10QSB 1 gish10q1201ed.txt U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON , D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: December 31, 2001 OR [ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No.: 0-10728 GISH BIOMEDICAL, INC. -------------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) California 95-3046028 -------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization Identification Number) 22942 Arroyo Vista, Rancho Santa Margarita, California 92688 ------------------------------------------------------------------ (Address of principal executive offices) (949) 635-6200 --------------------------------- (Issuer's telephone number) N/A -------------------------------------------------------- (Former name, former address and formal fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- State the number of shares outstanding of each of the issuer's classes of common equity: As of February 8, 2002, the issuer had 3,592,145 shares of its common stock, no par value, outstanding. Transitional Small Business Disclosure Format (check one): Yes No X --- --- PART I - FINANCIAL INFORMATION ------ --------------------- ITEM 1. - Financial Statements ------ --------------------- GISH BIOMEDICAL, INC. CONDENSED BALANCE SHEET As of December 31, 2001 (Unaudited) (In thousands, except share data) ASSETS Current assets: Cash $ 510 Accounts receivable, net 2,513 Relocation receivable 156 Inventories 5,431 Other current assets 138 -------- Total current assets 8,748 Property and equipment, at cost 9,456 Less accumulated depreciation ( 6,428) -------- Net property and equipment 3,028 Other assets 558 -------- Total assets $ 12,334 ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Revolving line of credit $ 1,450 Accounts payable 1,236 Accrued compensation and related items 438 Accrued relocation liabilities 367 Other accrued liabilities 30 -------- Total current liabilities 3,521 Deferred rent 70 -------- Total liabilities 3,591 -------- Shareholders' equity: Preferred stock, 1,500,000 shares authorized; no shares outstanding Common stock, no par value, 7,500,000 shares authorized, 3,592,145 shares issued and outstanding 10,532 Accumulated deficit ( 1,789) -------- Total shareholders' equity 8,743 -------- Total liabilities and shareholders' equity $ 12,334 ======== See accompanying notes to condensed financial statements. 2 GISH BIOMEDICAL, INC. CONDENSED STATEMENTS OF OPERATIONS Three and six months ended December 31, 2001 and 2000 (Unaudited) Three Months Ended Six Months Ended December 31, December 31, 2001 2000 2001 2000 ---- ---- ---- ---- (In thousands, except share and per share data) Net sales $ 4,038 $ 4,492 $ 7,886 $ 8,777 Cost of sales 3,188 3,278 6,264 6,410 --------- --------- ---------- --------- Gross profit 850 1,214 1,622 2,367 Operating expenses: Selling and marketing 964 1,016 1,953 2,027 Research and development 257 228 510 477 General and administrative 362 405 764 849 --------- --------- ---------- --------- Total operating expenses 1,583 1,649 3,227 3,353 --------- --------- ---------- --------- Operating loss ( 733) ( 435) ( 1,605) ( 986) Interest income (expense), net ( 22) 4 ( 37) 55 --------- --------- ---------- --------- Net loss ($ 755) ($ 431) ($ 1,642) ($ 931) ========= ========= ========== ========= Net loss per share - basic and diluted ($ .21) ($ .12) ($ .46) ($ .26) ========= ========= ========= ========= Basic and diluted weighted average common shares 3,592,145 3,592,145 3,592,145 3,592,145 ========= ========= ========= =========
See accompanying notes to condensed financial statements. 3 GISH BIOMEDICAL, INC. CONDENSED STATEMENTS OF CASH FLOWS Six months ended December 31, 2001 and 2000 (Unaudited) 2001 2000 (In thousands) ---- ---- OPERATING ACTIVITIES: Net loss ($ 1,642) ($ 931) Adjustments: Depreciation 342 403 Amortization 3 3 Deferred rent 28 ( 33) Deferred relocation revenue - 700 Deferred relocation costs - ( 347) Changes in operating assets and liabilities 1,354 ( 1,137) -------- ------- Net cash provided by (used in) operating activities 85 ( 1,342) -------- ------- INVESTING ACTIVITIES Sale or maturity of investments - 885 Purchases of property and equipment ( 273) ( 521) Increase of other long-term assets ( 68) ( 355) -------- ------- Net cash provided by (used in) investing activities ( 341) 9 -------- ------- FINANCING ACTIVITIES Net borrowings on line of credit 656 49 -------- ------- Net cash provided by financing activities 656 49 -------- ------- Net increase (decrease) in cash and cash equivalents 400 ( 1,284) Cash and cash equivalents at beginning of period 110 1,477 -------- ------- Cash at end of period $ 510 $ 193 ======== =======
