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, 1996
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 92715
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (714)756-5485
-------------
N/A
- ------------------------------------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days. Yes X No_____
The number of shares outstanding of each of the issuer's classes of common
stock, as of May 10, 1996 were 3,360,802.
The number of pages in this Form 10-Q is 11.
2
GISH BIOMEDICAL, INC.
INDEX
PART I. Financial Information Page
Item 1: Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets
as of March 31, 1996 and June 30, 1995 3
Condensed Consolidated Statements of
Income for the three and nine months
ended March 31, 1996 and 1995 4
Condensed Consolidated Statements of
Cash Flows for the nine months ended
March 31, 1996 and 1995 5
Notes to Condensed Consolidated
Financial Statements 6
Item 2: Management's Discussion and Analysis
of Financial Condition and Results
of Operations. 8
PART II. Other Information
Item 6: Exhibits and Reports on Form 8-K 10
2
3
GISH BIOMEDICAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, June 30,
1996 1995
-----------------------------------
ASSETS (Unaudited)
Current assets:
Cash $ 1,536,900 $ 2,165,800
Short-term investments 2,200,600 5,147,900
Accounts receivable, net 4,282,500 3,342,200
Inventories 6,644,800 5,561,900
Deferred income tax assets 625,000 625,000
Prepaid expense 419,400 171,600
Prepaid taxes 199,200 ---
- ------------------------------------------------------------------------------------------------------------
Total current assets 15,908,400 17,014,400
Property and equipment, at cost 9,244,700 8,574,900
Less accumulated depreciation (5,252,300) (4,661,700)
- ------------------------------------------------------------------------------------------------------------
Net property and equipment 3,992,400 3,913,200
Note receivable 600,000 ---
Other assets 190,900 116,700
- ------------------------------------------------------------------------------------------------------------
$20,691,700 $21,044,300
============================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 837,300 $ 944,300
Accrued compensation and related items 389,100 563,400
Accrued income taxes --- 570,900
Other accrued liabilities 252,000 128,600
- ------------------------------------------------------------------------------------------------------------
Total current liabilities 1,478,400 2,207,200
Deferred rent 269,100 227,900
Deferred income taxes 4,500 4,500
Shareholders' equity:
Preferred stock, 2,250,000 shares
authorized; no shares outstanding
Common stock, no par value, 7,500,000 --- ----
shares authorized, 3,117,562 shares issued
and outstanding (3,101,129 shares at June 30, 1995) 7,812,800 7,761,800
Note receivable - officer stock purchase (50,000) (60,000)
Retained earnings 11,176,900 10,902,900
- ------------------------------------------------------------------------------------------------------------
Total shareholders' equity 18,939,700 18,604,700
- ------------------------------------------------------------------------------------------------------------
$20,691,700 $21,044,300
============================================================================================================
See accompanying notes
3
4
GISH BIOMEDICAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE AND NINE MONTHS ENDED MARCH 31, 1996 AND 1995 (UNAUDITED)
Three months ended Nine months ended
March 31, March 31,
1996 1995 1996 1995
----------------------------------------------------------------
Net sales $6,000,200 $5,591,600 $17,052,000 $16,344,800
Cost of sales 3,878,300 3,577,000 11,076,900 10,481,900
- ------------------------------------------------------------------------------------------------------------
Gross profit 2,121,900 2,014,600 5,975,100 5,862,900
Operating expenses
Selling and marketing 957,700 617,100 2,633,500 1,806,400
Research and development 325,500 268,900 1,022,700 883,400
General and administrative 505,300 410,800 1,369,300 1,225,300
Distributor contract
termination fee --- --- 702,000 ---
- ------------------------------------------------------------------------------------------------------------
Total operating expenses 1,788,500 1,296,800 5,727,500 3,915,100
- ------------------------------------------------------------------------------------------------------------
Operating income 333,400 717,800 247,600 1,947,800
Interest income 93,400 57,700 201,600 155,300
- ------------------------------------------------------------------------------------------------------------
Income before provision
for taxes 426,800 775,500 449,200 2,103,100
Provision for taxes 166,500 301,800 175,200 819,500
- ------------------------------------------------------------------------------------------------------------
Net income $ 260,300 $ 473,700 $ 274,000 $ 1,283,600
============================================================================================================
Earnings per share:
Primary net income $ 0.08 $ 0.14 $ 0.08 $ 0.40
============================================================================================================
Fully diluted net income $ 0.08 $ 0.14 $ 0.08 $ 0.40
============================================================================================================
Average common and
common equivalent shares:
Primary 3,329,903 3,269,369 3,354,834 3,196,096
============================================================================================================
Fully diluted 3,330,730 3,270,606 3,363,698 3,247,471
============================================================================================================
See accompanying notes
4
5
GISH BIOMEDICAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
1996 1995
-------------------------------
Cash flows from operating activities:
Net income $ 274,000 $1,283,600
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 590,600 545,900
Deferred rent 41,200 66,400
Changes in operating assets and liabilities (3,199,000) (995,400)
- ------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (2,293,200) 900,500
- ------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Sale of short-term investments 2,947,300 ---
Note receivable (600,000) ---
Purchases of property and equipment (669,800) (637,400)
(Increase) decrease in other assets (74,200) (25,700)
- ------------------------------------------------------------------------------------------------------------
Net cash provided (used) by in investing activities 1,603,300 (663,100)
- ------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from stock options exercised 51,000 294,700
Repayment of stockholder's loan 10,000 ---
- ------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 61,000 294,700
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalent (628,900) 532,100
Cash and cash equivalents at beginning of period 2,165,800 6,124,900
- ------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 1,536,900 $6,657,000
============================================================================================================
See accompanying notes
5
6
GISH BIOMEDICAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
1. General
-------
The condensed financial statements included herein have been
prepared by the Registrant, without audit, and include all
adjustments (consisting of normal recurring accruals) which
are, in the opinion of management, necessary for a fair
presentation of the results of operations for the three and
nine month periods ended March 31, 1996 and 1995, financial
position at March 31, 1996, and cash flows for the nine month
periods ended March 31, 1996 and 1995, pursuant to the rules
and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the
Registrant believes that the disclosures in such financial
statements are adequate to make the information presented not
misleading. These condensed financial statements should be
read in conjunction with the Registrant's financial statements
and the notes thereto included in the Registrant's Annual
Report filed with the Securities and Exchange Commission on
Form 10-K for the year ended June 30, 1995.
