-----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, KJKT2DonbXgQhHO/d5g7re1FnmbFsh1ZG5wdrS0okEVHFabM26QaarCIO/f/O9bV 9LE6L6kAPdLNFSzQhg5U9Q== 0000892569-99-001293.txt : 19990511 0000892569-99-001293.hdr.sgml : 19990511 ACCESSION NUMBER: 0000892569-99-001293 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990510 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: 99615501 BUSINESS ADDRESS: STREET 1: 2681 KELVIN AVE CITY: IRVINE STATE: CA ZIP: 92714 BUSINESS PHONE: 9497565485 MAIL ADDRESS: STREET 1: 2681 KELVIN AVE CITY: IRVINE STATE: CA ZIP: 92714 10-Q 1 FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999 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, 1999 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 April 30, 1999, were 3,450,632. 1 2 GISH BIOMEDICAL, INC. INDEX
Page ---- PART I. Financial Information Item 1: Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheets as of March 31, 1999 and June 30, 1998 3 Condensed Consolidated Statements of Operations for the three and nine months ended March 31, 1999 and 1998 4 Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 1999 and 1998 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 11
2 3 GISH BIOMEDICAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 1999 June 30, 1998 -------------- ------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 3,922,800 $ 3,497,100 Short-term investments 581,700 581,700 Accounts receivable, net 3,404,400 3,588,800 Income tax refund receivable 3,500 754,300 Inventories 7,125,800 7,609,900 Prepaid expenses 250,300 177,300 ------------ ------------ Total current assets 15,288,500 16,209,100 Property and equipment, at cost 9,472,800 9,176,400 Less accumulated depreciation (6,769,400) (6,089,800) ------------ ------------ Net property and equipment 2,703,400 3,086,600 Other assets 163,400 149,400 ------------ ------------ $ 18,155,300 $ 19,445,100 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 719,000 $ 1,100,700 Accrued compensation and related items 596,700 665,700 Other accrued liabilities 37,200 11,700 ------------ ------------ Total current liabilities 1,352,900 1,778,100 Deferred rent 308,500 324,400 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 6,417,600 7,282,600 ------------ ------------ Total shareholders' equity 16,493,900 17,342,600 ------------ ------------ $ 18,155,300 $ 19,445,100 ============ ============
See accompanying notes 3 4 GISH BIOMEDICAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS THREE AND NINE MONTHS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED)
Three months ended Nine months ended March 31, March 31, --------------------------------- --------------------------------- 1999 1998 1999 1998 ------------ ------------ ------------ ------------ Net sales $ 4,608,900 $ 4,509,300 $ 13,876,400 $ 15,036,200 Cost of sales 3,248,700 3,102,700 9,860,900 10,450,300 ------------ ------------ ------------ ------------ Gross profit 1,360,200 1,406,600 4,015,500 4,585,900 Operating expenses Selling and marketing 935,700 1,272,400 2,925,400 3,415,100 Research and development 330,600 241,900 895,800 770,300 General and administrative 397,800 458,500 1,206,100 1,347,700 ------------ ------------ ------------ ------------ Total operating expenses 1,664,100 1,972,800 5,027,300 5,533,100 ------------ ------------ ------------ ------------ Operating loss (303,900) (566,200) (1,011,800) (947,200) Interest income 34,800 56,100 146,800 204,000 ------------ ------------ ------------ ------------ Loss before provision for taxes (269,100) (510,100) (865,000) (743,200) Benefit for taxes 105,000 199,000 337,000 289,900 Valuation allowance (105,000) -- (337,000) -- ------------ ------------ ------------ ------------ Net loss $ (269,100) $ (311,100) $ (865,000) $ (453,300) ============ ============ ============ ============ Net loss per share basic and diluted $ (0.08) $ (0.09) $ (0.25) $ (0.13) ============ ============ ============ ============ Average common and common equivalent shares used for basic and diluted per share calculation 3,450,632 3,442,886 3,449,476 3,437,981 ============ ============ ============ ============
See accompanying notes 4 5 GISH BIOMEDICAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED)
1999 1998 ----------- ----------- Cash flows from operating activities: Net loss $ (865,000) $ (453,300) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation 679,600 673,800 Amortization 18,100 18,100 Deferred rent (15,900) 5,600 Changes in operating assets and liabilities 921,100 (1,334,300) ----------- ----------- Net cash provided by (used in) operating activities 737,900 (1,090,100) ----------- ----------- Cash flows for investing activities: Purchases of property and equipment (296,400) (200,300) Increase in other assets (32,100) (13,300) ----------- ----------- Net cash used by investing activities (328,500) (213,600) ----------- ----------- Cash flows from financing activities: Proceeds from stock options exercised 16,300 29,700 Increase in note receivable from officer -- (18,800) ----------- ----------- Net cash provided by financing activities 16,300 10,900 ----------- ----------- Net increase (decrease) in cash and cash equivalents 425,700 (1,292,800) Cash and cash equivalents at beginning of period 3,497,100 3,977,100 ----------- ----------- Cash and cash equivalents at end of period $ 3,922,800 $ 2,684,300 =========== ===========
