-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Cmi5zePIwo9u5fuzh1/aVDI33DxlSk192ZSeD08g1WOPAscBtJBkXJgIjwHcygme lNs+L4hFANF990wGqgyGhA== 0000892569-98-001512.txt : 19980518 0000892569-98-001512.hdr.sgml : 19980518 ACCESSION NUMBER: 0000892569-98-001512 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GISH BIOMEDICAL INC CENTRAL INDEX KEY: 0000700945 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 953046028 STATE OF INCORPORATION: CA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-10728 FILM NUMBER: 98623085 BUSINESS ADDRESS: STREET 1: 2681 KELVIN AVE CITY: IRVINE STATE: CA ZIP: 92714 BUSINESS PHONE: 7147565485 MAIL ADDRESS: STREET 1: 2681 KELVIN AVE CITY: IRVINE STATE: CA ZIP: 92714 10-Q 1 FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 1998 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998 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 NUMBER 0-10728 GISH BIOMEDICAL, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) California 95-3046028 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 2681 Kelvin Avenue, Irvine, California 92614 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code (949)756-5485 N/A - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required 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 ----- ----- The number of shares outstanding of each of the issuer's classes of common stock, as of May 11, 1998 were 3,444,632. 1 2 GISH BIOMEDICAL, INC. INDEX PART I. Financial Information Page Item 1: Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheets as of March 31, 1998 and June 30, 1997 3 Condensed Consolidated Statements of Operations for the three and nine months ended March 31, 1998 and 1997 4 Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 1998 and 1997 5 Notes to Condensed Consolidated Financial Statements 6 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations. 8 PART II. Other Information Item 6: Exhibits and Reports on Form 8-K 10
2 3 GISH BIOMEDICAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 1998 June 30, 1997 ----------------------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 2,684,300 $ 3,977,100 Short-term investments 1,031,600 1,031,600 Accounts receivable, net 3,671,800 3,970,100 Inventories 8,353,100 6,698,700 Deferred tax assets 646,000 646,000 Prepaid expenses 662,500 380,000 - --------------------------------------------------------------------------------------- Total current assets 17,049,300 16,703,500 Property and equipment, at cost 9,557,700 10,386,900 Less accumulated depreciation (6,018,400) (6,374,100) - --------------------------------------------------------------------------------------- Net property and equipment 3,539,300 4,012,800 Deferred tax assets 194,000 194,000 Other assets 112,900 117,700 - --------------------------------------------------------------------------------------- $ 20,895,500 $ 21,028,000 ======================================================================================= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,118,200 $ 729,400 Accrued compensation and related items 504,400 533,700 Other accrued liabilities 44,500 99,700 - --------------------------------------------------------------------------------------- Total current liabilities 1,667,100 1,362,800 Deferred rent 322,900 317,300 Shareholders' equity: Preferred stock, 2,250,000 shares authorized; no shares outstanding Common stock, no par value, 7,500,000 shares authorized, 3,444,632 shares issued and outstanding (3,430,145 shares at June 30, 1997) 10,108,000 10,078,300 Note receivable - officer stock purchase (53,800) (35,000) Retained earnings 8,851,300 9,304,600 - --------------------------------------------------------------------------------------- Total shareholders' equity 18,905,500 19,347,900 - --------------------------------------------------------------------------------------- $ 20,895,500 $ 21,028,000 =======================================================================================
See accompanying notes 3 4 GISH BIOMEDICAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS THREE AND NINE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
Three months ended Nine months ended March 31, March 31, 1998 1997 1998 1997 --------------------------------------------------------- Net sales $ 4,509,300 $ 5,132,800 $ 15,036,200 $ 15,786,300 Cost of sales 3,102,700 3,683,100 10,450,300 10,854,600 - ----------------------------------------------------------------------------------------------- Gross profit 1,406,600 1,449,700 4,585,900 4,931,700 Operating expenses Selling and marketing 1,272,400 979,600 3,415,100 2,807,400 Research and development 241,900 309,000 770,300 1,015,500 General and administrative 458,500 466,200 1,347,700 1,438,000 - ----------------------------------------------------------------------------------------------- Total operating expenses 1,972,800 1,754,800 5,533,100 5,260,900 - ----------------------------------------------------------------------------------------------- Operating loss (566,200) (305,100) (947,200) (329,200) Other income, net 56,100 49,600 204,000 161,000 - ----------------------------------------------------------------------------------------------- Loss before provision for taxes (510,100) (255,500) (743,200) (168,200) Tax benefit (199,000) (99,600) (289,900) (65,600) - ----------------------------------------------------------------------------------------------- Loss $ (311,100) $ (155,900) $ (453,300) $ (102,600) =============================================================================================== Net loss per share basic and diluted $ (0.09) $ (0.05) $ (0.13) $ (0.03) =============================================================================================== Average common and common equivalent shares used for diluted per share calculation 3,442,886 3,383,509 3,437,981 3,378,179 ===============================================================================================