See accompanying notes to condensed financial statements. 4 GISH BIOMEDICAL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS December 31, 2001 (Unaudited) 1. General ------- The condensed financial statements included herein have been prepared by the Company, without audit, and include all adjustments which, in the opinion of management, are necessary for a fair presentation of the results of operations and cash flows for the six month periods ended December 31, 2001 and 2000, and financial position at December 31, 2001, pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. Although the Company believes that the disclosures in such condensed financial statements are adequate to make the information presented not misleading, these condensed financial statements should be read in conjunction with the Company's financial statements and the notes thereto included in the Company's Annual Report filed with the SEC on Form 10-KSB for the year ended June 30, 2001. The accompanying financial statements have been prepared assuming the Company will remain a going concern. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The Company incurred net losses of $1,642,000 and $2,892,000 and used $1,269,000 and $2,271,000 of cash in financing such losses during the six months ended December 31, 2001 and the year ended June 30, 2001, respectively. As a result, the Company had a deficit in retained earnings of $1,789,000 at December 31, 2001. Based on the Company's current operating plan, which includes the sale of certain non-core assets, management believes existing cash together with cash forecasted by management to be generated by operations and from borrowings under the Company's existing revolving line of credit will be sufficient to meet the Company's cash requirements until at least December 31, 2002. If events or circumstances occur such that the financial performance embodied in the Company's operating plan is not achieved, including a substantial reduction in its current operating losses, a cash shortage could occur earlier and the Company would be required to seek additional debt or equity financing or obtain cash through the sale of assets. However, no assurance can be given that additional financing will be available on acceptable terms or at all or that any potential asset sale will occur. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The accompanying balance sheet does not include any adjustments to reflect the possible future effects on recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. 5 GISH BIOMEDICAL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (continued) December 31, 2001 (unaudited) Statement of Cash Flows: Changes in operating assets and liabilities as shown in the condensed statements of cash flows comprise (in thousands): Six Months Ended December 31, 2001 2000 ---- ---- Decrease(increase) in: Accounts receivable $ 404 $ 163 Relocation receivable - - Inventories 648 ( 1,433) Other current assets ( 53) 70 Increase (decrease) in: Accounts payable 512 199 Accrued compensation and related items ( 115) ( 84) Accrued relocation liabilities ( 58) - Other accrued liabilities 16 ( 52) -------- -------- Net change in operating assets and liabilities $ 1,354 ($ 1,137) ======== ======== The Company did not pay any federal income taxes during the six month periods ended December 31, 2001 or December 31, 2000. The Company paid interest costs of $44,000 during the six month period ended December 31, 2001. The Company paid no interest costs during six month period ended December 31, 2000. 2. Inventories ----------- Inventories are stated at the lower of cost (first-in, first-out) or net realizable value and are summarized as follows (in thousands): December 31, 2001 ----------------- Raw materials $ 2,198 Work in progress 1,027 Finished goods 2,206 -------- $ 5,431 3. Commitments and Contingencies ----------------------------- During the three months ended March 31, 2001, the Company relocated to a new operating facility in Rancho Santa Margarita, California. 6 Costs for the construction of improvements to the new facility totaled approximately $1,800,000 of which $200,000 is included in accrued relocation liabilities at December 31, 2001. The Company has excluded from the improvement construction costs at December 31, 2001, approximately $300,000 billed to the Company by the improvement construction contractor. The accuracy and validity of these billings are currently being disputed by the Company. 4. Loss per share -------------- The Company calculates loss per share pursuant to SFAS 128 "Earnings Per Share". Due to the incurrence of losses in each reporting period, there is no difference between basic and diluted per share amounts. 5. Subsequent event - Amendment of revolving line of credit agreement ------------------------------------------------------------------ In December 2000, the Company entered into a $2,000,000 three-year revolving line of credit agreement. In February 2002, the revolving line of credit agreement was amended to extend the agreement for an additional year and increase the line to $4,000,000. Advances, based on eligible receivables, are secured by the operating assets of the Company and bear interest at prime (4.75% at December 31, 2001) plus 2%. The agreement also includes various restrictive loan covenants, including a requirement for the Company to maintain a minimum net worth of $7,000,000, and to obtain an operating profit on a rolling three-month basis, effective August 2002. At December 31, 2001 the Company had borrowed $1,450,000 under the revolving line of credit and, under the amended line of credit agreement, would have been entitled to borrow an additional $725,000. 