<PAGE>
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, 1998
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 92780
(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--3,237,629 shares as of April 30, 1998
<PAGE>
INDEX
LUTHER MEDICAL PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
<TABLE>
<S> <C>
Condensed Balance Sheet - March 31, 1998 3
Condensed Statements of Operations - Three months ended March 31, 1998 and 1997, and
nine months ended March 31, 1998 and 1997 4
Condensed Statements of Cash Flows
Nine months ended March 31, 1998 and 1997 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>
<PAGE>
LUTHER MEDICAL PRODUCTS, INC.
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS MARCH. 31,1998
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 517,452
Accounts receivable - net 677,573
Inventories - Note C 2,111,313
Other current assets 53,921
-----------
TOTAL CURRENT ASSETS 3,360,259
-----------
PROPERTY AND EQUIPMENT 1,343,790
Less accumulated depreciation (1,038,123)
-----------
PROPERTY AND EQUIPMENT - NET 305,667
INTANGIBLE ASSETS - NET 64,485
OTHER ASSETS 10,199
-----------
$ 3,740,610
===========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 300,380
Accrued payroll and related expenses 215,084
Other accrued liabilities 42,279
-----------
TOTAL CURRENT LIABILITIES 557,743
-----------
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 3,237,629 10,432,199
Note receivable from stockholders (54,230)
Accumulated deficit (7,195,102)
-----------
NET STOCKHOLDERS' EQUITY 3,182,867
-----------
$ 3,740,610
===========
</TABLE>
See notes to condensed financial statements.
-3-
<PAGE>
LUTHER MEDICAL PRODUCTS, INC.
CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended March 31 Nine Months Ended March 31
---------------------------- ---------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $1,321,469 $1,534,646 $4,186,677 $3,914,171
Costs and Expenses:
Cost of sales 793,483 851,736 2,434,001 2,240,314
Selling expense 273,003 254,504 831,494 868,249
General and administrative 182,946 210,235 878,818 847,323
Research and development 63,764 129,938 268,623 378,470
Depreciation and amortization 50,106 55,773 155,664 177,985
---------- ---------- ---------- ----------
Total costs and expenses 1,363,302 1,502,186 4,568,600 4,512,341
Net income (loss) $ (41,833) $ 32,460 $ (381,923) $ (598,170)
========== ========== ========== ==========
Weighted average number of
shares outstanding ('000) 3,235 3,397 3,240 3,277
Net income (loss) per share $ (.01) $ .01 $ (.12) $ (.18)
</TABLE>
See notes to condensed financial statements.
-4-
<PAGE>
LUTHER MEDICAL PRODUCTS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31
<TABLE>
<CAPTION>
1998 1997
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(381,923) $ (598,170)
Adjustments to reconcile net loss to net cash
used by operating activities :
Depreciation and amortization 155,664 177,985
Changes in operating assets and liabilities:
Accounts and other receivables 147,791 (34,816)
Inventories (267,888) (182,068)
Prepaid expenses and other assets 5,656 22,725
Accounts payable 8,820 140,753
Accrued payroll and related expenses 99,546 21,780
Other accrued liabilities (41,005) (29,941)
--------- ----------
Net cash used in operating activities (273,339) (481,752)
--------- ----------
INVESTING ACTIVITIES:
Purchases of property and equipment (97,083) (81,246)
--------- ----------
Net cash used in investing activities (97,083) (81,246)
--------- ----------
FINANCING ACTIVITIES:
Proceeds from sales of common stock 27,990 45,976
Proceeds from collection of notes receivable from stockholder 47,910 0
--------- ----------
Net cash provided by financing activities 75,900 45,976
--------- ----------
Net decrease in cash (294,522) (517,022)
Cash, beginning of year 811,974 1,598,141
--------- ----------
Cash, at end of nine months $ 517,452 $1,081,119
========= ==========
</TABLE>
See notes to condensed financial statements
-5-
<PAGE>
LUTHER MEDICAL PRODUCTS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1998
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,
1998 are not necessarily indicative of the results that may be expected for the
year ended June 30, 1998. 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 - PER SHARE AMOUNTS
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, Earnings per Share. Statement 128 replaced the
previously reported primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants, and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. All earnings per share amounts for
all periods have been presented, and where necessary, restated to conform to
the Statement 128 requirements.