See accompanying notes 4 5 GISH BIOMEDICAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
1998 1997 -------------------------- Cash flows from operating activities: Loss $ (453,300) $ (102,600) Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 673,800 681,500 Amortization 18,100 173,200 Deferred rent 5,600 26,200 Changes in operating assets and liabilities (1,334,300) (186,100) - --------------------------------------------------------------------------------------------- Net cash provided by (used in) operating activities (1,090,100) 592,200 - --------------------------------------------------------------------------------------------- Cash flows from investing activities: Purchases of property and equipment (200,300) (446,500) Decrease in other assets (13,300) (19,200) - --------------------------------------------------------------------------------------------- Net cash used by investing activities (213,600) (465,700) - --------------------------------------------------------------------------------------------- Cash flows from financing activities: Proceeds from stock options exercised 29,700 116,100 Payment (increase) on note receivable from officer (18,800) 20,000 - --------------------------------------------------------------------------------------------- Net cash provided by financing activities 10,900 136,100 - --------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (1,292,800) 262,600 Cash and cash equivalents at beginning of period 3,977,100 3,314,200 - --------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 2,684,300 $ 3,576,800 =============================================================================================
See accompanying notes 5 6 GISH BIOMEDICAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1998 (UNAUDITED) 1. General The condensed financial statements included herein have been prepared by the Registrant, without audit, and include all adjustments which are, in the opinion of management, necessary for a fair presentation of the results of operations for the three and nine month periods ended March 31, 1998 and 1997, financial position at March 31, 1998, and cash flows for the nine month periods ended March 31, 1998 and 1997, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Registrant believes that the disclosures in such financial statements are adequate to make the information presented not misleading. These condensed financial statements should be read in conjunction with the Registrant's consolidated financial statements and the notes thereto included in the Registrant's Annual Report filed with the Securities and Exchange Commission on Form 10-K for the year ended June 30, 1997. Statement of Cash Flows Changes in operating assets and liabilities as shown in the condensed consolidated statements of cash flows comprise:
Nine months ended March 31, 1998 1997 - ------------------------------------------------------------------------------- (Increase) decrease in: Accounts receivable $ 298,300 $ 395,600 Inventories (1,654,400) 153,300 Prepaid expenses (282,500) (124,600) Prepaid taxes -- (295,200) Increase (decrease) in: Accounts payable 388,800 (277,400) Accrued compensation (29,300) 3,100 Accrued liabilities (55,200) (40,900) - ------------------------------------------------------------------------------- Changes in operating assets and liabilities $(1,334,300) $ (186,100) ===============================================================================
The Company did not pay any Federal or State income taxes during the nine month period ending March 31, 1998, and paid $213,100 in the nine month period ending March 31, 1997. 6 7 GISH BIOMEDICAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 1998 (UNAUDITED) 2. Inventories Inventories are stated at the lower of cost (first-in, first out) or net realizable value and are summarized as follows:
March 31, 1998 June 30,1997 -------------------------------------- Raw materials $4,307,500 $3,529,800 Work in progress 1,036,800 1,225,800 Finished goods 3,008,800 1,943,100 ------------------------------------------------------------------------- $8,353,100 $6,698,700 =========================================================================