7 ITEM 2. - Management's Discussion and Analysis of Financial Condition and ------ -------------------------------------------------------------------- Results of Operations --------------------- This Quarterly Report on Form 10-QSB contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and the Company intends that such forward-looking statements be subject to the safe harbors created thereby. Words such as "anticipates", "expects", "intends", "plans", "believes", "seeks", "estimates", variations of such words and similar expressions are intended to identify such forward-looking statements. In light of the important factors that can materially affect results, including those set forth below and elsewhere in this Quarterly Report on Form 10-QSB, the inclusion of forward-looking information herein should not be regarded as a representation by Gish or any other person that our objectives or plans will be achieved. We may encounter competitive, technological, financial and business challenges making it more difficult than expected to continue to develop and market our products; the market may not accept our existing and future products; we may be unable to retain key management personnel; and there may be other material adverse changes in our operations or business. Certain important factors affecting the forward-looking statements made herein include, but are not limited to (i) continued downward pricing pressures in our targeted markets, (ii) the continued acquisition of our customers by certain of our competitors and (iii) continued periods of net losses, which could require the Company to find additional sources of financing to fund operations, implement its financial and business strategies, meet anticipated capital expenditures and fund research and development costs. Assumptions relating to budgeting, marketing, product development and other management decisions are subjective in many respects and thus susceptible to interpretations and periodic revisions based on actual experience and business developments, the impact of which may cause us to alter our marketing, capital expenditure or other budgets, which may in turn affect our financial position and results of operations. The reader is therefore cautioned not to place undue reliance on forward-looking statements contained herein, which speak as of the date of this report. The Company assumes no responsibility to update any forward-looking statements as a result of new information, future events, or otherwise. The following is management's discussion and analysis of certain significant factors which have affected the earnings and financial position of the Company during the period included in the accompanying financial statements. This discussion compares the three and six month periods ending December 31, 2001 with the three and six month periods ended December 31, 2000. This discussion should be read in conjunction with the financial statements and associated notes. Results of Operations: --------------------- The Company incurred a net loss of $755,000, or $.21 basic and diluted net loss per share, for the three months ended December 31, 2001 compared to a net loss of $431,000, or $.12 basic and diluted net loss per share, for the comparable period in the prior fiscal year. For the six months ended December 31, 2001, the Company incurred a net loss of $1,642,000, or $.46 basic and diluted net loss per share, compared to a net loss of $931,000 or $.26 basic and diluted net loss per share, for the six months ended December 31, 2000. The Company had sales of $4,038,000 for the three months ended December 31, 2001 compared to sales of $4,492,000 for the comparable period in the prior fiscal year. For the six months ended December 31, 2001, the Company had sales of $7,886,000 compared to sales of $8,777,000 for the six months ended December 31, 2000. 8 The $454,000 net sales decrease for the quarter ended December 31, 2001 compared to the quarter ended December 31, 2000 included a general reduction of sales volume across all product lines, except for oxygenator sales. A majority of the Company's sales are derived from products used in the open-heart bypass circuit which is employed when a patient's heart is stopped during cardiac surgery. In response to the events which occurred on September 11, 2001, most healthcare facilities immediately ceased non-emergency surgeries in an effort to conserve the nations blood supply and reserve their care capacity for potential future emergency needs. The Company experienced a significant reduction in orders in September 2001, which in turn had the effect of September revenue being approximately $500,000 lower than the prior months revenue and budgeted revenue. The Company has continued to be negatively affected by the economic downturn which has followed the events which occurred on September 11, 2001. The net sales decrease for the six months ended December 31, 2001, compared to the six months ended December 31, 2000, continued the trend of a general reduction of sales volume of across all product lines, except for oxygenator sales. The reduction in sales of products, other than oxygenators, resulted from factors which include a loss of market share in these products to other competitors, a shift in customer purchasing patterns from separate components to integrated oxygenator systems which include those components, and the increasing percentage of open-heart surgeries which are performed without stopping the heart. Oxygenator sales were $1,323,000 for the three months ended December 31, 2001 compared to $1,307,000 for the three months