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, 1996 1995
--------------------------------------------------------------------------------------------------
(Increase) decrease in:
Accounts receivable $ (940,300) $(347,800)
Inventories (1,082,900) (803,900)
Prepaid expenses (247,800) (167,500)
Prepaid taxes (199,200) ---
Increase (decrease) in:
Accounts payable (107,000) (43,800)
Accrued compensation (174,300) ---
Accrued income taxes (570,900) 376,000
Accrued liabilities 123,400 (8,400)
-------------------------------------------------------------------------------------------------
Changes in operating assets and liabilities $(3,199,000) $(995,400)
=================================================================================================
The Company paid $937,500 and $819,631 in Federal and State
income taxes during the nine month periods ended March 31,
1996 and 1995, respectively.
6
7
GISH BIOMEDICAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996
(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, 1996 June 30,1995
----------------------------------
Raw materials $3,388,200 $2,936,700
Work in progress 1,536,600 1,317,900
Finished goods 1,720,000 1,307,300
- ------------------------------------------------------------------------------------
$6,644,800 $5,561,900
====================================================================================
3. Note payable - bank
-------------------
On March 31, 1996 the Company had available a $2,000,000
secured revolving credit facility with interest at the bank's
prime rate. The Company had no balance outstanding under the
line at either March 31, 1996 or June 30, 1995.
4. Earnings per share
------------------
Earnings per share is based on the weighted average number of
common and common equivalent shares outstanding during the
period. Common equivalent shares include the potential
dilution from the exercise of stock options, reduced by the
number of common shares which are assumed to have been
purchased with the income tax benefits and proceeds from the
exercise of such instruments using average market price for
the period. Fully diluted earnings per share reflects
additional dilution, if any, from using the market price at
the option exercise date or end of period to determine share
which would have been purchased.
5. Revenue recognition
-------------------
Revenue is recognized at the time of shipment to the customer.
The customer's right of return is limited to damaged or
defective product.
6. Acquisition
-----------
On September 12, 1995 the Company entered to an agreement to
acquire the assets and technology of Creative Medical
Development, Inc. ("CMD") for $600,000 in cash and 240,240
shares of the Company's common stock and assumed management of
the assets and operations of the assets to be acquired.
Accordingly, the Company has included revenue and costs
related to the product lines acquired for the period September
13, 1995 through March 31, 1996 in the Company's financial
statement. Additionally, the Company upon closing of the
transaction April 17, 1996, entered into a one-year lease for
the building which CMD currently occupies. The Company has
also executed one year employment agreements with four key
employees which includes provisions for the issuance of up to
53,500 shares of the Company's common stock to those employees
upon completion of certain performance criteria.
7
8
GISH BIOMEDICAL, INC
MARCH 31, 1996
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations: On September 12, 1995 the Company entered into an
agreement to acquire the assets and technology of Creative Medical
Development, Inc. ("CMD") for $600,000 in cash and 240,240 shares of
the Company's common stock and assumed management of the assets and
operations of the assets to be acquired. Accordingly, the Company has
included revenue and costs related to the product lines acquired for the
period September 13, 1995 through March 31, 1996 in the Company's
financial statement. Additionally, the Company upon closing of the
transaction April 17, 1996, entered into a one-year lease for the
building which CMD currently occupies. The Company has also executed
one year employment agreements with four key employees which includes
provisions for the issuance of up to 53,500 shares of the Company's
common stock to those employees upon completion of certain performance
criteria.
