<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[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 0-9570
LUTHER MEDICAL PRODUCTS, INC.
(Exact name of small business issuer as specified in its charter)
CALIFORNIA 33-0468235
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14332 CHAMBERS ROAD, TUSTIN, CA 92680
(Address of principal executive offices) (Zip Code)
(714) 544-3002
(Issuer's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report.)
Check whether the issuer (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.
[X] Yes [_] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
COMMON STOCK NO STATED PAR VALUE--3,124,871 SHARES AS OF MARCH 31, 1996
<PAGE>
INDEX
LUTHER MEDICAL PRODUCTS, INC.
.
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
<S> <C>
Condensed Consolidated Balance Sheet - March 31, 1996 3
Condensed Consolidated Statements of Operations -
Three months ended March 31, 1996 and 1995,
and nine months ended March 31, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows
Nine months ended March 31, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7,8
PART II - OTHER INFORMATION 9
Signature Page 9
</TABLE>
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LUTHER MEDICAL PRODUCTS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS MAR. 31,1996
<S> <C>
CURRENT ASSETS
Cash $ 221,560
U.S. Treasury bills 1,500,608
Accounts receivable - net 686,221
Inventories - Note C 1,558,779
Other current assets 100,243
-----------
TOTAL CURRENT ASSETS 4,067,411
PROPERTY AND EQUIPMENT 1,148,239
Less accumulated depreciation (734,824)
-----------
PROPERTY AND EQUIPMENT - NET 413,415
OTHER ASSETS 70,198
-----------
$ 4,551,024
===========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 331,948
Accrued payroll and related 104,239
expenses
Other accrued liabilities 90,738
-----------
TOTAL CURRENT LIABILITIES 526,925
-----------
STOCKHOLDERS' EQUITY
Preferred stock - no stated par
value;
10,000,000 shares authorized; none
issued
Common stock - no stated par value;
25,000,000 shares authorized;
issued and
outstanding 3,124,871 10,035,809
Notes receivable from stockholders (150,636)
Accumulated deficit (5,861,074)
-----------
NET STOCKHOLDERS' EQUITY 4,024,099
-----------
$ 4,551,024
===========
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
LUTHER MEDICAL PRODUCTS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended March 31 Nine Months Ended March 31
---------------------------- ---------------------------
1996 1995 1996 1995
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $1,174,230 $ 939,681 $2,702,217 $2,363,573
Sale of patents 4,415,000 4,415,000
------------ ---------- ---------- ----------
Total revenue 1,174,230 5,354,681 2,702,217 6,778,573
Costs and Expenses:
Cost of sales 668,869 904,831 1,512,580 1,525,479
Selling expense 231,349 588,826 635,959 914,167
General and administrative 196,853 362,676 580,042 807,534
Research and development 121,019 154,039 330,250 362,388
Depreciation and
amortization 37,791 209,211 139,683 313,563
Interest expense 44,396 13,237 86,110
------------ ---------- ---------- ----------
Total costs and expenses 1,255,881 2,263,979 3,211,751 4,009,241
Income tax expense 123,709 123,709
------------ ---------- ---------- ----------
Net income (loss) before extraordinary item (81,651) 2,966,993 (509,534) 2,645,623
Forgiveness of debt (122,958)
------------ ---------- ---------- ----------
Net income (loss) after extraordinary item $ (81,651) $2,966,993 $ (386,576) $2,645,623
============ ========== ========== ==========
Weighted average number of
shares outstanding ('000) 3,111 3,055 3,038 3,055
Income (loss) per share before
extraordinary item $ (.03) $ .97 $ (.17) $ .87
Income (loss) per share after
extraordinary item $ (.03) $ .97 $ (.13) $ .87
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
LUTHER MEDICAL PRODUCTS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (386,576) $ 2,645,623
Adjustments to reconcile net income
(loss) to net cash
used by operating activities :
Depreciation and amortization 139,683 313,563
Changes in operating assets and
liabilities:
Accounts and other receivables (314,993) 40,426
Inventories (370,387) (75,023)
Prepaid expenses and other assets (11,822) 26,540
Accounts payable 190,755 (156,527)
Accrued payroll and related 24,142 (29,963)
expenses
Other accrued liabilities (265,552) 619,322
----------- ------------
Net cash (used) provided (994,750) 3,383,961
----------- ------------
INVESTING ACTIVITIES:
Proceeds from sale of U.S. Treasury
bills 1,209,987
Purchase of other assets (60,000)
Purchases of property and equipment (73,057) (77,008)
----------- ------------
Net cash (used) provided in investing
activities 1,076,930 (77,008)
----------- ------------
FINANCING ACTIVITIES:
Proceeds from sales of common stock 405,096 86,885
Proceeds from collection of notes
receivable from stockholder 32,808
Proceeds from issuance of notes payable 900,000
Principal payments of debt (481,250) (1,043,750)
----------- ------------
Net cash used by financing activities (43,346) (56,865)
----------- ------------
Net increase in cash 38,834 3,250,088
Cash, beginning of year 182,726 216,366
----------- ------------
Cash, at end of nine months $ 221,560 $ 3,466,454
=========== ============
</TABLE>
See notes to condensed consolidated financial statements
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<PAGE>
LUTHER MEDICAL PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
NOTE A - BASIS OF PREPARATION
The accompanying condensed consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine-month period ending March 31,
1996 are not necessarily indicative of the results that may be expected for the
year ended June 30, 1996. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-KSB.
