<PAGE>
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 December 31, 1995
------------------
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 92714
- --------------------------------------------------------------------------------
(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
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of January 31,
1996: 3,117,562
<PAGE>
GISH BIOMEDICAL, INC.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. Financial Information
Item 1: Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets
as of December 31, 1995 and June 30, 1995 3
Condensed Consolidated Statements of
Income for the three and six months
ended December 31, 1995 and 1994 4
Condensed Consolidated Statements of
Cash Flows for the six months ended
December 31, 1995 and 1994 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 4: Submission of Matters to a Vote of
Security-Holders 11
Item 6: Exhibits and Reports on Form 8-K 11
</TABLE>
2
<PAGE>
GISH BIOMEDICAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1995 1995
------------ -----------
<S> <C> <C>
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 1,292,700 $ 2,165,800
Short-term investments 3,190,000 5,147,900
Accounts receivable, net 3,844,300 3,342,200
Inventories 6,440,600 5,561,900
Deferred income tax assets 625,000 625,000
Prepaid expense 823,400 171,600
----------- -----------
Total current assets 16,216,100 17,014,400
Property and equipment, at cost 9,017,900 8,574,900
Less accumulated depreciation (5,049,900) (4,661,700)
----------- -----------
Net property and equipment 3,968,000 3,913,200
Note receivable 600,000 --
Other assets 74,300 116,700
----------- -----------
$20,858,300 $21,044,300
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,048,600 $ 944,300
Accrued compensation and related items 498,500 563,400
Accrued income taxes -- 570,900
Other accrued liabilities 394,800 128,600
----------- -----------
Total current liabilities 1,941,900 2,207,200
Deferred rent 255,600 227,900
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, 3,114,033 shares issued
and outstanding (3,101,129 shares at
June 30, 1995) 7,789,700 7,761,800
Note receivable - officer stock purchase (50,000) (60,000)
Retained earnings 10,916,600 10,902,900
----------- -----------
Total shareholders' equity 18,656,300 18,604,700
----------- -----------
$20,858,300 $21,044,300
=========== ===========
</TABLE>
See accompanying notes
3
<PAGE>
GISH BIOMEDICAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE AND SIX MONTHS ENDED DECEMBER 31, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
----------------------- --------------------------
1995 1994 1995 1994
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $5,780,600 $5,405,700 $11,051,800 $10,753,200
Cost of sales 3,765,300 3,414,800 7,198,600 6,904,900
---------- ---------- ----------- -----------
Gross profit 2,015,300 1,990,900 3,853,200 3,848,300
Operating expenses 1,675,800
Selling and marketing 980,100 597,800 697,200 1,189,200
Research and development 440,700 326,900 864,000 614,500
General and administrative 483,700 432,900 814,500
Distributor contract
termination fee -- -- 702,000 --
---------- ---------- ----------- -----------
Total operating expenses 1,904,500 1,357,600 3,939,000 2,618,200
---------- ---------- ----------- -----------
Operating income 110,800 633,300 (85,800) 1,230,100
Other income, net 49,400 43,900 108,200 97,600
---------- ---------- ----------- -----------
Income before provision
for taxes 160,200 677,200 22,400 1,327,700
Provision for taxes 62,400 264,100 8,700 517,800
---------- ---------- ----------- -----------
Net income $ 97,800 $ 413,100 $ 13,700 $ 809,900
========== ========== =========== ===========
Net income per share:
Primary $ 0.03 $ 0.13 $ -- $ 0.26
========== ========== =========== ===========
Fully diluted $ 0.03 $ 0.13 $ -- $ 0.25
========== ========== =========== ===========
Average common and
common equivalent shares:
Primary 3,363,938 3,230,947 3,368,169 3,151,422
========== ========== =========== ===========
Fully diluted 3,370,812 3,288,481 3,377,377 3,232,386
========== ========== =========== ===========
</TABLE>
See accompanying notes
4
<PAGE>
GISH BIOMEDICAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 13,700 $ 809,900
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 388,200 373,200
Deferred rent 27,700 37,600
Changes in operating assets and liabilities (2,297,900) (541,900)
----------- ----------
Net cash provided by (used in) operating activities (1,868,300) 678,800
----------- ----------
Cash flows for investing activities:
Sale of short-term investments 1,957,900 --
Note receivable (600,000) --
Purchases of property and equipment (443,000) (337,700)
Increase (decrease) in other assets 42,400 (18,000)
----------- ----------
Net cash provided by (used in) investing activities 957,300 (355,700)
----------- ----------
Cash flows from financing activities:
Proceeds from stock options exercised 27,900 261,000
Payment on note receivable from officer 10,000 --
----------- ----------
Net cash provided by financing activities 37,900 261,000