3. Per share amounts Per share amounts are based upon the weighted average numbers of common shares outstanding during the period. In 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, Earnings per Share. Statement 128 replaced the previously reported primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants, and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. All earnings per share amounts for all periods have been presented, and where necessary, restated to conform to the Statement 128 requirements. 7 8 GISH BIOMEDICAL, INC MARCH 31, 1998 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations: The Company acquired the assets and technology of Creative Medical Development, Inc. ("CMD") for $600,000 in cash and 240,240 shares of the Company's common stock. Upon closing of the transaction April 17, 1996, the Company entered into a one-year lease for the building which CMD then occupied. The Company ceased utilizing the facility during the quarter ended December 31, 1996 and was released from its lease obligation in February 1997. During the fourth quarter of fiscal 1997, due to the low level of infusion pump sales and negative cash flow projections, the Company determined that the unamortized goodwill of $1,824,200 associated with the purchase of the infusion pump from CMD had little, if any future value. Accordingly, the Company recorded an impairment of goodwill of $1.8 million in fiscal 1997 to write-off the goodwill associated with this product line. In September 1997, the Company was informed by two of its major distributors, Specialized Medical Systems (SMS) and CardioVascular Concepts (CVC), that they were electing to terminate their distributor relationships with the Company effective December 1997, subsequently renegotiated to February 1, 1998. For the fiscal year ended June 30, 1997 SMS and CVC represented 15% and 7% of the Company's total sales, respectively. However, the two distributors only accounted for 12% and 5%, respectively, of the Company's gross profit for the same period. Sales for the three and nine month periods ended March 31, 1998 decreased by $623,500 or 12%, and $750,100 or 5%, respectively, over the corresponding periods of fiscal 1997. The decreases in sales for the three and nine month periods ended March 31, 1998 were primarily due to a timing difference created by the depletion of the terminating distributors' inventories, which approximated a sixty day supply, versus the hospitals' commencement of purchases direct from the Company. The Company has engaged seven direct sales persons to replace the two distributor sales organizations. The Company anticipates that sales volumes in these territories will normalize during the fourth quarter of fiscal 1998. The conversion of these territories to direct sales representation has afforded the Company better marketing opportunities with respect to its new oxygenator. Gish had previously excluded these two territories from its marketing plan for the launch of the Vision(TM) oxygenator because these distributors represented a competing oxygenator product. The conversion of these territories to a direct sales force has allowed the Company to sell the Vision(TM) in conjunction with custom tubing packs, cardioplegia systems, cardiotomy reservoirs and oxygen saturation monitors in these territories. Cost of sales for the three month period ended March 31, 1998 was 69% of sales as compared to 72% of sales for the corresponding period of fiscal 1997. The decrease in cost of sales as a percentage of sales for the period is primarily due to the decrease in the sales of lower margin products to the terminated distributors as a proportion of total sales. Cost of sales for the nine month period ended March 31, 1998 was 70% of sales as compared to 69% of sales for the corresponding period of fiscal 1997. The increase in cost of sales as a percentage of sales for the nine month period ended March 31, 1998 was primarily due to declining average unit selling prices of the Company's cardiovascular products. Selling and marketing expenses for the three month period ended March 31, 1998 increased $292,800 or 30% as compared with the corresponding period of fiscal 1997. Selling and marketing expenses for the 8 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) nine month period ended March 31, 1998 increased $607,700 or 22% over the corresponding period of fiscal 1997. These increases were primarily due to the engagement of seven new direct salespersons for the territory relinquished by the two terminated distributor sales organizations and increased marketing activity for the Vision Oxygenator. The Company anticipates that its selling and marketing expenses will increase to approximately $1,300,000 per quarter for the remainder of the fiscal year. Research and development expenses for the three month period ended March 31, 1998 decreased $67,100 or 22% compared to the corresponding period in fiscal 1997 and decreased $245,200 or 24% for the nine month period ended March 31, 1998 over the corresponding period of fiscal 1997. The decreases are due to the completion of the Company's oxygenator development program and the elimination of the engineering staff acquired with the CMD infusion pump. The Company is actively engaged in several new product development projects, all of which will continue to require expenditures approximating $275,000 per quarter for the foreseeable future. General