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: September 30, 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.
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(Exact name of small business issuer as specified in its charter)
California 95-3046028
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification Number)
22942 Arroyo Vista, Rancho Santa Margarita, California 92688
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(Address of principal executive offices)
(949) 635-6200
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(Issuer's telephone number)
N/A
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(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
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State the number of shares outstanding of each of the issuer's classes of
common equity: As of November 8, 2001, 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
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PART I - FINANCIAL INFORMATION
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ITEM 1. - Financial Statements
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GISH BIOMEDICAL, INC.
CONDENSED BALANCE SHEET
As of September 30, 2001
(Unaudited)
(In thousands, except share data)
ASSETS
Current assets:
Accounts receivable, net $ 2,534
Relocation receivable 156
Inventories 5,655
Other current assets 77
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Total current assets 8,422
Property and equipment, at cost 9,341
Less accumulated depreciation ( 6,260)
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Net property and equipment 3,081
Other assets 498
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Total assets $ 12,001
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving line of credit $ 817
Cash overdraft 39
Accounts payable 752
Accrued compensation and related items 428
Accrued relocation liabilities 385
Other accrued liabilities 26
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Total current liabilities 2,447
Deferred rent 56
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Total liabilities 2,503
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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 ( 1,034)
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Total shareholders' equity 9,498
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Total liabilities and shareholders' equity $ 12,001
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See accompanying notes to condensed financial statements.
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GISH BIOMEDICAL, INC.
CONDENSED STATEMENTS OF OPERATIONS
Three months ended September 30, 2001 and 2000
(Unaudited)
(In thousands, except share and per share data) 2001 2000
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Net sales $ 3,848 $ 4,285
Cost of sales 3,076 3,132
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Gross profit 772 1,153
Operating expenses:
Selling and marketing 989 1,011
Research and development 253 249
General and administrative 402 444
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Total operating expenses 1,644 1,704
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Operating loss ( 872) ( 551)
Interest income (expense), net ( 15) 51
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Net loss ($ 887) ($ 500)
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Net loss per share - basic and diluted ($ .25) ($ .14)
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Basic and diluted weighted average common shares 3,592,145 3,592,145
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See accompanying notes to condensed financial statements.
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GISH BIOMEDICAL, INC.
CONDENSED STATEMENTS OF CASH FLOWS
Three months ended September 30, 2001 and 2000
(Unaudited)
(In thousands) 2001 2000
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OPERATING ACTIVITIES:
Net loss ($ 887) ($ 500)
Adjustments:
Depreciation 172 206
Amortization 1 1
Deferred rent 14 ( 20)
Changes in operating assets and liabilities 693 ( 823)
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Net cash used in operating activities ( 7) (1,136)
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INVESTING ACTIVITIES
Maturity of investments - 189
Purchases of property and equipment ( 158) ( 63)
Increase of other long-term assets ( 6) ( 6)
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Net cash provided by (used in) investing activities ( 164) 120
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FINANCING ACTIVITIES
Net borrowings on line of credit 22 -
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Net cash provided by financing activities 22 -
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Net decrease in cash and cash equivalents ( 149) (1,016)
Cash and cash equivalents at beginning of period 110 1,477
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Cash and cash equivalents (overdraft) at end of period ($ 39) $ 461
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See accompanying notes to condensed financial statements.
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GISH BIOMEDICAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 2001 (Unaudited)
1. General
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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 three month periods ended September 30,
2001 and 2000, and financial position at September 30, 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 $887,000 and $2,892,000 and used $700,000
and $2,271,000 of cash in financing such losses during the three months
ended September 30, 2001 and the year ended June 30, 2001, respectively.As a
result, the Company had a cash overdraft of $39,000 and a deficit in
retained earnings of $1,034,000 at September 30, 2001. Based on the
Company's current operating plan, 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 September
30, 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, 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.
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GISH BIOMEDICAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)
September 30, 2001 (unaudited)
Statement of Cash Flows
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Changes in operating assets and liabilities as shown in the condensed
statements of cash flows comprise (in thousands):
Three Months Ended September 30,
2001 2000
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Decrease(increase) in:
Accounts receivable $ 384 $ 332
Relocation receivable - -
Inventories 428 ( 565)
Other current assets 7 47
Increase (decrease) in:
Accounts payable 28 ( 583)
Accrued compensation and related items ( 125) ( 24)
Accrued relocation liabilities ( 39) -
Other accrued liabilities 10 ( 30)
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Net change in operating assets and liabilities $ 693 ($ 823)
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The Company did not pay any federal income taxes during the three month
periods ended September 30, 2001 or September 30, 2000. The Company paid
interest costs of $20,000 during the three month period ended September 30,
2001. The Company paid no interest costs during the three month period ended
September 30, 2000.
