10-Q 1 tmed_10q-033113.htm FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

T QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2013

£ 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 OF INCORPORATION)	(I.R.S. EMPLOYER IDENTIFICATION NO.)

25901 COMMERCENTRE DRIVE LAKE FOREST, CALIFORNIA	92630
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)	(ZIP CODE)

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 T 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). YesT 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	T

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 T

As of May 16, 2013, there were outstanding 18,395,960 shares of registrant's Common Stock.

TRIMEDYNE, INC.


		Page

PART I.	Financial Information	3

ITEM 1.	Financial Statements (Unaudited)	3

	Condensed Consolidated Balance Sheets	3

	Condensed Consolidated Statements of Operations	4

	Condensed Consolidated Statements of Cash Flows	5

	Notes to Condensed Consolidated Financial Statements	6

ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	13

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk - N/A	17

ITEM 4.	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.	Mine Safety Disclosures	18

ITEM 5.	Other Information	18

ITEM 6.	Exhibits	18

SIGNATURES		19

TRIMEDYNE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

ASSETS
	March 31, 2013			September 30, 2012
Current assets:
Cash and cash equivalents	$	584,000		$	472,000
Trade accounts receivable, net of allowance for doubtful accounts of $11,000 at March 31, 2013 and September 30, 2012, respectively		563,000			493,000
Inventories		1,664,000			1,847,000
Other current assets		164,000			158,000
Total current assets		2,975,000			2,970,000

Property and equipment, net		668,000			751,000
Other		18,000			68,000
Goodwill		544,000			544,000

Total Assets	$	4,205,000		$	4,333,000

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable	$	103,000		$	149,000
Accrued expenses		361,000			352,000
Deferred revenue		51,000			53,000
Accrued warranty		11,000			23,000
Income tax payable		3,000			–
Current portion of note payable and capital leases		–			68,000
Deferred rent		11,000			43,000
Total current liabilities		540,000			688,000

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, 18,497,569 shares issued, 18,395,960 shares outstanding at March 31, 2013 and September 30, 2012, respectively		186,000			186,000
Additional paid-in capital		51,298,000			51,295,000
Accumulated deficit		(47,106,000	)		(47,123,000	)
		4,378,000			4,358,000
Treasury stock, at cost (101,609 shares)		(713,000	)		(713,000	)

Total stockholders' equity		3,665,000			3,645,000

Total liabilities and stockholder's equity	$	4,205,000		$	4,333,000

See accompanying notes to condensed consolidated financial statements

TRIMEDYNE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended March 31,						Six Months Ended March 31,
	2013			2012			2013			2012
Net revenues	$	1,570,000		$	1,526,000		$	3,045,000		$	2,916,000
Cost of sales		919,000			1,051,000			1,857,000			1,921,000
Gross profit		651,000			475,000			1,188,000			995,000

Operating expenses:
Selling, general and administrative		572,000			622,000			1,145,000			1,280,000
Research and development		125,000			149,000			251,000			359,000
Total operating expenses		697,000			771,000			1,396,000			1,639,000

Loss from operations		(46,000	)		(296,000	)		(208,000	)		(644,000	)

Other income, net		209,000			227,000			229,000			290,000

Income (loss) before provision for income taxes		163,000			(69,000	)		21,000			(354,000	)

Provision for income taxes		2,000			–			4,000			–

Net income (loss)	$	161,000		$	(69,000	)	$	17,000		$	(354,000	)

Net income (loss) per share:
Basic	$	0.01		$	(0.00	)	$	0.00		$	(0.02	)
Diluted	$	0.01		$	(0.00	)	$	0.00		$	(0.02	)

Weighted average number of shares outstanding:

Basic		18,395,960			18,395,960			18,395,960			18,395,960
Diluted		18,395,960			18,395,960			18,395,960			18,395,960

See accompanying notes to condensed consolidated financial statements

TRIMEDYNE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six Months Ended March 31,
	2013			2012
Cash flows from operating activities:
Net income (loss)	$	17,000			(354,000	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Stock-based compensation		4,000			15,000
Depreciation and amortization		139,000			152,000
Gain on disposal of assets		–			(20,000	)
Changes in operating assets and liabilities:
Trade accounts receivable		(70,000	)		45,000
Inventories		183,000			(7,000	)
Other assets		44,000			60,000
Accounts payable		(47,000	)		(107,000	)
Accrued expenses		9,000			(93,000	)
Accrued interest senior notes		–			(1,000	)
Income tax payable		3,000			–
Deferred revenue		(2,000	)		(42,000	)
Accrued warranty		(12,000	)		(10,000	)
Deferred rent		(32,000	)		(27,000	)
Net cash provided by (used in) operating activities		236,000			(389,000	)