NOTE C - INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
March. 31, 1998
---------------
<S> <C>
Raw material $ 667,352
Work in process 566,500
Finished goods 877,461
----------
$2,111,313
==========
</TABLE>
-6-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of operations
Total consolidated revenues for the third quarter of fiscal year 1998 decreased
14% to $1,321,000 from $1,535,000 for the prior year's quarter. Domestic
product sales contributed $1,091,000, a 2% increase from $1,067,000 for the same
period last year, of which Long Term Peripheral Catheter sales, a new product
line introduced in the second quarter of fiscal year 1997, were $125,000. Sales
of the tracheostomy products increased to $122,000 from $38,000 in the previous
year's quarter. Product sales to international distributors were $110,000
compared to $385,000 during last year's quarter. Sales to Japan decreased by
$252,000 and sales to other international distributors decreased by $23,000.
The Japanese distributor has been experiencing competition from a product
manufactured in Japan. The Company has redesigned its product for the Japanese
market and it has been submitted by the distributor to the Japanese Ministry of
Health (`MOH"). Approval to import the redesigned product is expected by July
1998. The Japanese distributor has not been restocking current inventory in
anticipation of the MOH approval of the new product and expects to return to
historical purchasing levels later this year. OEM sales were $112,000 for the
quarter ended March 31, 1998, compared to $68,000 for the prior year's quarter.
The increase is due to resuming shipment of products to a major OEM customer, as
a result of completing their product modification. Other income decreased by
$5,000. For the first nine months of fiscal year 1998, total consolidated
revenues increased over last year's period by 7% to $4,187,000.
Cost of revenues as a percentage of net sales for three months ended March 31,
1998, increased to 60% from 56% for the prior year's quarter, due to slightly
higher manufacturing costs. For the first nine months of fiscal year 1998, cost
of revenues as a percentage of net sales increased slightly to 58% from 57%.
Selling expenses increased by $19,000 for the quarter and decreased by $37,000
for the nine-month period. The increase for the three months ended March 31,
1998 is due to extensive product training programs to support the Company's
distributor network, while the decrease for the nine-month period is mainly
attributable to the termination of a marketing service contract in November
1996. General and administrative expenses decreased by $27,000 for the quarter
and increased by $31,000 for the nine-month period. The decrease for the three-
month period is primarily due to reduced legal expenses. The increase for the
nine-month period resulted from severance pay to the founder of the Company and
two other employees which was partially offset by a reduction of consulting
fees, legal fees and shareholder expenses.
Research and development expenses decreased by $66,000 for the quarter and by
$110,000 for the nine-month period ending March 31, 1998, as the result of
reduced compensation and project expenses. Depreciation and amortization
expense decreased by $6,000 for the quarter and by $22,000 for the nine-month
period.
Impact of Year 2000
Some of the Company's older accounting programs were written using two digits
rather than four digits to define the applicable year. As a result, those
computer programs have time-sensitive software that recognize a date using "00"
as the year 1900 rather than the year 2000. This could cause a system failure
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities. The Company has completed an assessment
and will have to modify or replace portions of its software so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter. The total Year 2000 project cost is estimated at approximately
$25,000, which will be capitalized upon acquisition of the appropriate hardware
and software.
-7-
<PAGE>
Liquidity and Capital Resources
At March 31, 1998, the Company had working capital of $2.8 million and its
principal source of liquidity consisted of $517,000 in cash. Net cash used by
operating activities for the nine months ended March 31, 1998, was $273,000,
mainly as the result of the net loss of $382,000 and an inventory increase of
$268,000. The loss was largely due to the non-recurring severance pay and
professional service fees, which amounted to an aggregate of $370,000 and were
incurred during the six month-period ending December 31, 1997. With respect to
investing activities, the Company made purchases of property and equipment
totaling $97,000. Financing activities provided $76,000, resulting from sales
of common stock for the exercise of stock options and warrants and collection of
notes receivables from shareholders . The Company has no long-term commitments
other than a lease obligation of $123,200 for its facilities.
-8-
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports filed on Form 8-K, for the three months ended March 31,
1998.
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 11, 1998
- ------------------------ -------------------
David Rollo
Chief Financial Officer
-9-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 517,452
<SECURITIES> 0
<RECEIVABLES> 677,573
<ALLOWANCES> 0
<INVENTORY> 2,111,313
<CURRENT-ASSETS> 3,360,259
<PP&E> 1,343,790
<DEPRECIATION> 1,038,123
<TOTAL-ASSETS> 3,740,610
<CURRENT-LIABILITIES> 557,743
<BONDS> 0
0
0
<COMMON> 10,432,199
<OTHER-SE> (54,230)
<TOTAL-LIABILITY-AND-EQUITY> 3,740,610
<SALES> 0
<TOTAL-REVENUES> 1,321,469
<CGS> 793,483
<TOTAL-COSTS> 1,363,302
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (41,833)
<INCOME-TAX> 0
<INCOME-CONTINUING> (41,833)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (41,833)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> 0
</TABLE>
