U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON , D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: December 31, 2001
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File No.: 0-10728
GISH BIOMEDICAL, INC.
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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
--- ---
State the number of shares outstanding of each of the issuer's classes of
common equity: As of February 8, 2002, the issuer had 3,592,145 shares of its
common stock, no par value, outstanding.
Transitional Small Business Disclosure Format (check one): Yes No X
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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 December 31, 2001
(Unaudited)
(In thousands, except share data)
ASSETS
Current assets:
Cash $ 510
Accounts receivable, net 2,513
Relocation receivable 156
Inventories 5,431
Other current assets 138
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Total current assets 8,748
Property and equipment, at cost 9,456
Less accumulated depreciation ( 6,428)
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Net property and equipment 3,028
Other assets 558
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Total assets $ 12,334
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving line of credit $ 1,450
Accounts payable 1,236
Accrued compensation and related items 438
Accrued relocation liabilities 367
Other accrued liabilities 30
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Total current liabilities 3,521
Deferred rent 70
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Total liabilities 3,591
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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 ( 1,789)
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Total shareholders' equity 8,743
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Total liabilities and shareholders' equity $ 12,334
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See accompanying notes to condensed financial statements.
2
GISH BIOMEDICAL, INC.
CONDENSED STATEMENTS OF OPERATIONS
Three and six months ended December 31, 2001 and 2000
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
2001 2000 2001 2000
---- ---- ---- ----
(In thousands, except share and
per share data)
Net sales $ 4,038 $ 4,492 $ 7,886 $ 8,777
Cost of sales 3,188 3,278 6,264 6,410
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Gross profit 850 1,214 1,622 2,367
Operating expenses:
Selling and marketing 964 1,016 1,953 2,027
Research and development 257 228 510 477
General and administrative 362 405 764 849
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Total operating expenses 1,583 1,649 3,227 3,353
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Operating loss ( 733) ( 435) ( 1,605) ( 986)
Interest income (expense), net ( 22) 4 ( 37) 55
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Net loss ($ 755) ($ 431) ($ 1,642) ($ 931)
========= ========= ========== =========
Net loss per share - basic and diluted ($ .21) ($ .12) ($ .46) ($ .26)
========= ========= ========= =========
Basic and diluted weighted average
common shares 3,592,145 3,592,145 3,592,145 3,592,145
========= ========= ========= =========
See accompanying notes to condensed financial statements.
3
GISH BIOMEDICAL, INC.
CONDENSED STATEMENTS OF CASH FLOWS
Six months ended December 31, 2001 and 2000
(Unaudited)
2001 2000
(In thousands) ---- ----
OPERATING ACTIVITIES:
Net loss ($ 1,642) ($ 931)
Adjustments:
Depreciation 342 403
Amortization 3 3
Deferred rent 28 ( 33)
Deferred relocation revenue - 700
Deferred relocation costs - ( 347)
Changes in operating assets and liabilities 1,354 ( 1,137)
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Net cash provided by (used in) operating activities 85 ( 1,342)
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INVESTING ACTIVITIES
Sale or maturity of investments - 885
Purchases of property and equipment ( 273) ( 521)
Increase of other long-term assets ( 68) ( 355)
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Net cash provided by (used in) investing activities ( 341) 9
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FINANCING ACTIVITIES
Net borrowings on line of credit 656 49
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Net cash provided by financing activities 656 49
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Net increase (decrease) in cash and cash equivalents 400 ( 1,284)
Cash and cash equivalents at beginning of period 110 1,477
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Cash at end of period $ 510 $ 193
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See accompanying notes to condensed financial statements.
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GISH BIOMEDICAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
December 31, 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 six month periods ended December 31, 2001
and 2000, and financial position at December 31, 2001, pursuant to the rules
and regulations of the Securities and Exchange Commission ("SEC"). Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted
pursuant to such rules and regulations. Although the Company believes that
the disclosures in such condensed financial statements are adequate to make
the information presented not misleading, these condensed financial
statements should be read in conjunction with the Company's financial
statements and the notes thereto included in the Company's Annual Report
filed with the SEC on Form 10-KSB for the year ended June 30, 2001.
The accompanying financial statements have been prepared assuming the
Company will remain a going concern. The preparation of financial statements
in conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
The Company incurred net losses of $1,642,000 and $2,892,000 and used
$1,269,000 and $2,271,000 of cash in financing such losses during the six
months ended December 31, 2001 and the year ended June 30, 2001,
respectively. As a result, the Company had a deficit in retained earnings of
$1,789,000 at December 31, 2001. Based on the Company's current operating
plan, which includes the sale of certain non-core assets, management
believes existing cash together with cash forecasted by management to be
generated by operations and from borrowings under the Company's existing
revolving line of credit will be sufficient to meet the Company's cash
requirements until at least December 31, 2002. If events or circumstances
occur such that the financial performance embodied in the Company's
operating plan is not achieved, including a substantial reduction in its
current operating losses, a cash shortage could occur earlier and the
Company would be required to seek additional debt or equity financing or
obtain cash through the sale of assets. However, no assurance can be given
that additional financing will be available on acceptable terms or at all or
that any potential asset sale will occur. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. The
accompanying balance sheet does not include any adjustments to reflect the
possible future effects on recoverability and classification of assets or
the amounts and classification of liabilities that may result from the
outcome of this uncertainty.