Cash flows from investing activities:
Purchase of property and equipment		(56,000	)		–
Net cash used in investing activities		(56,000	)		–
Cash flows from financing activities:
Payments on note payable to related party		–			(187,000	)
Principal payments on notes payable and capital leases		(68,000	)		(97,000	)
Net cash used in financing activities		(68,000	)		(284,000	)

Net increase (decrease) in cash and cash equivalents		112,000			(673,000	)
Cash and cash equivalents at beginning of period		472,000			1,151,000
Cash and cash equivalents at end of period	$	584,000		$	478,000

Supplemental disclosure of cash flow information:

Cash paid for income taxes during the six months ended March 31, 2013 was $1,000 and no cash was paid during the six-month period ended March 31, 2012.

Cash paid for interest during the six months ended March 31, 2013 and 2012 was approximately $1,000 and $7,000, respectively.

See accompanying notes to condensed consolidated financial statements

TRIMEDYNE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2013

(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.

Management Plans

At March 31, 2013, the Company had working capital of $2,435,000 compared to $2,325,000 at the end of the fiscal year ended September 30, 2012. Cash increased by $112,000 to $584,000 from $472,000 during the six months ended March 31, 2013. On January 15, 2013, the Company received $166,000 from our liability insurance company, MedMarc Insurance Group, as cash consideration to its eligible members resulting from its acquisition by Pro Assurance Corporation in exchange for extinguishing all membership interests. As a result of further cost reductions, we had cash on hand of $848,000 on May 17, 2013. We intend to fund operations with cash on hand and from continuing operations; however, additional working capital in the next 12 months may be required based upon our current expenditure rate.

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

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

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

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, 2013 and the results of their operations and their cash flows for the six months ended March 31, 2013 and 2012. Results for the six months ended March 31, 2013 are not necessarily indicative of the results to be expected for the year ending September 30, 2013.

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, as well as the valuation of equity compensation.

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 2012 annual report on Form 10-K for the year ended September 30, 2012.

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. On October 10, 2011, the Board of Directors approved the exchange of 171,000 out-of-money, fully-vested stock options, to certain employees, for an equal number of stock options at the current market price on that date of $0.13 per option. As a result of the modification, the Company recorded an additional expense of $9,000 during the three months ended December 31, 2011.

As of March 31, 2013, there was approximately $16,000 of total unrecognized compensation cost, net of estimated expected forfeitures, related to employee and director stock option compensation arrangements. The stock-based compensation during the periods reported was not significant.

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. For the three and six months ended March 31, 2013 and 2012, the exercise prices of options were in excess of the average closing price of the Company’s common stock thus not having an effect on the weighted average dilutive shares outstanding.

NOTE 2 - Composition of Certain Balance Sheet Captions

Inventories, net of reserves, consist of the following:

	March 31, 2013		September 30, 2012
Raw materials	$	462,000	$	711,000
Work-in-process		241,000		239,000
Finished goods		961,000		897,000
	$	1,664,000	$	1,847,000

Other current assets consist of the following:

	March 31, 2013		September 30, 2012
Royalty receivable	$	34,000	$	32,000
Prepaid insurance		13,000		68,000
Prepaid income tax		3,000		5,000
Prepaid rent		28,000		28,000
Short-term deposits		49,000		8,000
Other		37,000		17,000
Total other current assets	$	164,000	$	158,000

Property and equipment consist of the following:

	March 31, 2013			September 30, 2012
Furniture and equipment	$	3,903,000		$	3,771,000
Leasehold improvements		642,000			643,000
Other		320,000			268,000
		4,865,000			4,682,000
Less accumulated depreciation and amortization		(4,197,000	)		(3,931,000	)
Total property and equipment	$	668,000		$	751,000

Accrued expenses consist of the following:

	March 31, 2013		September 30, 2012
Accrued vacation	$	164,000	$	166,000
Accrued salaries and wages		42,000		45,000
Accrued bonus		16,000		28,000
Sales and use tax		56,000		56,000
Customer deposits		2,000		–
Accrued compensation		34,000		–
Accrued commissions		30,000		35,000
Other		17,000		22,000
Total accrued expenses	$	361,000	$	352,000