NOTE B - EARNINGS (LOSS) PER SHARE
Loss per share is calculated using the weighted average number of shares
outstanding. Common stock equivalents are not included when their effect would
be antidilutive. Earnings per share calculation for the three and nine months
periods ending March 31, 1995, takes into account 358,049 compensatory stock
options and warrants. Using the treasury stock method these common stock
equivalents have the effect of increasing the number of shares used in the
computation for the three and nine months periods ending March 31, 1995, by
76,161.
NOTE C - INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
March 31,1996
-------------
<S> <C>
Raw material $ 476,879
Work in process 571,078
Finished goods 510,822
-------------
$1,558,779
=============
</TABLE>
NOTE D - NEW ACCOUNTING STANDARD
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 123 "Accounting for Stock Based Compensation"
("Statement 123"). Statement 123 is primarily a disclosure standard for the
Company because the Company will continue to account for employee stock options
under Accounting Principle Board Opinion No. 25. The Company plans to adopt
Statement 123 effective July 1, 1996.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATION
Total consolidated revenues for the third quarter of fiscal year 1996 were
$1,174,000 compared to $5,355,000 for the prior year's quarter. During the
quarter ended March 31, 1995, the Company sold five of its patents related to
stickless needle technology to Johnson & Johnson Medical, Inc.("JJMI"), the
corporate successor to Critikon, for $4,415,000, net of expenses. JJMI was the
exclusive licensee under these patents pursuant to a royalty license agreement
entered into in 1987, which was terminated as of March 28,1995. Royalty income
therefore decreased to $3,000 for the third quarter of fiscal 1996, compared to
$112,000 for the same period last year, as a result of the termination of the
above-mentioned license agreement. Catheter product sales increased by 39% to
$1,147,000 from $826,000 for the prior year's quarter. In 1994, the Company
modified its agreement with Pharmacia Deltec Inc. ("Pharmacia") from an
exclusive to a non-exclusive distributor relationship and established a network
of specialty distributors. Sales to Pharmacia were zero for the quarter ended
March 31, 1996, compared to $224,000 for the same period last year. Sales to
the newly appointed distributors increased to $620,000, or 103%, compared to
$306,000 for the prior year's quarter. Sales to OEM customers increased to
$281,000 from $104,000 mainly as a result of a new distribution agreement with
Boston Scientific Corporation ("Boston Scientific"), to develop and manufacture
a range of Peripherally Inserted Central Catheters (PICC) for the interventional
radiology market. Catheter sales to international distributors increased by
$66,000 or 39%. Interest income increased to $25,000 from $ 1,000, as a result
of the Company's increased cash balances that resulted from the patent sale to
JJMI. For the first nine months of fiscal 1996, total revenues were $2,702,000
compared to $6,779,000 for the prior year's period.
