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, 1997
--------------
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 (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 9, 1997 were 3,430,145.
2
GISH BIOMEDICAL, INC.
INDEX
Page
----
PART I. Financial Information
Item 1: Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets
as of March 31, 1997 and June 30, 1996 3
Condensed Consolidated Statements of
Operations for the three and nine months
ended March 31, 1997 and 1996 4
Condensed Consolidated Statements of
Cash Flows for the nine months ended
March 31, 1997 and 1996 5
Notes to Condensed Consolidated
Financial Statements 6
Item 2: Management's Discussion and Analysis
of Financial Condition and Results
of Operations. 9
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, 1997 June 30, 1996
-------------- -------------
(Unaudited)
ASSETS
- ------
Current assets:
Cash ................................................ $ 3,576,800 $ 3,314,200
Short-term investments .............................. 1,031,600 1,031,600
Accounts receivable, net ............................ 3,682,400 4,078,000
Inventories ......................................... 6,930,400 7,083,700
Deferred income tax assets .......................... 748,900 748,900
Prepaid expenses .................................... 352,000 227,400
Prepaid taxes ....................................... 313,500 18,300
------------ ------------
Total current assets ............................ 16,635,600 16,502,100
------------ ------------
Property and equipment, at cost ........................ 10,246,400 9,799,900
Less accumulated depreciation .......................... (6,144,700) (5,463,200)
------------ ------------
Net property and equipment ............................. 4,101,700 4,336,700
Other assets ........................................... 119,000 130,400
Goodwill, net .......................................... 1,824,200 1,966,800
------------ ------------
$ 22,680,500 $ 22,936,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................... $ 707,100 $ 984,500
Accrued compensation and related items .............. 574,900 571,800
Accrued income taxes ................................ -- --
Other accrued liabilities ........................... 19,400 60,300
------------ ------------
Total current liabilities ....................... 1,301,400 1,616,600
------------ ------------
Deferred rent .......................................... 308,800 282,600
Deferred income taxes .................................. 27,000 27,000
------------ ------------
Shareholders' equity:
Preferred stock, 2,250,000 shares
authorized; no shares outstanding
Common stock, no par value, 7,500,000
shares authorized, 3,387,145 shares issued
and outstanding (3,363,444 shares at June 30, 1996) 9,944,100 9,828,000
Note receivable - officer stock purchase ............ (30,000) (50,000)
Retained earnings ................................... 11,129,200 11,231,800
------------ ------------
Total shareholders' equity ...................... 21,043,300 21,009,800
------------ ------------
$ 22,680,500 $ 22,936,000
============ ============
See accompanying notes
3
4
GISH BIOMEDICAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED)
Three months ended Nine months ended
March 31, March 31,
------------------------------ ------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
Net sales .................................. $ 5,132,800 $ 6,000,200 $ 15,786,300 $ 17,052,000
Cost of sales .............................. 3,683,100 3,982,600 10,854,600 11,181,200
------------ ------------ ------------ ------------
Gross profit ........................ 1,449,700 2,017,600 4,931,700 5,870,800
------------ ------------ ------------ ------------
Operating expenses
Selling and marketing ................... 979,600 994,200 2,807,400 2,670,000
Research and development ................ 309,000 354,300 1,015,500 1,051,500
General and administrative .............. 466,200 515,700 1,438,000 1,379,700
Distributor contract termination fee .... -- -- -- 702,000
------------ ------------ ------------ ------------
Total operating expenses .............. 1,754,800 1,864,200 5,260,900 5,803,200
------------ ------------ ------------ ------------
Operating (loss) income ............... (305,100) 153,400 (329,200) 67,600
------------ ------------ ------------ ------------
Interest income ............................ 49,600 93,400 161,000 201,600
------------ ------------ ------------ ------------
Income (loss) before provision for taxes ... (255,500) 246,800 (168,200) 269,200
Provision for taxes ........................ (99,600) 96,300 (65,600) 105,000
------------ ------------ ------------ ------------
Net income (loss) .......................... $ (155,900) $ 150,500 $ (102,600) $ 164,200
============ ============ ============ ============
Earnings (loss) per share:
Primary net income (loss) ............... $ (0.05) $ 0.05 $ (0.03) $ 0.05
Fully diluted net income (loss) ......... $ (0.05) $ 0.05 $ (0.03) $ 0.05
============ ============ ============ ============
Average common and common equivalent shares:
Primary ................................. 3,383,509 3,329,903 3,378,179 3,354,834
Fully diluted ........................... 3,383,509 3,330,730 3,330,730 3,363,698
============ ============ ============ ============
See accompanying notes
4
5
GISH BIOMEDICAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
1997 1996
----------- -----------
Cash flows from operating activities:
Net income (loss) ..................................... $ (102,600) $ 164,200
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ....................... 854,700 590,600
Deferred rent ....................................... 26,200 41,200
Changes in operating assets and liabilities ......... (186,100) (3,089,200)
----------- -----------
Net cash provided (used) by operating activities 592,200 (2,293,200)
----------- -----------
Cash flows from investing activities:
Sale of short-term investments ..................... -- 2,947,300