See accompanying notes 5 6 GISH BIOMEDICAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1999 (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 for the three and nine month periods ended March 31, 1999 and 1998, financial position at March 31, 1999 and cash flows for the nine month periods ended March 31, 1999 and 1998, 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 Company 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 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 and nine month periods ended March 31, 1999 and 1998, the Company did not have any components or 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:
Nine months ended March 31, 1999 1998 - --------------------------- ----------- ----------- (Increase) decrease in: Accounts receivable $ 184,400 $ 298,300 Income tax refund receivable 750,800 -- Inventories 484,100 (1,654,400) Prepaid expenses (73,000) (282,500) Increase (decrease) in: Accounts payable (381,700) 388,800 Accrued compensation (69,000) (29,300) Accrued liabilities 25,500 (55,200) ----------- ----------- Changes in operating assets and liabilities $ 921,100 $(1,334,300) =========== ===========
The Company paid $11,200 in State income taxes during the nine month period ending March 31, 1999, and did not pay any in the nine month period ending March 31, 1998. 6 7 GISH BIOMEDICAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 1999 (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, 1999 June 30,1998 -------------- ------------ Raw materials $3,205,500 $3,971,500 Work in progress 1,658,400 1,082,600 Finished goods 2,261,900 2,555,800 ---------- ---------- $7,125,800 $7,609,900 ========== ==========
3. Loss per share In February, 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. The adoption of this standard did not have a material effect on previously reported per share amounts. 7 8 GISH BIOMEDICAL, INC. MARCH 31, 1999 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations: Sales for the three month period ended March 31, 1999 increased by $99,600 or 2% over the third quarter of fiscal 1998 and increased $93,700 or 2% over the three month period ended December 31, 1998. Although these increases are modest, and the period ended March 31, 1998 was adversely affected by the termination of two significant distributors in February 1998, as discussed below, the Company believes that it has achieved a fundamental increase in business activity primarily due to the new Vision oxygenator. Sales of the Vision oxygenator were $587,500 and $459,000 for the three month periods ended March 31, 1999 and December 31, 1998 respectively as compared to $121,100 and $138,600 for the corresponding periods of fiscal 1998. In February 1998, the Company ceased doing business with two distributors of the Company's products, Specialized Medical Systems (SMS) and CardioVascular Concepts (CVC). Therefore, sales for the three and nine month periods ended March 31, 1998 were adversely affected by 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. During the second quarter of fiscal 1998, the Company engaged a direct sales force of seven persons, which has subsequently been reduced to five, to replace the two distributor sales organizations discussed above. The Company retained approximately 72% and 52% of the sales previously attributable to SMS and CVC, respectively, while increasing margins on such sales. Sales for the nine month period ended March 31, 1999 decreased $1,159,800 or 8% over the corresponding period of fiscal 1998. The decrease in sales was due primarily to the loss of two original equipment manufacturing or (OEM) customers who together accounted for sales of approximately $1,800,000 per year of private labeled custom tubing packs. Additionally, sales were adversely affected by a general industry-wide price decline for cardiovascular products, lost business relating to the discontinued distributors discussed above and new European Economic Community (EEC) regulations which resulted in the deferral of shipments of some of the Company's products to the EEC. These decreases in sales were offset, in part, by sales of the Vision(TM) oxygenator. Sales of the Vision(TM) oxygenator for the nine months ended March 31, 1999 were $1,297,400 as compared to $276,700 for the same period of fiscal 1998. The Company expects further declines in its OEM business to result from the merger of several of its existing OEM customers. The OEM portion of the Company's business was 9% and 11 % of total sales for the three and nine month periods ended March 31, 1999, respectively, as compared to 20% and, 17% for the corresponding periods of fiscal 1998. Cost of sales for the three and nine month periods ended March 31, 1999 was 70% and 71%, respectively, of sales as compared to 69% and 70% of sales for the corresponding period of fiscal 1998. The increase in cost of sales of 1% for the three and nine month periods ended March 31, 1999 is primarily due to fixed costs associated with excess capacity offset by cost reductions pursuant to the Company's cost reduction program and a favorable product mix change. 