Sales for the three and nine month periods ended March 31, 1996
increased by $409,000 or 7% and $707,000 or 4% respectively over the
corresponding periods of fiscal 1995. The increases in sales for the
three and six month periods ended March 31, 1996 were due to primarily
to increases in cardiovascular surgery sales including the Company's
recently introduced Myomanager. Sales attributable to CMD's products
were $87,000 and $360,000 for the three and nine month period ended
March 31, 1996 respectively.
Cost of sales for the three month period ended March 31, 1996 was 65% of
sales as compared to 64% of sales for the corresponding period of fiscal
1995. Cost of sales for the nine month period ended March 31, 1996 was
65% of sales as compared to 64% of sales for the corresponding period of
fiscal 1995. The increase in cost of sales of 1% for the three and nine
month periods ended March 31, 1996 is attributable to CMD's unabsorbed
manufacturing costs of $127,000 and $192,000 respectively.
Selling and marketing expenses for the three and nine month periods
ended March 31, 1996 increased $341,000 or 55% and $827,000 or 46% over
the corresponding periods of fiscal 1995. Selling expenses related to
the operation of CMD accounted for 37% and 31% of the increases for the
three and nine month periods ended March 31, 1996 respectively. The
remaining increase was due to the Company's recent direct sales force
expansion. The Company anticipates that its selling and marketing
expenses will continue to be approximately $900,000 to $950,000 per
quarter for the remainder of the fiscal year.
Research and development expenses for the three and nine month periods
ended March 31, 1996 increased $57,000 and $139,000 respectively over
the corresponding periods of fiscal 1995. Costs associated with
upgrading CMD's ambulatory infusion pump product line represented the
entire increase in expenses over the corresponding periods of fiscal
1995 The Company is actively engaged in several new product development
projects, including an oxygenator, all of which will continue to require
expenditures approximating $400,000 per quarter for the foreseeable
future.
8
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
General and administrative expenses increased $103,000 and $156,000 over
the corresponding periods of fiscal 1995. The increases during the
three and nine month periods were primarily due to the operations of CMD
of $64,000 and $155,000 respectively.
The Company also incurred a one-time expense of $702,000 during the
first quarter of fiscal 1996, which represents payments due to a former
distributor as compensation for the termination of its contract with the
Company.
The provision for taxes is based upon a combined federal and state
effective tax rate of 39% for all periods presented.
Quarterly earnings per share is not directly additive for the periods
presented due to fluctuations in weighted average shares outstanding.
These fluctuations are attributable to the exercise of stock options and
the treasury stock method for determining the number of outstanding
options to be included as common stock equivalents. These fluctuations
are more significant when there are substantial variations in the market
price of the Company's common stock.
The effects of inflation have not been a significant factor in the
results of operations. The cardiovascular surgery market has been
experiencing pricing pressures which have precluded the Company from
considering price increases.
Liquidity and capital resources: At March 31, 1996, the Company had
$14,430,000 of working capital, a decrease of $377,200 from working
capital at June 30, 1995. The decrease is primarily due to the use of
cash in operating activities and an increase in inventories needed to
support our direct sales efforts.
For the period ended March 31, 1996 cash used in operations of
$2,393,200 was primarily due to increased inventories, increased
accounts receivable and payment of accrued taxes. Increases in
inventories were primarily due to a commitment to stocking higher levels
of finished goods, related to our direct sales efforts and acquisition
of component inventory for new products such as Myomanager TM, the
oxygenator, and the ambulatory infusion pumps. Increases in accounts
receivable were due to increases in sales and the timing of those sales
during the quarter. For the period ended March 31, 1995, cash provided
by operations of $900,500 was primarily due to profitable operations.
For the period ended March 31, 1996 cash provided by investing
activities of $1,603,300 was primarily due to the sale of short-term
investments offset by the advance of $600,000 to CMD and the purchase of
property and equipment. The advance to CMD is in the form of a note and
is secured by substantially all of CMD's assets. Purchases of property
and equipment were primarily tooling purchases to manufacture inventory
associated with new products such as the Myomanager and the oxygenator.
For the period ended March 31, 1995 cash used by investing activities
was primarily due to the purchase of property and equipment.
For the periods ended March 31, 1996 and 1995 cash provided by financing
activities of $61,000 and $294,700 was primarily due to proceeds from
the exercise of stock.
9
10
GISH BIOMEDICAL, INC.
MARCH 31, 1996
PART II. OTHER INFORMATION
ITEM 6. Exhibits and reports on Form 8K.
Exhibit 27 - Financial Data Schedule
On May 2, 1996 the Company filed a report on Form 8K regarding the
acquisition of certain assets from Creative Medical Development, Inc.
10
11
GISH BIOMEDICAL, INC.
MARCH 31, 1996
SIGNATURES
- ----------
Pursuant to the Requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, at Irvine, California
this 15th day of May 1996.
GISH BIOMEDICAL, INC.
Date: May 14, 1996 By: /s/ JEANNE MILLER TARAZEVITS
- ------------------ -------------------------------------
JEANNE MILLER TARAZEVITS
V.P. and Chief Financial Officer
11