Note receivable .................................... -- (600,000)
Purchases of property and equipment ................ (446,500) (669,800)
(Increase) decrease in other assets ................ (19,200) (74,200)
----------- -----------
Net cash provided (used) by investing activities (465,700) 1,603,300
----------- -----------
Cash flows from financing activities:
Proceeds from stock options exercised .............. 116,100 51,000
Repayment of stockholder's loan .................... 20,000 10,000
----------- -----------
Net cash provided by financing activities ...... 136,100 61,000
----------- -----------
Net increase (decrease) in cash and cash equivalents .. 262,600 (628,900)
----------- -----------
Cash and cash equivalents at beginning of period ...... 3,314,200 2,165,800
----------- -----------
Cash and cash equivalents at end of period ............ $ 3,576,800 $ 1,536,900
=========== ===========
See accompanying notes
5
6
GISH BIOMEDICAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(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, 1997 and 1996, financial
position at March 31, 1997, and cash flows for the nine month periods
ended March 31, 1997 and 1996, pursuant to the rules and regulations of
the Securities and Exchange Commission. Balance sheet information as of
June 30, 1996 has been derived from the Company's audited financial
statements. 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, 1996.
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,
---------------------------
1997 1996
---------- ------------
(Increase) decrease in:
Accounts receivable .................... $ 395,600 $ (940,300)
Inventories ............................ 153,300 (1,082,900)
Prepaid expenses ....................... (124,600) (247,800)
Prepaid taxes .......................... (295,200) (269,400)
--------- -----------
Increase (decrease) in:
Accounts payable ....................... (277,400) (107,000)
Accrued compensation ................... 3,100 5,700
Accrued income taxes ................... -- (570,900)
Accrued liabilities .................... (40,900) 123,400
--------- -----------
Changes in operating assets and liabilities $(186,100) $(3,089,200)
========= ===========
The Company paid $213,100 and $937,500 in Federal and State income taxes
during the nine month periods ended March 31, 1997 and 1996,
respectively.
6
7
GISH BIOMEDICAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
(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, 1997 June 30,1996
-------------- ------------
Raw materials .............. $3,995,800 $4,166,000
Work in progress ........... 1,162,000 1,123,200
Finished goods ............. 1,772,600 1,794,500
---------- ----------
$6,930,400 $7,083,700
========== ==========
3. Earnings per share
------------------
Earnings per share is based on the weighted average number of common and,
where dilutive, common equivalent shares outstanding during the period.
Common equivalent shares include the potential dilution from the exercise
of stock options and warrants, 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. Fully diluted earnings
per share reflects additional dilution, from the assumed exercise of the
dilutive common stocks options at the beginning of the period.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share", which is required to be adopted
on December 31, 1997. At that time, the Company will be required to
change the method currently used to compute earnings per share and to
restate all periods. Under the new requirements for calculating primary
earnings per share, the dilutive effect of stock options will be
excluded. The Company has not yet determined what the impact of Statement
128 will be on the calculation of fully diluted earnings per share.
4. Acquisition
-----------
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
on September 13, 1995 the Company assumed management of the assets and
the risks and rewards from operation of the assets to be acquired.
Accordingly, the Company has included revenue and costs related to the
product lines acquired in the Company's financial statements from
September 13, 1995. Additionally, the Company, upon closing of the
transaction April 17, 1996, entered into a one-year lease for the
building which CMD currently occupies. During the quarter ended December
31, 1996 the Company ceased to utilize the building for manufacturing and
was released from the lease as of February 28, 1997.
7
8
GISH BIOMEDICAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
The Company had also executed one year employment agreements with four
key employees which included 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. As of December 31, 1996, 10,875 such
shares were issued. During the quarter ended December 31, 1996 two of
those key employees were terminated for cause. Additionally, a third
employee under contract resigned effective February 15, 1997. The Company
has no reason to believe that the loss of these employees will negatively
affect the performance of the assets acquired.
8
9
GISH BIOMEDICAL, INC
MARCH 31, 1997
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 on September 13, 1995 the Company assumed management of the assets and
the risks and rewards from operation of the assets to be acquired. Accordingly,
the Company has included revenue and costs related to the product lines acquired
in the Company's financial statements from September 13, 1995. Additionally, the
Company upon closing of the transaction April 17, 1996, entered into a one-year
lease for the building which CMD currently occupies. During the quarter ended
December 31, 1996 the Company ceased to utilize the building for manufacturing
and was released from the lease as of February 28, 1997. The Company had also
executed one year employment agreements with four key employees which included
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. As of
December 31, 1996, 10,875 such shares had been issued. During the quarter ended
December 31, 1996 two of those key employees were terminated for cause.