8 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Research and development expenses for the three and nine month periods ended March 31, 1999 increased $88,700 and $125,500 or 37% and 16% compared to the corresponding periods 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 $375,000 per quarter for the foreseeable future. Selling and marketing expenses for the three and nine month periods ended March 31, 1999 decreased $336,700 and $489,700 or 26% and 14% as compared to the corresponding periods of fiscal 1998. The decreases were due to a reduction of sales and marketing staff and lower commissions resulting from lower sales volumes. The Company anticipates that its selling and marketing expenses will be approximately $1,000,000 per quarter for the remainder of the fiscal year. General and administrative expenses decreased $60,700 and $141,600 or 13% and 11% for the three and nine month periods ended March 31, 1999, respectively. The decreases were primarily due to cost cutting measures implemented by the Company over the past twelve months, primarily lower insurance costs and expenditure reductions with outside service providers. The Company anticipates that general and administrative expenses should approximate $400,000 per quarter for the remainder of the fiscal year. The 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 against the Company's deferred tax assets of $105,000 and $337,000 established in the three and nine month periods ended March 31, 1999. 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 the last two digits of a year 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. 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 has been converted so as to be year 2000 compliant at minimal cost 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. 9 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) The Company has instituted 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 have been addressed during the Company's routinely scheduled vendor audits and have not represented 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. Although the Company expects its internal systems are Year 2000 compliant as described above, the Company intends to prepare a contingency plan that will specify what it plans to do if it or its significant vendors are not Year 2000 compliant in a timely manner. The Company expects to prepare its contingency plan in calendar year 1999 following the anticipated completion of its internal remediation and the assessment of the compliance of the Company's significant vendors. Even if these plans are completed on time and put in place, there can be no assurance that such plans will be sufficient to address any third party failures or that unresolved or undetected internal and external Year 2000 issues will not have a material effect on the Company's business, financial condition and results of operations. Liquidity and capital resources: For the nine month period ended March 31, 1999 cash provided by operations of $737,900 was primarily due to changes in operating assets and liabilities and non-cash expenses offset by cash used to fund unprofitable operations. 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 nine month periods ended March 31, 1999 and 1998, cash used in investing activities of $328,500 and $213,600, respectively, were primarily due to purchases of property and equipment for the manufacture of new products and to improve operating efficiencies. For the period ended March 31, 1999 cash provided by financing activities of $16,300 was a result of proceeds from the exercise of stock options. 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. As a result of the above matters, in the nine month period ended March 31, 1999 the Company's working capital decreased by $495,400. 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 10 11 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 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 No current reports on Form 8-K were filed during the quarterly period ended March 31, 1999. 11 12 GISH BIOMEDICAL, INC. MARCH 31, 1999 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 11th day of May 1999. GISH BIOMEDICAL, INC. Date: May 10, 1999 By: JEANNE MILLER --------------------------------- JEANNE MILLER V.P. and Chief Financial Officer 12 13 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------ ----------- 27.1 Financial Data Schedule
EX-27.1 2 FINANCIAL DATA SCHEDULE
5 9-MOS JUN-30-1999 JAN-01-1999 MAR-31-1999 3,922,800 581,700 3,404,400 0 7,125,800 15,288,500 9,472,800 6,769,400 18,155,300 1,352,900 0 0 0 10,130,100 (53,800) 18,155,300 13,876,400 13,876,400 9,860,900 9,860,900 5,027,300 0 0 (865,000) (337,000) (865,000) 0 0 0 (865,000) (.25) (.25)
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