-----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, V3x8sjyjLINlM++zV4WXxgk5iz94KDU3RER9JHkGzduh+f8jNOmG6V8TNZeZICqb Dd+zVimmvmuCjDYFgY36bA== 0000892569-98-003047.txt : 19981116 0000892569-98-003047.hdr.sgml : 19981116 ACCESSION NUMBER: 0000892569-98-003047 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 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: 98747941 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 PERIOD ENDED SEPTEMBER 30, 1998 1 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 September 30, 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 is 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 November 10, 1998: 3,450,632. 1 2 GISH BIOMEDICAL, INC. INDEX
PART I. Financial Information Page --------------------- ---- Item 1: Condensed Consolidated Financial Statements: Condensed Consolidated Balance Sheets as of September 30, 1998 3 and June 30, 1998 Condensed Consolidated Statements of Operations 4 for the three months ended September 30, 1998 and 1997 Condensed Consolidated Statements of Cash Flows 5 for the three months ended September 30, 1998 and 1997 Notes to Condensed Consolidated Financial Statements 6 - 7 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 8 - 11 PART II. Other Information ----------------- Item 6: Exhibits and Reports on Form 8-K 11
2 3 GISH BIOMEDICAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 1998 June 30, 1998 ------------------ ------------- ASSETS (unaudited) Current assets: Cash and cash equivalents $ 3,744,500 $ 3,497,100 Short-term investments 581,700 581,700 Accounts receivable, net 3,128,500 3,588,800 Income tax refund receivable 754,300 754,300 Inventories 7,408,900 7,609,900 Prepaid expenses 142,500 177,300 ------------ ------------ Total current assets 15,760,400 16,209,100 Property and equipment, at cost 9,232,600 9,176,400 Less accumulated depreciation (6,319,600) (6,089,800) ------------ ------------ Net property and equipment 2,913,000 3,086,600 Other assets 166,400 149,400 ------------ ------------ $ 18,839,800 $ 19,445,100 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 793,800 $ 1,100,700 Accrued compensation and related items 624,900 665,700 Other accrued liabilities 12,000 11,700 ------------ ------------ Total current liabilities 1,430,700 1,778,100 Deferred rent 319,900 324,400 Shareholders' equity: Preferred stock, 2,250,000 shares authorized; no shares outstanding Common stock, no par value, 7,500,000 shares authorized, 3,450,632 shares issued and outstanding (3,444,632 shares at June 30, 1998) 10,130,100 10,113,800 Note receivable - officer stock purchase (53,800) (53,800) Retained earnings 7,012,900 7,282,600 ------------ ------------ Total shareholders' equity 17,089,200 17,342,600 ------------ ------------ $ 18,839,800 $ 19,445,100 ============ ============
See accompanying notes 3 4 GISH BIOMEDICAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED)
1998 1997 ----------- ----------- Net sales $ 4,752,300 $ 5,317,700 Cost of sales 3,420,000 3,635,500 ----------- ----------- Gross profit 1,332,300 1,682,200 Research and development 229,000 237,400 Selling and marketing 1,020,200 950,000 General and administrative 425,500 419,800 ----------- ----------- Total operating expenses 1,674,700 1,607,200 ----------- ----------- Operating income (loss) (342,400) 75,000 Interest income 72,700 73,400 ----------- ----------- Income (loss) before provision for taxes (269,700) 148,400 Provision for taxes -- 57,900 ----------- ----------- Net income (loss) $ (269,700) $ 90,500 Basic net income (loss) per share $ (.08) $ .03 Basic weighted average common shares 3,447,145 3,430,342 Diluted net income (loss) per share $ (.08) $ .03 Diluted weighted average and common equivalent shares 3,447,145 3,520,853
See accompanying notes 4 5 GISH BIOMEDICAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED)
1998 1997 ----------- ----------- Cash flows from operating activities: Net income (loss) $ (269,700) $ 90,500 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 229,800 233,900 Amortization 6,100 6,100 Deferred rent (4,500) 2,600 Changes in operating assets and liabilities 348,700 263,300 ----------- ----------- Net cash provided by operating activities 310,400 596,400 Cash flows from investing activities: Purchases of property and equipment (56,200) (106,900) Increase in other assets (23,100) (2,500) ----------- ----------- Net cash used in investing activities (79,300) (109,400) Cash flows from financing activities: Payment (increase) in note receivable from officer -- (18,800) Proceeds from stock options exercised 16,300 18,800 ----------- ----------- Net cash provided by financing activities 16,300 -- Net increase in cash and cash equivalents 247,400 487,000 Cash and cash equivalents at beginning of period 3,497,100 3,977,100 ----------- ----------- Cash and cash equivalents at end of period $ 3,744,500 $ 4,464,100 =========== ===========