ended December 31, 2000. For the six months ended December 31, 2001, oxygenator sales were $2,607,000 compared to $2,407,000 for the comparable period in the prior fiscal year. The sales increase resulted from additional market penetration by the VisionTM oxygenator which was introduced in August, 1997. The VisionTM oxygenator has been favorably received by the market due to product features and operating performance. Gross profit decreased to $850,000 for the three months ended December 31, 2001 compared to $1,214,000 for the three months ended December 31, 2000. For the six months ended December 31, 2001, gross profit was $1,622,000 compared to $2,367,000 for the six months ended December 31, 2000. The primary cause of the gross profit decrease was the decrease in sales compared to the prior year periods, and the continued increase in the percentage of total sales derived from sales of oxygenators, on which the Company achieves a lower gross profit percentage than its other product groups. Selling and marketing expenses for the three months ended December 31, 2001 were $964,000 compared to $1,016,000 for the three months ended December 31, 2000. Selling and marketing expenses for the six months ended December 31, 2001 were $1,953,000 compared to $2,027,000 for the six months ended December 31, 2000. The decline in selling and marketing expenses results primarily from the decline in revenue and decreased commissions on sales. Research and development expenses for the three months ended December 31, 2001 were $257,000 compared to $228,000 for the three months ended December 31, 2000. Research and development expenses for the six months ended December 31, 2001 were $510,000 compared to $477,000 for the comparable period in the prior year. The increase in research and development expenses results from increased product development activity related to the completion of a new cardioplegia device and the development of a biocompatible coating for the Company's oxygenator and custom cardiovascular tubing systems. 9 For the three months ended December 31, 2001, general and administrative expenses were $362,000 compared to $405,000 for the three months ended December 31, 2000. For the six months ended December 31, 2001, general and administrative expenses were $764,000 compared to $849,000 for the six month period ended December 31, 2000. The decrease from the prior year periods is primarily due to the timing of expenses. Liquidity and Capital Resources: -------------------------------- At December 31, 2001, the Company had a cash of $510,000. For the six months ended December 31, 2001 net cash provided by operating activities was $85,000 compared to net cash used in operating activities of $1,342,000 for the six months ended December 31, 2000. The decrease in cash used by operating activities, compared to the comparable period in the prior year, results primarily from the Company's ability to reduce inventory in the six months ended December 31, 2001, compared to an increase in inventory in the six months ended December 31, 2000, which was related to the build-up of inventory in anticipation of the relocation of the Company to a new facility. Net cash used in investing activities for the six months ended December 31, 2001 was $341,000 compared to net cash provided by investing activities of $9,000 for the six months ended December 31, 2000. Under its current operating plan, the Company believes its existing cash, together with cash forecasted to be generated by operations, including proceeds from the sale of non-core assets, and from borrowings under the existing revolving line of credit will be sufficient to meet the Company's cash requirements through December 31, 2002. However, if the Company is unable to achieve the financial performance embodied in the Company's current operating plan, including a substantial reduction in its current level of operating losses, a cash shortage could occur earlier and it would require either additional sources of funding or raising additional cash through the sale of assets. There can be no assurances that additional sources of funding will be available when needed or will be available at rates and terms favorable to the Company or that any potential asset sale will occur. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The Company's balance sheet at December 31, 2001 presented elsewhere in this Form 10-QSB does not include any adjustments to reflect the possible future effects on recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. 10 PART II - OTHER INFORMATION ------- ----------------- ITEM 6. - Exhibits and Reports on Form 8-K ------ -------------------------------- a. Exhibits 10.22 Nonqualified Stock Option Agreement dated May 18, 2000 10.23 Nonqualified Stock Option Agreement dated August 8, 2001 10.24 Amendment No. 1 dated February 9, 2002, to Loan and Security Agreement originally dated as of December 26, 2000, between the Company and Heller Healthcare Finance, Inc. 10.25 First Amended and Restated Revolving Credit Note dated February 9, 2002,between the Company and Heller Healthcare Finance, Inc. b. Reports on Form 8-K None. 11 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GISH BIOMEDICAL, INC. Date: February 13, 2002 /s/ Leslie M. Taeger ------------------------ Leslie M. Taeger Vice President/CFO 12