5
GISH BIOMEDICAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)
December 31, 2001 (unaudited)
Statement of Cash Flows:
Changes in operating assets and liabilities as shown in the condensed
statements of cash flows comprise (in thousands):
Six Months Ended December 31,
2001 2000
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Decrease(increase) in:
Accounts receivable $ 404 $ 163
Relocation receivable - -
Inventories 648 ( 1,433)
Other current assets ( 53) 70
Increase (decrease) in:
Accounts payable 512 199
Accrued compensation and related items ( 115) ( 84)
Accrued relocation liabilities ( 58) -
Other accrued liabilities 16 ( 52)
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Net change in operating assets and liabilities $ 1,354 ($ 1,137)
======== ========
The Company did not pay any federal income taxes during the six month
periods ended December 31, 2001 or December 31, 2000. The Company paid
interest costs of $44,000 during the six month period ended December 31,
2001. The Company paid no interest costs during six month period ended
December 31, 2000.
2. Inventories
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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):
December 31, 2001
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Raw materials $ 2,198
Work in progress 1,027
Finished goods 2,206
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$ 5,431
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.
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Costs for the construction of improvements to the new facility totaled
approximately $1,800,000 of which $200,000 is included in accrued relocation
liabilities at December 31, 2001. The Company has excluded from the
improvement construction costs at December 31, 2001, approximately $300,000
billed to the Company by the improvement construction contractor. The
accuracy and validity of these billings are currently being disputed by the
Company.
4. Loss per share
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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.
5. Subsequent event - Amendment of revolving line of credit agreement
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In December 2000, the Company entered into a $2,000,000 three-year
revolving line of credit agreement. In February 2002, the revolving line of
credit agreement was amended to extend the agreement for an additional year
and increase the line to $4,000,000. Advances, based on eligible
receivables, are secured by the operating assets of the Company and bear
interest at prime (4.75% at December 31, 2001) plus 2%. The agreement also
includes various restrictive loan covenants, including a requirement for
the Company to maintain a minimum net worth of $7,000,000, and to obtain an
operating profit on a rolling three-month basis, effective August 2002.
At December 31, 2001 the Company had borrowed $1,450,000 under the
revolving line of credit and, under the amended line of credit agreement,
would have been entitled to borrow an additional $725,000.
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ITEM 2. - Management's Discussion and Analysis of Financial Condition and
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Results of Operations
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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 and six month periods ending December 31,
2001 with the three and six month periods ended December 31, 2000. This
discussion should be read in conjunction with the financial statements and
associated notes.
Results of Operations:
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The Company incurred a net loss of $755,000, or $.21 basic and diluted net loss
per share, for the three months ended December 31, 2001 compared to a net loss
of $431,000, or $.12 basic and diluted net loss per share, for the
comparable period in the prior fiscal year.
For the six months ended December 31, 2001, the Company incurred a net loss
of $1,642,000, or $.46 basic and diluted net loss per share, compared to a net
loss of $931,000 or $.26 basic and diluted net loss per share, for the six
months ended December 31, 2000.
The Company had sales of $4,038,000 for the three months ended December 31, 2001
compared to sales of $4,492,000 for the comparable period in the prior fiscal
year. For the six months ended December 31, 2001, the Company had sales of
$7,886,000 compared to sales of $8,777,000 for the six months ended December
31, 2000.
8
The $454,000 net sales decrease for the quarter ended December 31, 2001
compared to the quarter ended December 31, 2000 included a general reduction of
sales volume across all product lines, except for oxygenator sales.
A majority of the Company's sales are derived from products used in the
open-heart bypass circuit which is employed when a patient's heart is stopped
during cardiac surgery. In response to the events which occurred on September
11, 2001, most healthcare facilities immediately ceased non-emergency surgeries
in an effort to conserve the nations blood supply and reserve their care
capacity for potential future emergency needs. The Company experienced a
significant reduction in orders in September 2001, which in turn had the effect
of September revenue being approximately $500,000 lower than the prior months
revenue and budgeted revenue. The Company has continued to be negatively
affected by the economic downturn which has followed the events which occurred
on September 11, 2001.