Net increase (decrease) in cash and cash equivalents (873,100) 584,100
Cash and cash equivalents at beginning of period 2,165,800 6,124,900
----------- ----------
Cash and cash equivalents at end of period $ 1,292,700 $6,709,000
=========== ==========
</TABLE>
See accompanying notes
5
<PAGE>
GISH BIOMEDICAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(UNAUDITED)
1. General
-------
The condensed financial statements included herein have been prepared by the
Registrant, without audit, and include all adjustments which are, in the
opinion of management, necessary for a fair presentation of the results of
operations for the three and six month periods ended December 31, 1995 and
1994, financial position at December 31, 1995, and cash flows for the six
month periods ended December 31, 1995 and 1994, 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:
<TABLE>
<CAPTION>
Six months ended December 31, 1995 1994
----------------------------- ----------- ---------
<S> <C> <C>
(Increase) decrease in:
Accounts receivable $ (502,100) $(442,200)
Inventories (878,700) (547,500)
Prepaid expenses (651,800) 80,500
Increase (decrease) in:
Accounts payable 104,300 303,700
Accrued compensation (64,900) (24,400)
Accrued income taxes (570,900) 93,800
Accrued liabilities 266,200 (5,800)
----------- ---------
Changes in operating assets and liabilities $(2,297,900) $(541,900)
=========== =========
</TABLE>
The Company paid $937,500 and $424,000 in Federal and State income taxes
during the six month periods ended December 31, 1995 and 1994, respectively.
6
<PAGE>
GISH BIOMEDICAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(UNAUDITED)
2. Inventories
-----------
Inventories are stated at the lower of cost (first-in, first out) or net
realizable value and are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1995 June 30, 1995
----------------- -------------
<S> <C> <C>
Raw materials $3,404,800 $2,936,700
Work in progress 934,700 1,317,900
Finished goods 2,101,100 1,307,300
---------- ----------
$6,440,600 $5,561,900
========== ==========
</TABLE>
3. 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 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 assumes the exercise
of the common stock options at the beginning of the period.
4. 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.
5. 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.
Accordingly, the Company has included revenue and costs related to the
product lines for the period September 13, 1995 through December 31, 1995 in
the Company's financial statements. Additionally, the Company will, upon
closing of the transaction, enter into a one-year lease for the building
which CMD currently occupies. The Company will also execute 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
<PAGE>
GISH BIOMEDICAL, INC.
DECEMBER 31, 1995
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 certain assets of Creative Medical Development, Inc. "CMD".
Accordingly, the Company has included revenue and costs related to the product
lines to be acquired for the period September 13, 1995 through December 31, 1995
in the Company's financial statements.
Sales for the three and six month periods ended December 31, 1995 increased by
$375,000 or 7% and $299,000 or 3% respectively over the corresponding periods of
fiscal 1995. Sales attributable to CMD's products were $272,000 for the period
ended December 31, 1995 with an approximate contribution to gross profit of
$82,000 or 30% of the related sales.
Cost of sales for the three month period ended December 31, 1995 was 65% of
sales as compared to 63% of sales for the corresponding period of fiscal 1995.
Cost of sales for the six month period ended December 31, 1995 was 65% of sales
as compared to 64% of sales for the corresponding period of fiscal 1995. The
increase in cost of sales for the periods was primarily due to a higher
proportion of lower margin products sold in fiscal 1996 as compared to the
corresponding periods of fiscal 1995.
Selling and marketing expenses in the three and six month periods ended December
31, 1995 increased $382,000 and $487,000 over the corresponding periods of
fiscal 1995. During the three month period ended December 31, 1995 the company
expensed $128,000 associated with CMD. The remaining increases of $254,000 and
$359,000 for the three and six month periods respectively were associated with
the Company's recent sales force expansion. The Company anticipates that its
selling and marketing expenses will continue to be approximately $850,000 to
$900,000 per quarter for the remainder of the fiscal year.
Research and development expenses for the three and six month periods ended
December 31, 1995 increased $114,000 and $83,000 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 period 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 $450,000 per
quarter for the foreseeable future.
General and administrative expenses remained relatively constant at 8% of sales
for all periods presented. During the period ended December 31, 1995 the
Company incurred costs of $90,000 related to CMD.