See accompanying notes 5 6 GISH BIOMEDICAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1998 (UNAUDITED) 1. General The condensed consolidated 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 three month periods ended September 30, 1998 and 1997, and financial position at September 30, 1998, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures in such condensed consolidated financial statements are adequate to make the information presented not misleading, these condensed consolidated financial statements should be read in conjunction with the Company's consolidated financial statements and the notes thereto included in the Company's Annual Report filed with the Securities and Exchange Commission on Form 10- K for the year ended June 30, 1998. Effective July 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," ("SFAS 130") which establishes standards for reporting and displaying comprehensive income and its components in the financial statements. For the three months ended September 30, 1998 and 1997, the Company did not have any components of other comprehensive income as defined in SFAS 130. Statement of Cash Flows ----------------------- Changes in operating assets and liabilities as shown in the condensed consolidated statements of cash flows comprise: Three months ended September 30, 1998 1997 -------------------------------- ---- ---- Decrease (increase) in: Accounts receivable $ 460,300 $ 493,500 Inventories 201,000 (328,800) Prepaid expenses 34,800 (5,700) Increase (decrease) in: Accounts payable (306,900) 25,400 Accrued compensation and related items (40,800) 67,700 Other accrued liabilities 300 11,200 --------- --------- Change in operating assets and liabilities $ 348,700 $ 263,300 ========= ========= The Company did not pay any interest or Federal and State income taxes during the three month period ended September 30, 1998. 6 7 GISH BIOMEDICAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 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: September 30, 1998 June 30, 1998 ------------------ ------------- Raw materials $3,837,100 $3,971,500 Work in progress 965,600 1,082,600 Finished goods 2,606,200 2,555,800 ---------- ---------- $7,408,900 $7,609,900 ========== ========== 3. Earnings per share In February 1997, The Financial Accounting Standards Board issued Statement 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 exclude 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. The adoption of this new accounting standard did not have a material effect on previously reported earnings per share. 4. Acquisition On April 17, 1996, the Company assumed ownership of the net assets and technology of Creative Medical Development in exchange for a payment of $600,000 in cash and $2,000,000 of Gish Biomedical, Inc. common stock. 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. During the fiscal year end June 30, 1998 the Company decided to redesign the pump not utilizing the technology acquired from CMD. Consequently, in the fourth quarter of fiscal 1998, the Company had written off all remaining assets, principally inventory, property and equipment associated with the infusion pump at June 30, 1998 and recognized charges aggregating $827,400. 7 8 GISH BIOMEDICAL, INC. SEPTEMBER 30, 1998 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations: - ---------------------- On April 17, 1996, the Company assumed ownership of the net assets and technology of Creative Medical Development (CMD) in exchange for a payment of $600,000 in cash and $2,000,000 of Gish Biomedical, Inc. common stock. 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. During the fiscal year end June 30, 1998 the Company decided to redesign the pump not utilizing the technology acquired from CMD. Consequently, in the fourth quarter of fiscal 1998, the Company had written off all remaining assets, principally inventory, property and equipment associated with the infusion pump at June 30, 1998 and recognized charges aggregating $827,400. Sales for the three month period ended September 30, 1998 were $4,752,000, a decrease of $566,000 or 11%, as compared to sales of $5,318,000 for the corresponding period of fiscal 1998. The decrease in sales was due primarily to the loss of two customers which purchased approximately $1,500,000 per year of private labeled custom tubing packs and a general industry wide price decline for cardiovascular products. These decreases in sales were offset, in part, by sales of the Vision(TM) oxygenator and increases in the Company's sales of non cardiovascular products. In February 1998, the Company ceased doing business with two distributors of the Company's products, Specialized Medical Systems (SMS) and CardioVascular Concepts (CVC) . 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. During the second quarter of fiscal 1998, the Company engaged a direct sales force of seven persons to replace the two distributor sales organizations. The Company retained a substantial portion of the total existing distributor business in these regions at higher margins. The conversion of these territories from distributors to direct sales representation has afforded the Company better marketing opportunities with respect to its new Vision(TM) oxygenator. Gish had previously excluded these two territories from its initial marketing plan for the launch of the Vision, introduced in January 1998, because these distributors represented a competing oxygenator product. The conversion of these territories to a direct sales force has allowed the Company to be able to sell the Vision in conjunction with custom tubing packs, cardioplegia systems, cardiotomy reservoirs and oxygen saturation monitors in a broader geographic market. 