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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 December 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 0-9570
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 January 31, 1998
<PAGE>
INDEX
LUTHER MEDICAL PRODUCTS, INC.
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<S> <C>
PART I - FINANCIAL INFORMATION
Condensed Balance Sheet - December 31, 1997 3
Condensed Statements of Operations - Three months ended December 31, 1997
and 1996, and six months ended December 31, 1997 and 1996 4
Condensed Statements of Cash Flows
Six months ended December 31, 1997 and 1996 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
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LUTHER MEDICAL PRODUCTS, INC.
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS DEC. 31, 1997
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 503,436
Accounts receivable - net 779,197
Inventories - Note C 2,041,343
Other current assets 52,525
-----------
TOTAL CURRENT ASSETS 3,376,501
-----------
PROPERTY AND EQUIPMENT 1,322,279
Less accumulated depreciation (996,432)
-----------
PROPERTY AND EQUIPMENT - NET 325,847
INTANGIBLE ASSETS - NET 72,900
OTHER ASSETS 10,199
-----------
$ 3,785,447
===========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 247,540
Accrued payroll and related expenses 221,932
Other accrued liabilities 110,277
-----------
TOTAL CURRENT LIABILITIES 579,749
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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 3,220,986 10,377,969
Note receivable from stockholders (19,001)
Accumulated deficit (7,153,270)
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NET STOCKHOLDERS' EQUITY 3,205,698
-----------
$ 3,785,447
===========
</TABLE>
See notes to condensed financial statements.
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LUTHER MEDICAL PRODUCTS, INC.
CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31 December 31
----------------------- -----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $1,393,365 $1,247,417 $2,865,208 $2,379,525
Costs and Expenses:
Cost of sales 836,224 724,154 1,640,518 1,388,578
Selling expense 285,717 287,974 558,491 613,745
General and administrative 510,755 448,508 695,872 637,088
Research and development 72,655 124,867 204,859 248,532
Depreciation and
amortization 52,779 62,106 105,558 122,212
---------- ---------- ---------- ----------
Total costs and expenses 1,758,130 1,647,609 3,205,298 3,010,155
Net loss $ (364,765) $ (400,192) $ (340,090) $ (630,630)
========== ========== ========== ==========
Weighted average number of
shares outstanding ('000) 3,222 3,189 3,242 3,184
Loss per share $ (.11) $ (.13) $ (.10) $ (.20)
</TABLE>
See notes to condensed financial statements.
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LUTHER MEDICAL PRODUCTS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(340,090) $ (630,630)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 105,558 122,212
Changes in operating assets and liabilities:
Accounts and other receivables 46,167 (16,614)
Inventories (197,918) (17,367)
Prepaid expenses and other assets 7,052 11,033
Accounts payable (44,020) (77,299)
Accrued payroll and related expenses 106,394 (9,937)
Other accrued liabilities 26,993 81,971
--------- ----------
Net cash used in operating activities (289,864) (536,631)
--------- ----------
INVESTING ACTIVITIES:
Purchases of property and equipment (75,572) (57,669)
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Net cash used in investing activities (75,572) (57,669)
--------- ----------
FINANCING ACTIVITIES:
Proceeds from sales of common stock 27,990 35,247
Proceeds from collection of notes receivable from
stockholder 28,908 -0-
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Net cash provided by financing activities 56,898 35,247
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Net decrease in cash (308,538) (559,053)
Cash, beginning of year 811,974 1,598,140
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Cash, at end of six months $ 503,436 $1,039,087
========= ==========
</TABLE>
See notes to condensed financial statements
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LUTHER MEDICAL PRODUCTS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 1997
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 six month period ending December 31,
1997 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 - LOSS PER SHARE
Loss per share is calculated using the weighted average number of common shares
and common share equivalents outstanding. Common stock equivalents are not
included because their effect would be anti-dilutive.