The Company also incurred a one-time expense of $702,000 during the first
quarter of 1996, which represents payments due to a former distributor as
compensation for the termination of its contract with the Company.
Interest income for the three and six month periods ended December 31, 1995
increased $6,000 and $11,000 respectively over the corresponding periods of
fiscal 1995. The increases in interest income are a result of investing in
higher yielding instruments with maturities in excess of 90 days but not
exceeding 180 days. It is the policy of the Company to only invest excess cash
in investment instruments such as certificates of deposit, treasury bills and
certain mutual funds.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
The provision for taxes is based upon an 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. 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.
In October 1995, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 123 "Accounting for Stock Based Compensation" which
must be implemented no later than fiscal 1997. The Company will elect not to
adopt the new valuation method of accounting for stock based compensation, but
will implement the new disclosure requirements.
Liquidity & Capital resources: At December 31, 1995, the Company had $18,900,000
in working capital, an increase of $79,000 from working capital at June 30,1995.
The increase is primarily due to normal fluctuations in the operations of the
business.
For the period ended December 31, 1995 cash used in operations of $1,868,000 was
primarily due to increases in inventories, the payment of accrued income taxes,
and increases in accounts receivable. Increases in inventories were primarily
due to acquisition of inventory for new product releases, such as the Myomanager
and the oxygenator. Increases in accounts receivable were due to increases in
sales and the timing of those sales in late December. For the period ended
December 31, 1994, cash provided by operations of $679,000 was primarily due to
profitable operations.
For the period ended December 31, 1995 cash provided by investing activities of
$957,000 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 December 31, 1994 cash used
by investing activities was primarily due to the purchase of property and
equipment.
For the periods ended December 31, 1995 and 1994 cash provided by financing
activities of $38,000 and $261,000 was primarily due to proceeds from the
exercise of stock options.
On September 12, 1995 the Company entered into an agreement to acquire the
assets and technology of CMD for $600,000 in cash and 240,240 shares of the
Company's common stock. Additionally, the Company will, upon closing of the
transaction, enter into a one-year lease for the building which CMD currently
occupies. The Company will also execute 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.
9
<PAGE>
GISH BIOMEDICAL, INC.
DECEMBER 31, 1995
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security-Holders.
The Company held its annual meeting of Shareholders ("Annual Meeting") on
November 21, 1995. At the Annual Meeting the Shareholders voted upon the
following two proposals: (1) the election of all directors for the ensuing year
(proposal one); (2) the ratification of the selection of Ernst & Young as the
Company's auditors for 1996 (proposal two). The number of votes cast for or
withheld for each of the Directors were: Jack W. Brown 2,740,606 and 15,632;
Richard A. Braun 2,740,606 and 15,632; Ray R. Coulter 2,740,606 and 15,632;
Richard W. Dutrisac 2,738,356 and 17,882; James B. Glavin 2,738,356 and 17,882;
James S. Hagestad 2,740,456 and 15,782, respectively. The number of votes cast
for, against or withheld, as well as the number of abstentions and broker non-
votes for proposals two were: 2,734,096, 8,850, and 13,292 respectively.
ITEM 6. Exhibits and reports on Form 8K.
None.
10
<PAGE>
GISH BIOMEDICAL, INC.
DECEMBER 31, 1995
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
12th day of February 1996.
GISH BIOMEDICAL, INC.
Date: February 12, 1996 By: /s/ JACK W. BROWN
----------------------------
JACK W. BROWN
Chairman and President
Date: February 12, 1996 By: /s/ JEANNE MILLER
----------------------------
JEANNE MILLER
V.P. and Chief Financial Officer
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,292,700
<SECURITIES> 3,190,000
<RECEIVABLES> 3,844,300
<ALLOWANCES> 0
<INVENTORY> 6,440,600
<CURRENT-ASSETS> 16,216,100
<PP&E> 9,017,900
<DEPRECIATION> 5,049,900
<TOTAL-ASSETS> 20,858,300
<CURRENT-LIABILITIES> 1,941,900
<BONDS> 0
0
0
<COMMON> 7,789,700
<OTHER-SE> (50,000)
<TOTAL-LIABILITY-AND-EQUITY> 20,858,300
<SALES> 11,051,800
<TOTAL-REVENUES> 11,051,800
<CGS> 7,198,600
<TOTAL-COSTS> 7,198,600
<OTHER-EXPENSES> 3,939,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 22,400
<INCOME-TAX> 8,700
<INCOME-CONTINUING> 13,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,700
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