8 9 GISH BIOMEDICAL, INC. SEPTEMBER 30, 1998 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Cost of sales for the period ended September 30, 1998 was 72% of sales as compared to 68% of sales for the corresponding period of fiscal 1998. The increase in cost of sales of 4% for the period ended September 30, 1998 is primarily due to fixed costs associated with excess capacity of approximately $250,000 combined with general price increases on materials, labor and other cost of sales components. Research and development expenses for the period ended September 30, 1998 were comparable to the corresponding period of fiscal 1998. The Company anticipates increasing its investment in research and development over the next few fiscal quarters as it expands its development staff and project list. The Company is actively engaged in several new product development projects which will require expenditures approximating $325,000 per quarter for the foreseeable future. Selling and marketing expenses for the period ended September 30, 1998 increased $70,000 or 7% over the corresponding period of fiscal 1998, such increase is due to the addition of seven direct sales representatives to replace two former distributors and increased marketing efforts associated with the launch of the Company's Vision oxygenator. General and administrative expenses for the period ended September 30, 1998 remained relatively consistent with general and administrative expenses for the corresponding period of fiscal 1998. No signicant increases in general and administrative expenses are planned for the foreseeable future. The provision (benefit) for taxes is based upon a combined federal and state effective tax rate of 39% for all periods presented entirely offset by a valuation allowance of $105,200 for the quarter ended September 30, 1998 against the Company's deferred tax assets. The valuation allowance reflects the uncertain ability of the Company to utilize its net loss carryforwards in future periods. The effects of inflation have not been a significant factor in the results of the Company's operations. The cardiovascular surgery market has been experiencing downward competitive pricing pressures which are reflected in lower sales dollars per unit sold. Year 2000 - --------- The Year 2000 Problem in computers arises from the common computer industry practice of using two digits to represent a date in computer software code and databases to enhance both processing time and save storage space. Therefore, when dates in the year 2000 and beyond are indicated and computer programs read date "00," the computer may default to the year "1900" rather than the correct "2000". This could result in incorrect calculations, faulty data and computer shutdowns, potentially impairing the conduct of business. 9 10 GISH BIOMEDICAL, INC. SEPTEMBER 30, 1998 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) The Company has reviewed its significant or critical computerized financial, operations and facility management computer systems. These systems utilize licensed third party software most of which was converted in 1997 so as to be year 2000 compliant at no additional cost to the Company. The Company's third party vendors for the remaining systems have committed to be year 2000 compliant by the end of calendar 1998 at no additional charge to the Company. The Company has also reviewed and analyzed all of its products which contain a software component and has determined that none of these electronic products are vulnerable to year 2000 issues. The Company plans to institute a year 2000 compliance program for its significant vendors and customers during fiscal 1999 to evaluate the risks and potential impact on the Company of their non compliance. Year 2000 compliance issues will be addressed during the Company's routinely scheduled vendor audits and should not represent a material expense. In the event that any significant vendor is unable to provide reasonable assurances to the Company of its year 2000 compliance the Company intends to evaluate and qualify alternate sources of supply on a case-by-case basis. Liquidity and capital resources: - -------------------------------- For the period ended September 30, 1998 cash provided by operations of $310,300 was primarily due to decreases in inventory and accounts receivable offset by a decrease in accounts payable and by cash used to fund unprofitable operations. As a result, in the quarter ended September 30, 1998 the Company's working capital decreased by $101,300. For the period ended September 30, 1998 cash used in investing activities of $79,300 was primarily due to purchases of property and equipment for the manufacture of new products and to improve operating efficiencies. For the period ended September 30, 1998 cash provided by financing activities of $16,300 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 1999. 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 key management personnel; and there may be other material adverse changes in the 10 11 Company's 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 the Company's targeted markets, (ii) the continued acquisition of the Company's customers by certain of its competitors and (iii) 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 None. 11 12 GISH BIOMEDICAL, INC. SEPTEMBER 30, 1998 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 thereunto duly authorized. GISH BIOMEDICAL, INC. Date: 11/13/98 JEANNE M. MILLER -------- --------------------------------------- JEANNE M. MILLER Chief Financial Officer 12 13 EXHIBIT INDEX Exhibit Number Description - -------------- ----------- 27 Financial Data Schedule EX-27.1 2 FINANCIAL DATA SCHEDULE
5 3-MOS JUN-30-1999 JUL-01-1998 SEP-30-1998 3,744,500 581,700 3,128,500 0 7,408,900 15,760,400 9,232,600 6,319,600 18,839,800 1,430,700 0 0 0 10,130,100 (53,800) 18,839,800 4,752,300 4,752,300 3,420,000 3,420,000 1,674,700 0 0 (269,700) 0 (269,700) 0 0 0 (269,700) (.08) (.08)
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