The net sales decrease for the six months ended December 31, 2001, compared
to the six months ended December 31, 2000, continued the trend of a general
reduction of sales volume of across all product lines, except for oxygenator
sales. The reduction in sales of products, other than oxygenators, resulted from
factors which include a loss of market share in these products to other
competitors, a shift in customer purchasing patterns from separate components to
integrated oxygenator systems which include those components, and the increasing
percentage of open-heart surgeries which are performed without stopping the
heart.
Oxygenator sales were $1,323,000 for the three months ended December 31,
2001 compared to $1,307,000 for the three months ended December 31, 2000. For
the six months ended December 31, 2001, oxygenator sales were $2,607,000
compared to $2,407,000 for the comparable period in the prior fiscal year. The
sales increase resulted from additional market penetration by the VisionTM
oxygenator which was introduced in August, 1997. The VisionTM oxygenator has
been favorably received by the market due to product features and operating
performance.
Gross profit decreased to $850,000 for the three months ended December 31,
2001 compared to $1,214,000 for the three months ended December 31, 2000. For
the six months ended December 31, 2001, gross profit was $1,622,000 compared to
$2,367,000 for the six months ended December 31, 2000. The primary cause of the
gross profit decrease was the decrease in sales compared to the prior year
periods, and the continued increase in the percentage of total sales derived
from sales of oxygenators, on which the Company achieves a lower gross profit
percentage than its other product groups.
Selling and marketing expenses for the three months ended December 31, 2001
were $964,000 compared to $1,016,000 for the three months ended December 31,
2000. Selling and marketing expenses for the six months ended December 31, 2001
were $1,953,000 compared to $2,027,000 for the six months ended December 31,
2000. The decline in selling and marketing expenses results primarily from the
decline in revenue and decreased commissions on sales.
Research and development expenses for the three months ended December 31,
2001 were $257,000 compared to $228,000 for the three months ended December 31,
2000. Research and development expenses for the six months ended December 31,
2001 were $510,000 compared to $477,000 for the comparable period in the prior
year. The increase in research and development expenses results from increased
product development activity related to the completion of a new cardioplegia
device and the development of a biocompatible coating for the Company's
oxygenator and custom cardiovascular tubing systems.
9
For the three months ended December 31, 2001, general and administrative
expenses were $362,000 compared to $405,000 for the three months ended December
31, 2000. For the six months ended December 31, 2001, general and administrative
expenses were $764,000 compared to $849,000 for the six month period ended
December 31, 2000. The decrease from the prior year periods is primarily due to
the timing of expenses.
Liquidity and Capital Resources:
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At December 31, 2001, the Company had a cash of $510,000.
For the six months ended December 31, 2001 net cash provided by operating
activities was $85,000 compared to net cash used in operating activities of
$1,342,000 for the six months ended December 31, 2000. The decrease in cash used
by operating activities, compared to the comparable period in the prior year,
results primarily from the Company's ability to reduce inventory in the six
months ended December 31, 2001, compared to an increase in inventory in the six
months ended December 31, 2000, which was related to the build-up of inventory
in anticipation of the relocation of the Company to a new facility.
Net cash used in investing activities for the six months ended December 31,
2001 was $341,000 compared to net cash provided by investing activities of
$9,000 for the six months ended December 31, 2000.
Under its current operating plan, the Company believes its existing cash,
together with cash forecasted to be generated by operations, including proceeds
from the sale of non-core assets, and from borrowings under the existing
revolving line of credit will be sufficient to meet the Company's cash
requirements through December 31, 2002. However, if the Company is unable to
achieve the financial performance embodied in the Company's current operating
plan, including a substantial reduction in its current level of operating
losses, a cash shortage could occur earlier and it would require either
additional sources of funding or raising additional cash through the sale of
assets. There can be no assurances that additional sources of funding will be
available when needed or will be available at rates and terms favorable to the
Company or that any potential asset sale will occur.
These conditions raise substantial doubt about the Company's ability to
continue as a going concern. The Company's balance sheet at December 31, 2001
presented elsewhere in this Form 10-QSB does not include any adjustments to
reflect the possible future effects on recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.
10
PART II - OTHER INFORMATION
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ITEM 6. - Exhibits and Reports on Form 8-K
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a. Exhibits
10.22 Nonqualified Stock Option Agreement dated May 18, 2000
10.23 Nonqualified Stock Option Agreement dated August 8, 2001
10.24 Amendment No. 1 dated February 9, 2002, to Loan and Security
Agreement originally dated as of December 26, 2000, between
the Company and Heller Healthcare Finance, Inc.
10.25 First Amended and Restated Revolving Credit Note dated February
9, 2002,between the Company and Heller Healthcare Finance, Inc.
b. Reports on Form 8-K
None.
11
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GISH BIOMEDICAL, INC.
Date: February 13, 2002 /s/ Leslie M. Taeger
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Leslie M. Taeger
Vice President/CFO
12