TRIMEDYNE INC

Total segment assets at June 30, 2016 and 2015 for the Products segment were $1,833,000 and $2,478,000, respectively, and for the Service and Rental segment were $1,443,000 and $1,617,000, 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. The decrease of $645,000 in the Products segment as compared to the prior year was primarily due to reductions of $299,000 cash and $206,000 in inventories as compared to the prior year period. 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.

During the quarter ended June 30, 2016, net revenues were $1,106,000 as compared to $1,482,000 for the same period of the previous year, a $376,000 or 25% decrease primarily due to a decrease in revenues from Laser sales. Net sales from lasers and accessories decreased by $337,000 or 82% to $76,000 during the three months ended June 30, 2016 from $413,000 in the same period of the prior year. Lasers carry a high selling price and are subject to a longer, less predictable closing period which, as a result, can create larger variances between periods. Net sales from Fibers, Needles and Tips decreased by $2,000 or 1% to $392,000 during the three months ended June 30, 2016 from $394,000 in the same period of the prior year. Export sales decreased by $311,000 or 60% to $206,000 for the same quarter of the prior year. The decrease in export sales was primarily due to a decrease in Laser sales to Asia as compared to the prior year quarter ended June 30, 2015. Net sales from service and rental during the current quarter decreased by $37,000 or 5% to $638,000 as compared to $675,000 for the same quarter of the prior year primarily resulting from a decrease in billable sales at our California facility.

Cost of sales during the quarter ended June 30, 2016 was $653,000 or 59% of net revenues as compared to $995,000 or 67% during the prior year quarter. During the current year quarter, Laser and accessories sales resulted in a gross loss of $6,000 or 8%, as a percentage of sales, as compared to a gross profit of $105,000 or 25%, for the prior year three-month period. The decrease in gross profit for Lasers and accessories during the current three-month period was primarily due to discounted Laser sales during the current year quarter as compared to the sale of two fully amortized demo Lasers during the prior year quarter. Gross profit as a percentage of sales from the sale of delivery and disposable devices was 53% as compared to 42% for the prior year three-month period. The increase in gross profit during the current three-month period as compared to the prior year was primarily due to a reduction in manufacturing payroll combined with favorable purchase-price variances from lower raw material costs resulting from vendor negotiations. Gross profit as a percentage of sales from revenue received from service and rentals during the current three-month period was 39% as compared to 32% for the prior year three month-period. The higher gross profit was primarily the result of maintaining better margins from sales of service parts at our California facility.

Research and development expenditures for the quarter ended June 30, 2016 increased $14,000 or 16% to $100,000 as compared to $86,000 in the quarter ended June 30, 2015. The increase in expenditure during the current year three-month period as compared to the prior year three-month period was due to an increase in materials expense for laser research and development for the current year three-month period.

During the nine months ended June 30, 2016, net revenues were $3,776,000 as compared to $4,027,000 for the same period of the previous year, a $251,000 or 6% decrease. Net revenues from lasers and accessories decreased by $185,000 or 23% to $634,000 during the nine months ended June 30, 2016 from $819,000 in the same period of the prior year. Lasers carry a high selling price and are subject to a longer, less predictable closing period which, as a result, can create larger variances between periods. Net revenues from Fibers, Needles and Tips increased by $39,000 or 3% to $1,280,000 during the nine months ended June 30, 2016 from $1,241,000 for the same period of the prior year. During the nine months ended June 30, 2016, export sales decreased $114,000 to $1,039,000 from $1,153,000 during the same period of the prior year. The decrease in export sales was primarily due to a decrease in Laser sales to Asia as compared to the prior year quarter ended June 30, 2015. Net sales from service and rental decreased by $105,000 or 5% to $1,862,000 from $1,967,000 for the same quarters in the prior year resulting from a decrease in billable sales at our California facility.