NOTE 3 - 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 is currently a co-defendant in one product liability lawsuit. The case, filed on behalf of Paula Tsakonas, plaintiff, in the Circuit Court of Cook County, Illinois on February 23, 2011, relates to injuries that occurred in connection to a medical procedure in which the Company's laser was used and names Spiros G. Stamelos, MD, Stamelos Bros., LTD., an Illinois Corporation, doing business as Advanced Orthopaedic Associates, Lakeshore Surgery Center, LLC, an Illinois corporation and Trimedyne, Inc. as defendants. The case is currently in litigation. 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 of $5,000,000. Trimedyne's liability is limited to a maximum of $25,000 per occurrence unless the judgment against the Company exceeds the insurance coverage. In such case, Trimedyne would be liable for any liability in excess of $5,000,000. Management had recorded a loss contingency for this claim in the amount of $25,000 based on the deductible under the insurance policy, of which no amount remained as of March 31, 2013 and September 30, 2012. Management is not accruing any additional provision for this claim, as it is not expected that this claim will exceed the limits of the insurance coverage.

Guarantees and Indemnities

The Company has made certain indemnities and guarantees, under which it may be required to make payments to a guaranteed or indemnified party. The Company indemnifies its directors, officers, employees and agents to the maximum extent permitted under the laws of the State of California. In connection with its facility leases, the Company has indemnified its users of lasers for certain claims arising from the use of the lasers. The duration of the guarantees and indemnities varies, and in many cases is indefinite. These guarantees and indemnities do not provide for any limitation of the maximum potential future payments the Company could be obligated to make. Historically, the Company has not been obligated to make any payments for these obligations and no liabilities have been recorded for these indemnities and guarantees in the accompanying condensed consolidated balance sheets.

Risks and Uncertainties

The Centers for Medicare and Medicaid Services (CMS), the agency of the U.S. Government that administers the Medicare Program, 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.

New technologies exist that competitively impact our operations.

NOTE 4 - 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, 2013 and 2012 are as follows:

	For the Three Months Ended March 31, 2013								For the Three Months Ended March 31, 2012
	Products			Service and Rental		Total			Products			Service and Rental		Total
Revenue	$	898,000		$	672,000	$	1,570,000		$	949,000		$	577,000	$	1,526,000
Cost of sales		475,000			444,000		919,000			670,000			381,000		1,051,000

Gross profit		423,000			228,000		651,000			279,000			196,000		475,000

Expenses:
Selling, general and administrative		387,000			185,000		572,000			473,000			149,000		622,000
Research and development		125,000			–		125,000			149,000			–		149,000

Income (loss) from operations	$	(89,000	)	$	43,000		(46,000	)	$	(343,000	)	$	47,000		(296,000	)

Other:
Interest expense							–								(3,000	)
Royalty income							34,000								28,000
Other income							175,000								202,000
Income taxes							(2,000	)							–
Net income (loss)						$	161,000							$	(69,000	)

	For the Six Months Ended March 31, 2013								For the Six Months Ended March 31, 2012
	Products			Service and Rental		Total			Products			Service and Rental		Total
Revenue	$	1,620,000		$	1,425,000	$	3,045,000		$	1,725,000		$	1,191,000	$	2,916,000
Cost of sales		909,000			948,000		1,857,000			1,161,000			760,000		1,921,000

Gross profit		711,000			477,000		1,188,000			564,000			431,000		995,000

Expenses:
Selling, general and administrative		794,000			351,000		1,145,000			961,000			319,000		1,280,000
Research and development		251,000			–		251,000			359,000			–		359,000

Income (loss) from operations	$	(334,000	)	$	126,000		(208,000	)	$	(756,000	)	$	112,000		(644,000	)

Other:
Interest expense							(1,000	)							(7,000	)
Royalty income							51,000								59,000
Other income							179,000								238,000
Income taxes							(4,000	)							–
Net income (loss)						$	17,000							$	(354,000	)

Sales and gross profit to customers by similar products and services for the three and six months ended March 31, 2013 and 2012 were as follows:

	For the Three Months Ended March 31,				For the Six Months Ended March 31,
	2013		2012		2013		2012
By similar products and services:
Revenues:
Products:
Laser equipment and accessories	$	169,000	$	282,000	$	217,000	$	384,000
Delivery and disposable devices		729,000		667,000		1,403,000		1,341,000
Service and rental		672,000		577,000		1,425,000		1,191,000
Total	$	1,570,000	$	1,526,000	$	3,045,000	$	2,916,000

Gross profit
Products:
Laser equipment and accessories	$	55,000	$	26,000	$	43,000	$	11,000
Delivery and disposable devices		368,000		253,000		668,000		553,000
Service and rental		228,000		196,000		477,000		431,000
Total	$	651,000	$	475,000	$	1,188,000	$	995,000

