. 350 requires a two-step approach to test goodwill for impairment for
each reporting unit. The first step tests for impairment by applying fair
value-based tests to a reporting unit. The second step, if deemed necessary,
measures the impairment by applying fair value-based tests to specific assets
and liabilities within the reporting unit. Application of the goodwill
impairment tests require judgment, including identification of reporting units,
assignment of assets and liabilities to each reporting unit, assignment of
goodwill to each reporting unit, and determination of the fair value of each
reporting unit. The determination of fair value for a reporting unit could be
materially affected by changes in these estimates and assumptions.
14
As part of the first step, the Company generally estimates the fair value of the
reporting unit based on market prices (i.e., the amount for which the assets
could be bought by or sold to a third party), when available. When market prices
are not available, we estimate the fair value of the reporting unit using the
income approach. The income approach uses cash flow projections. Inherent in our
development of cash flow projections are assumptions and estimates derived from
a review of our historical operating results, future business plans, expected
growth rates, cost of capital, future economic conditions, etc. Many of the
factors used in assessing fair value are outside the control of management, and
these assumptions and estimates can change in future periods. During the fourth
quarter of the year ended September 30, 2009, the Company conducted a goodwill
impairment test for its service and rental group using a combination of the
market and income approach. As a result of the first step analysis, the expected
cash flows to be generated by the service and rental were sufficient enough to
support the carrying value of the goodwill. Thus, the Company determined there
was no impairment of the goodwill as of September 30, 2009.
Deferred Taxes
The Company records a valuation allowance to reduce the deferred tax assets to
the amount that is more likely than not to be realized. The Company has
considered estimated future taxable income and ongoing tax planning strategies
in assessing the amount needed for the valuation allowance. Based on these
estimates, all of the Company's deferred tax assets have been reserved. If
actual results differ favorably from those estimates used, the Company may be
able to realize all or part of the Company's net deferred tax assets. Such
realization could positively impact our operating results and cash flows from
operating activities.
Research and Development Costs
All research and development costs, including licensing costs, are charged to
expense as incurred. In accordance with this policy, all costs associated with
the design, development and testing of the Company's products have been expensed
as incurred.
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.
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, 2009 compared to quarter ended December 31, 2008
During the quarter ended December 31, 2009, net revenues were $1,654,000 as
compared to $1,610,000 for the same period of the previous year, a $44,000 or
2.7% increase. Net sales from lasers and accessories decreased by $64,000 or
19.7% to $261,000 during the three months ended December 31, 2009 from $325,000
in the same period of the prior year. Net sales from delivery and disposable
devices increased by $31,000 or 4.7% to $690,000 in the current quarter from
$659,000 in the same quarter of the prior year. Net sales from service and
rental increased by $77,000 or 12.3% to $703,000 from $626,000 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.
Cost of sales during the quarter ended December 31, 2009 was 65.1% of net
revenue as compared to 66.8% of net revenues for the prior year quarter. Gross
profit from the sale of lasers and accessories was 5.7% as compared to 25.5% of
net revenues for the prior year three-month period. The lower gross profit was
primarily the result of a volumizing difference due to lower production. Gross
profit from the sale of delivery and disposable devices was 36.8% as compared to
36.3% for the prior year period. Gross profit from revenue received from service
and rentals was 43.9% in the current quarter, as compared to 33.9% for the prior
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.
15
Selling, general and administrative expenses decreased in the current quarter to
$629,000 from $716,000 in the prior year quarter, a decrease of $87,000 or
12.2%. The decrease in selling, general and administrative expenses was
primarily the result of decreases of $48,000 in expense for outside services,
$21,000 in professional fees incurred for auditing and preparation of tax
returns, $22,000 in commission expense, $15,000 in legal expense, and $12,000 in
marketing expense offset by increases of $19,000 in payroll related expense due
to increasing staff, and $16,000 in bank fees.
Research and development expenditures for the quarter ended December 31, 2009,
increased $9,000 or 3.0% to $305,000 as compared to $296,000 in the quarter
ended December 31, 2008. This increase was a result the Company increasing its
product development efforts and staff in readying its new VaporMAX(TM)
Side-Firing Device for the market.
Other income, net increased by $23,000 or 60.5% to $61,000 in the first quarter
ended December 31, 2009 from $38,000 in the first quarter of the prior year.
Other income during the quarter ended December 31, 2009 primarily consisted of
$68,000 of royalty income, offset by $10,000 in interest expense. Other income
during the quarter ended December 31, 2008 primarily consisted of $45,000 of
royalty income and $4,000 in interest income, offset by $13,000 in interest
expense.
For the current quarter, the Company had a net loss of $300,000 or $0.02 per
share, based on 18,365,960 basic weighted average number of common shares
outstanding, as compared to net loss of $445,000, or $0.02 per share, based on
18,365,960 basic weighted average number of common shares outstanding in the
same quarter of the previous year.
Liquidity and Capital
At December 31, 2009, the Company had working capital of $3,483,000 compared to
$3,772,000 at the end of the fiscal year ended September 30, 2009. Cash
decreased by $490,000 to $1,131,000 from $1,621,000 at the fiscal year ended
September 30, 2009. During the three month period ended December 31, 2009, net
cash used in operating activities was $399,000. Net cash used in investing
activities was $25,000 for the purchase of equipment. Net cash used in financing
activities during the same three month period was $66,000, which was the result
of payments on debt incurred for the servicing of loans for equipment and
certain insurance policies.
The Company has depleted working capital and incurred losses from operations for
the past two years. There can be no assurance that the Company will be able to
maintain or achieve sales growth to offset these deficiencies, or that the
Company will be profitable at all. Based on current cash flow projections, the
Company believes that existing cash flows are sufficient enough to fund
operations through September 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 intends to
take various steps to reduce losses by reducing its costs through reduction of
personnel positions and overhead costs. The Company plans to raise additional
capital through the sale of debentures, equity capital or other Company assets.
There are no assurances that the management's plans will be successful.
OFF BALANCE SHEET ARRANGEMENTS
None.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. N/A
ITEM 4T. 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.
16
PART II Other Information
ITEM 1. Legal Proceedings
In February, 2008, we 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 from their date of expiration. We 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. 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 reexamination proceedings have concluded for all three
patents-in-suit, whichever is sooner. CardioFocus has opposed the defendant's
motion and, as of this filing, we have not received any determination from the
court.
No amount of monetary or other damages is stated in CardioFocus's preliminary
case filings and, because the patents have expired, CardioFocus is not entitled
to anything other than monetary damages. We have not established a reserve for
any damages in the event these patents are finally declared valid by the USPTO
in a non-appealable decision.
In the event the litigation is restarted, the Company intends to defend itself
vigorously.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits
(a) Exhibits
31.1 Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 for Marvin P. Loeb
31.2 Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 for Jeffrey S. Rudner
32.1 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
17
SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
TRIMEDYNE, INC.
Date: February 12, 2010 /s/ Marvin P. Loeb
------------------- -----------------------------------
Marvin P. Loeb
Chairman and
Chief Executive Officer
Date: February 12, 2010 /s/ Jeffrey S. Rudner
------------------- -----------------------------------
Jeffrey S. Rudner
Principal Financial Officer
18