Additionally, a third employee under contract resigned effective February 15,
1997. The Company has no reason to believe that the loss of these employees will
negatively affect the performance of the assets acquired.
Sales for the three and nine month periods ended March 31, 1997 decreased by
$867,000 or 14% and $1,266,000 or 7%, respectively, over the corresponding
periods of fiscal 1996. The decreases in sales for the three and nine month
periods ended March 31, 1997 were due to primarily to average selling price
erosion within the cardiovascular device market of approximately 3%, lost
business due to the acquisition of several perfusion customers by Baxter
Healthcare and what management believes to be temporary declines in infusion
pump sales.
Cost of sales for the three month period ended March 31, 1997 was 72% of sales
as compared to 66% of sales for the corresponding period of fiscal 1996. Cost of
sales for the nine month period ended March 31, 1997 was 69% of sales as
compared to 66% of sales for the corresponding period of fiscal 1996. Cost of
sales as a percentage of total sales increased due to average selling price
erosion of approximately 3% and inadequate absorption of fixed overhead expenses
due to inadequate sales volume during the third quarter of fiscal 1997.
Selling and marketing expenses for the quarter ended March 31, 1997 decreased
$15,000 or 1% over fiscal 1996 due to decreased commissions on lower sales
volumes. Selling and marketing expenses for the nine month period ended March
31, 1997 increased $137,000 or 5% over the corresponding period of fiscal 1996
due to increased international and infusion pump marketing efforts. The Company
anticipates that its selling and marketing expenses will continue to be
approximately $900,000 to $1,000,000 per quarter for the remainder of the fiscal
year.
Research and development expenses for the three and nine month periods ended
March 31, 1997 decreased $45,000 and $36,000, respectively, over the
corresponding periods of fiscal 1996 primarily due to elimination of engineering
personnel associated with the cessation of operations of the former CMD
facility. The Company is actively engaged in several new product development
projects, including an oxygenator, all of which will continue to require
expenditures approximating $300,000 per quarter for the foreseeable future.
9
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
General and administrative expenses decreased $50,000 for the quarter ended
March 31, 1997 over the previous fiscal year due primarily to cessation of
operations at the former CMD facility, offset by increased amortization expense.
General and administrative expenses increased $58,000 for the nine month period
ended March 31, 1997 compared to fiscal 1996. The increase was primarily due to
amortization of excess purchase price associated with the assets acquired from
CMD of approximately $50,000 per quarter offset by savings associated with the
cessation of operations at the former CMD facility and termination of related
employment contracts.
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.
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, 1997, the Company had $15,334,000
of working capital, an increase of $448,000 from working capital at June 30,
1996. The increase is primarily due to cash provided by operating activities.
For the period ended March 31, 1997 cash provided by operations of $592,000 was
primarily due to decreases in accounts receivable and offset by increased
prepaid expenses and payments of trade payables. The decrease in accounts
receivable was due primarily to a decrease in sales for the period. For the
period ended March 31,1996 cash used in operations of $2,293,000 was primarily
due to increases in inventories and accounts receivables. The increase in
inventory was due to the company having committed to higher stocking levels of
finished goods, related to our direct sales efforts and acquisition of component
inventory for new products such as the MyomanagerTM, 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, 1997 cash used by investing activities of
$466,000 was primarily due to the purchase of research and development test
equipment and the upgrading of the Company's computer networking system. For the
period ended March 31, 1996 cash provided by investing activities 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 was in the
form of a note and was secured by substantially all of CMD's assets. This note
has subsequently been rolled into the purchase price on April 17, 1996.
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 periods ended March 31, 1997 and 1996 cash provided by financing
activities of $136,000 and $61,000 were primarily due to proceeds from the
exercise of stock options.
10
11
GISH BIOMEDICAL, INC.
MARCH 31, 1997
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
the Quarterly Report on Form 10-Q, the inclusion of forward-looking information
herein should not be regarded as a representation by the Company or any other
person that the objectives or plans of the Company will be achieved. The Company
may encounter competitive, technological, financial and business challenges
making it more difficult than expected to continue to develop and market its
products; the market may not accept the Company's existing and future products;
the Company may be unable to retain 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 the 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 forward-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 Financial Data Schedule.
11
12
GISH BIOMEDICAL, INC.
MARCH 31, 1997
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
14th day of May 1997.
GISH BIOMEDICAL, INC.
Date: May 14, 1997 By: /s/ JEANNE MILLER TARAZEVITS
----------------------------------
Jeanne Miller Tarazevits
V.P. and Chief Financial Officer
12