2. Inventories
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Inventories are stated at the lower of cost (first-in, first-out) or net
realizable value and are summarized as follows (in thousands):
September 30, 2001
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Raw materials $ 2,655
Work in progress 1,173
Finished goods 1,827
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$ 5,655
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3. Commitments and Contingencies
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During the three months ended March 31, 2001, the Company relocated to a new
operating facility in Rancho Santa Margarita, California.
Costs for the construction of improvements to the new facility totaled
approximately $1,800,000 of which $200,000 is included in accrued relocation
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liabilities at September 30, 2001. The Company has excluded from the
improvement construction costs at September 30, 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
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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.
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ITEM 2.- Management's Discussion and Analysis of Financial Condition and Results
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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 month period ending September 30, 2001 with
the three month period ended September 30, 2000. This discussion should be read
in conjunction with the financial statements and associated notes.
Results of Operations:
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The Company incurred a net loss of $887,000, or $.25 basic and diluted net
loss per share, for the three months ended September 30, 2001 compared to a net
loss of $500,000, or $.14 basic and diluted net loss per share, for the
comparable period in the prior fiscal year.
The Company had sales of $3,848,000 for the quarter ended September 30,
2001 compared to sales of $4,285,000 for the comparable quarter in the prior
fiscal year.
The $437,000 net sales decrease for the quarter ended September 30, 2001
compared to the quarter ended September 30, 2000 included a general reduction of
sales volume across all product lines, except for oxygenator sales, which
increased 16%.
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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 net sales decrease for the quarter ended September 30, 2001, compared
to the quarter ended September 30, 2000, after taking into account the loss of
revenue in September discussed previously, continued the trend of a general
reduction of sales volume of 10% to 20% across all product lines, except for
oxygenator sales, which increased at a 20% rate. 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 $1,284,000 for the three months ended September 30,
2001 compared to $1,100,000 for the three months ended September 30, 2000. The
sales increase resulted from additional market penetration by the VisionTM
oxygenator which was introduced in August, 1997. The Vision oxygenator has been
favorably received by the market due to product features and operating
performance.
Gross profit decreased to $772,000 for the three months ended September 30,
2001 compared to $1,153,000 for the three months ended September 30, 2000. The
primary cause of the gross profit decrease was the decrease in sales compared to
the prior year quarter, and the continued increase in the percentage of total
sales derived from sales of oxygenators, on which the Company achieves a lower
percentage gross profit than its other product groups.
Selling and marketing expenses for the three months ended September 30,
2001 were $989,000 compared to $1,011,000 for the three months ended September
30, 2000.
Research and development expenses for the three months ended September 30, 2001
were $253,000 compared to $249,000 for the three months ended September 30,
2000.
For the three months ended September 30, 2001, general and administrative
expenses were $402,000 compared to $444,000 for the three months ended September
30, 2000. The $42,000 decrease from the prior year period is primarily due to
the timing of expenses.
Liquidity and Capital Resources:
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At September 30, 2001, the Company had a cash overdraft of $39,000.
For the three months ended September 30, 2001 net cash used by operating
activities was $7,000 compared to net cash used by operating activities of
$1,136,000 for the three months ended September 30, 2000. The decrease in cash
used by operating activities compared to the comparable quarter in the prior
year, results primarily from the Company's ability to reduce inventory in the
three months ended September 30, 2001, compared to an increase in inventory and
decrease in accounts payable in the three months ended September 30, 2000, which
was related to the build-up of inventory in anticipation of the relocation of
the Company to a new facility.
9
Net cash used in investing activities for the three months ended September
30, 2001 was $164,000 compared to net cash provided by investing activities of
$120,000 for the three months ended September 30, 2000.
Under its current operating plan, the Company believes its existing cash
together with cash forecasted to be generated by operations and from borrowings
under the existing revolving line of credit will be sufficient to meet the
Company's cash requirements through September 30, 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, it will 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 September 30, 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.
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PART II - OTHER INFORMATION
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ITEM 6. - Exhibits and Reports on Form 8-K
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a. Exhibits
None
b. Reports on Form 8-K
None.
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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: November 8, 2001 /s/ Leslie M. Taeger
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Leslie M. Taeger
Vice President/CFO
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