and administrative expenses for the three and nine month periods ended March 31, 1998 were 10% and 9% of sales respectively, compared with 9% of sales for the corresponding periods of fiscal 1997. The increase in general and administrative expenses as a percentage of sales for the three month period ended March 31, 1998 is primarily due to the lower level of sales for the period. The Company anticipates that general and administrative expenses should approximate $450,000 per quarter for the remainder of the fiscal year. The income tax benefit is based upon a combined federal and state effective tax rate of 39% for all periods presented. Quarterly loss per share is not directly additive for the periods presented due to fluctuations in weighted average shares outstanding. These fluctuations are attributable to the exercise of stock options. The effects of inflation have not been a significant factor in the results of operations. The cardiovascular surgery market has been experiencing pricing pressures which have precluded the Company from considering price increases. Liquidity and capital resources: At March 31, 1998, the Company had $15,382,200 of working capital, an increase of $41,500 from working capital at June 30, 1997. The increase is primarily due to normal fluctuations in the operations of the business. For the period ended March 31, 1998 cash used in operations of $1,090,100 was primarily due to increases in inventory. This increase was primarily due to stocking higher levels of inventory related to the expansion of the Company's direct sales force. For the period ended March 31, 1997 cash provided by operations of $592,200 was primarily due to operations, offset by increased prepaid expenses and payment of trade payables. For the period ended March 31, 1998 cash used in investing activities of $213,600 was primarily due to purchases of property and equipment for the manufacture of new products and to increase manufacturing efficiency. For the period ended March 31, 1997 cash used by investing activities of $465,700 was primarily due to the purchase of property and equipment for use in the manufacture of the Company's new oxygenator. 9 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) For the period ended March 31, 1998 cash provided by financing activities of $10,900 was due to proceeds from the exercise of stock options offset by an increase in the note receivable from officer. For the period ended March 31, 1997 cash provided by financing activities of 136,100 was primarily due to proceeds from the exercise of stock options. The Company believes that cash generated from operations together with available cash will be adequate to meet the Company's planned expenditures and liquidity needs for fiscal 1998. This Quarterly Report on Form 10-Q contains certain forward-looking statements that are based on current expectations. 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-Q, the inclusion of forward-looking information herein should not be regarded as a representation by the Company or any other person that the objectives or plans of the Company will be achieved. The Company may encounter competitive, technological, financial and business challenges making it more difficult than expected to continue to develop and market its products; the market may not accept the Company's existing and future products; the Company may be unable to retain existing key management personnel; and there may be other material adverse changes in the Company's operations or business. Certain important factors affecting the forward-looking statements made herein include, but are not limited to (i) the lack of market acceptance of its redesigned MyoManager or ambulatory infusion pump, (ii) continued downward pricing pressures in the Company's targeted markets, (iii) the continued acquisition of the Company's customers by certain of its competitors and (iv) the decision by the Company to replace its distributor network with a direct sales force in certain geographic territories. 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 the Company to alter its marketing, capital expenditure or other budgets, which may in turn affect the Company's financial position and results of operations. The reader is therefore cautioned not to place undue reliance on forwarding-looking statements contained herein, which speak as of the date of this Report. PART II. Other Information ITEM 6. Exhibits and reports on Form 8K. 27.1 Financial Data Schedule 10 11 GISH BIOMEDICAL, INC. MARCH 31, 1998 SIGNATURES Pursuant to the Requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, at Irvine, California this 15th day of May 1998. GISH BIOMEDICAL, INC. Date: May 15, 1998 By: /s/ JEANNE MILLER JEANNE MILLER V.P. and Chief Financial Officer 11 12 EXHIBIT INDEX 27.1 Financial Data Schedule 12 EX-27 2 FINANCIAL DATA SCHEDULE
5 9-MOS JUN-30-1998 JUL-01-1997 MAR-31-1998 2,684,300 1,031,600 3,671,800 0 8,353,100 17,049,300 9,557,700 6,018,400 20,895,500 1,667,100 0 10,108,000 0 0 (53,800) 20,895,500 15,036,200 15,036,200 10,450,300 10,450,300 5,533,100 0 0 (743,200) (289,900) (453,300) 0 0 0 (453,300) (0.13) 0
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