Cost of revenues for the three months ended March 31, 1996 were $669,000
compared to $905,000 in the prior year's quarter, and for the nine months they
were $1,513,000 compared to $1,525.000. This represents decreases of $236,000
for the quarter and $12,000 for the nine months, respectively. The decreases
are primarily due to inventory adjustments of $414,000 in the prior year's
quarter. Excluding the inventory adjustment, cost of revenues as a percentage
of product sales decreased from 59% to 58% for the third quarter of 1996, and
increased from 56% to 58% for the nine months period.
Selling expenses decreased by $358,000 for the quarter and by $278,000 for the
nine months ended March 31, 1996. The decrease for both periods is mainly
attributable to expanded marketing activities such as product training programs,
sales brochures and no charge samples during the prior year's periods. General
and administrative expenses decreased by $166,000 during the quarter and by
$228,000 for the nine months period, mainly as a result of increasing the
provision for doubtful accounts by $50,000 and higher legal expenses during the
1995 period.
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<PAGE>
Research and development expenses were $121,000 for the third quarter of fiscal
1996 compared to $154,000 for the same period last year. For the nine months
period ended March 31, 1996 research and development expenses were $330,000 in
comparison with $362,000 in the same period last year. Depreciation and
amortization expense decreased by $171,000 for the quarter and by $174,000 for
the nine months ended March 31, 1996, which was mainly due to the write-off in
the amount of $165,000 of the Company's repurchased licensing rights from a
foreign distributor during the third quarter of fiscal 1995. Interest expense
decreased by $44,000 during the quarter and by $73,000 for the nine months
period due to lower debt balances.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had working capital of $3.5 million and its
principal sources of liquidity consisted of $1.7 million in cash and cash
equivalents. Net cash used by operating activities for the nine months ended
March 31, 1996, was $995,000, mainly as the result of the net loss of $387,000,
the increase in accounts and other receivables of $315,000 and the increase in
inventories of $371,000. The inventory increase is mainly attributable to
component purchases for the production of new OEM products for Boston
Scientific. With respect to investing activities, the Company made purchases of
property and equipment totaling $73,000. In March 1996, the Company signed an
agreement with Pertrach Inc. ("Pertrach"), a private company in West Virginia,
for the purchase of its patents, trademarks and certain assets for the amount of
$60,000 and future annual royalties. The Company has manufactured the
tracheostomy products for Pertrach for many years and will now be responsible
for the marketing of these products as well. Financing activities used $43,000
as a result of payment of the note payable to Sims Deltec Inc., collection of a
note receivable from a stockholder and proceeds from sales of common stock from
the exercise of stock options and warrants.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 123 "Accounting for Stock Based Compensation"
("Statement 123"). Statement 123 is primarily a disclosure standard for the
Company because the Company will continue to account for employee stock options
under Accounting Principle Board Opinion No. 25. The Company plans to adopt
Statement 123 effective July 1, 1996.
The Company has no long-term commitments other than an annual lease obligation
of between $130,000 and $151,000 for its facilities through 1998, a minimum
annual royalty of $60,000 for a proprietary polymer material and consulting fees
of $396,000 payable to National Contracts Inc. over a two-year period, $193,000
which was paid through March 31, 1996.
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<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the three months ended March 31,
1996.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
LUTHER MEDICAL PRODUCTS, INC.
By: /s/David Rollo Date: May 09, 1996
------------------- ------------------
David Rollo
Chief Financial Officer
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 221,560
<SECURITIES> 1,500,608
<RECEIVABLES> 686,221
<ALLOWANCES> 0
<INVENTORY> 1,558,779
<CURRENT-ASSETS> 100,243
<PP&E> 1,148,239
<DEPRECIATION> 734,824
<TOTAL-ASSETS> 4,551,024
<CURRENT-LIABILITIES> 526,925
<BONDS> 0
0
0
<COMMON> 10,035,809
<OTHER-SE> (150,636)
<TOTAL-LIABILITY-AND-EQUITY> 4,551,024
<SALES> 2,702,217
<TOTAL-REVENUES> 2,702,217
<CGS> 1,512,580
<TOTAL-COSTS> 3,211,751
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,237
<INCOME-PRETAX> (386,576)
<INCOME-TAX> 0
<INCOME-CONTINUING> (386,576)
<DISCONTINUED> 0
<EXTRAORDINARY> 122,958
<CHANGES> 0
<NET-INCOME> (386,576)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> 0
</TABLE>