NOTE C - INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
Dec. 31, 1997
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<S> <C>
Raw material $ 706,329
Work in process 541,501
Finished goods 793,513
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$2,041,343
==========
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NOTE D - STOCKHOLDER'S EQUITY
During the quarter ended December 31, 1997, a certificate for 50,000 shares of
common stock was returned to the Company for cancellation reducing the number of
shares authorized, issued and outstanding. The aforementioned canceled shares
and a payment of $28,908 reduced the note receivable from stockholders to
$19,001 from $235,409 as of September 30, 1997.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of operations
Total consolidated revenues for the second quarter of fiscal year 1998 increased
12% to $1,393,000 from $1,247,000 for the prior year's quarter. Domestic
product sales contributed $1,052,000, a 9% increase from $966,000 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 $102,000. Sales
of the tracheostomy products increased to $74,000 from $6,000 in the previous
year's quarter. Product sales to international distributors were $149,000
compared to $161,000 during last year's quarter. Sales to Japan decreased by
$24,000, while sales to other international distributors increased by $12,000.
OEM sales were $179,000 for the quarter ended December 31, 1997, compared to
$100,000 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 $7,000. For the first six months of
fiscal year 1998, total consolidated revenues increased over last year's period
by 20% to $2,865,000.
Cost of revenues as a percentage of net sales for three months ended December
31, 1997, increased to 60% from 58% for the prior year's quarter, due to
slightly higher manufacturing costs. For the first six months of fiscal year
1998, cost of revenues as a percentage of net sales decreased to 57% from 58%.
Selling expenses decreased by $2,000 for the quarter and by $55,000 for the six
months ended December 31, 1997, as a result of terminating a marketing service
contract in November 1996. General and administrative expenses increased by
$62,000 for the quarter and by $59,000 for the six- month period, partially as a
result of incurring severance pay related to the founder of the Company and two
other employees. The total severance pay amounted to $182,000 during the
quarter, of which $151,000 was accrued. The majority of the severance pay was
due in accordance with an employment agreement with the founder of the Company,
who until recently was employed as the vice president of research and
development. In the quarter ended December 31, 1997, professional service fees
relating to certain activities designed to increase shareholder value were
$141,000, compared to consulting fees of $245,000, relative to the quality
assurance and regulatory affairs aspects of the Company, in the same quarter
last year. For the six-month period ending December 31, 1997, severance pay
was $197,000 and professional service fees amounted to $173,000. Such expenses
are not expected to be repeated.
Research and development expenses decreased by $52,000 for the quarter and by
$44,000 for the six-month period ending December 31, 1997, as the result of
reduced compensation and project expenses. Depreciation and amortization
expense decreased by $9,000 for the quarter and $17,000 for the six- month
period, due to reduced depreciation expenses.
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.
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Liquidity and Capital Resources
At December 31, 1997, the Company had working capital of $2.8 million and its
principal source of liquidity consisted of $503,000 in cash. Net cash used by
operating activities for the six months ended December 31, 1997, was $290,000,
mainly as the result of the net loss of $340,000. This loss was largely due to
the non-recurring severance pay and professional service fees, which combined
amounted to $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 $76,000. Financing activities
provided $57,000, resulting from sales of common stock for the exercise of stock
options and warrants. The Company has no long-term commitments other than an
annual lease obligation of $161,200 for its facilities through 1998.
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<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 December 31,
1997.
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: February 12, 1998
- ------------------- ------------------------
David Rollo
Chief Financial Officer
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> JUN-30-1998 JUN-30-1998
<PERIOD-END> DEC-31-1997 JUN-30-1998
<CASH> 503,436 0
<SECURITIES> 0 0
<RECEIVABLES> 779,197 0
<ALLOWANCES> 0 0
<INVENTORY> 2,041,343 0
<CURRENT-ASSETS> 3,376,501 0
<PP&E> 1,322,279 0
<DEPRECIATION> 996,432 0
<TOTAL-ASSETS> 3,785,447 0
<CURRENT-LIABILITIES> 579,749 0
<BONDS> 0 0
0 0
0 0
<COMMON> 10,377,969 0
<OTHER-SE> (19,001) 0
<TOTAL-LIABILITY-AND-EQUITY> 3,785,447 0
<SALES> 0 0
<TOTAL-REVENUES> 1,393,365 2,865,208
<CGS> 836,224 1,640,518
<TOTAL-COSTS> 1,758,130 3,205,298
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (364,765) (340,090)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (364,765) (340,090)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (364,765) (340,090)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> (.11) (.10)
</TABLE>