Sales in foreign countries for the three months ended March 31, 2013 and 2012, accounted for approximately 26% and 15%, respectively, of the Company's total sales. Sales in foreign countries for the six months ended March 31, 2013 and 2012 accounted for approximately 18% and 20%, respectively, of the Company's total sales. The breakdown by geographic region is as follows:

	Three Months Ended March 31, 2013		Three Months Ended March 31, 2012		Six Months Ended March 31, 2013		Six Months Ended March 31, 2012

Asia	$	76,000	$	125,000	$	139,000	$	252,000
Europe		132,000		100,000		159,000		189,000
Latin America		170,000		2,000		217,000		101,000
Middle East		1,000		2,000		1,000		2,000
Australia		20,000		7,000		20,000		46,000
Other		2,000		--		2,000		--
	$	401,000	$	236,000	$	538,000	$	590,000

The Company had one Laser located in Canada during the period ended March 31, 2013. During the six months ended March 31, 2012, three Lasers were located outside of the United States, one each in Brazil, Canada and India. Total segment assets at March 31, 2013 and 2012 for the Products segment were $2,572,000 and $3,065,000, respectively, and for the Service and Rental segment were $1,611,000 and $1,727,000, respectively. The $609,000 difference between total segment assets for the product segment for the current year as compared to the prior year was primarily the result of a $505,000 reduction in inventory from the prior year. 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.

NOTE 5 - SUBSEQUENT EVENTS

On April 1, 2013, the Company entered into a finance agreement to purchase certain insurance policies for $107,000. The note bears interest at 3.35% per annum and requires monthly principal and interest payments of $9,851 through March 2014.

On April 16, the Company executed a new lease (“New Lease”) for its California facility’s new location at 5 Holland, Building 223, Irvine, CA 92618. The basic terms of the lease are as follows: The New Lease term is for three years with an option to extend for another three years. Base rent is: $6,911.25 per month for months 1 – 12, with month three being rent free; $7,118.59 per month for months 13 – 24; $7,332.15 per month for months 25 – 36, with month 25 being rent free.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

This information should be read in conjunction with the condensed consolidated financial statements and notes thereto included in Item 1 of Part I of this Quarterly Report and the audited consolidated financial statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations for the year ended September 30, 2012, contained in our 2012 Annual Report on Form 10-K.

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

OVERVIEW

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

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

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

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

The Company's Lasers and Fibers are also used in Urology to fragment stones in the Kidney, ureter or bladder. The Company's VaporMAX(R) Side Firing Optical Fiber device is also used to vaporize a portion of the male prostate which is used with the Company’s Lasers in the treatment of benign prostate hyperplasia or "BPH", commonly referred to as an "enlarged prostate."

CRITICAL ACCOUNTING POLICIES

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements require the use of estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Our management periodically evaluates the estimates and judgments made. Management bases its estimates and judgments on historical experience and on various factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates as a result of different assumptions or conditions.

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

RESULTS OF OPERATIONS

Method of Presentation

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Liquidity and Capital

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

We will attempt to raise additional debt and/or equity capital, sell some of our assets, reduce our costs by eliminating certain personnel positions and continue to reduce certain overhead costs in order to reduce our consumption levels. During the quarter ended December 31, 2012, the lease for the facility at Lake Forest, California was amended resulting in a savings of $48,000 in rent expense through May 31, 2013. Subsequently, on April 16, 2013, we executed a new lease to move our operations in California to a smaller facility (see “Subsequent Events”, Note 5) commencing May 9, 2013, which will result in a savings in rent expense of approximately $550,000 over a period of three years as compared to the prior three-year period. We also have significantly reduced our staff to continue reducing costs.

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

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. During the period covered by this report, there have been changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. These changes were the remediation of the material weaknesses identified in Part II, Item 9, of our Annual Report on Form 10-K for the fiscal year ended September 30, 2012.

PART II Other Information

Item 1. Legal Proceedings

None

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
101.INS	XBRL Instance document
101.SCH	XBRL Schema
101.CAL	XBRL Calculation Linkbase
101.DEF	XBRL Definition Linkbase
101.LAB	XBRL Label Linkbase
101.PRE	XBRL Presentation Linkbase

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 20, 2013	By:	s/ Marvin P. Loeb
		Marvin P. Loeb
		Chairman and Chief Executive Officer

	TRIMEDYNE, INC.

Date: May 20, 2013	By:	s/ Jeffrey S. Rudner
		Jeffrey S. Rudner
		Principal Financial Officer