<PAGE> 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, 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 0-10728
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 (949)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 11, 1998 were 3,444,632.
1
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GISH BIOMEDICAL, INC.
INDEX
<TABLE>
PART I. Financial Information Page
<S> <C>
Item 1: Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets
as of March 31, 1998 and June 30, 1997 3
Condensed Consolidated Statements of
Operations for the three and nine months
ended March 31, 1998 and 1997 4
Condensed Consolidated Statements of
Cash Flows for the nine months ended
March 31, 1998 and 1997 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 6: Exhibits and Reports on Form 8-K 10
</TABLE>
2
<PAGE> 3
GISH BIOMEDICAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 1998 June 30, 1997
-----------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,684,300 $ 3,977,100
Short-term investments 1,031,600 1,031,600
Accounts receivable, net 3,671,800 3,970,100
Inventories 8,353,100 6,698,700
Deferred tax assets 646,000 646,000
Prepaid expenses 662,500 380,000
- ---------------------------------------------------------------------------------------
Total current assets 17,049,300 16,703,500
Property and equipment, at cost 9,557,700 10,386,900
Less accumulated depreciation (6,018,400) (6,374,100)
- ---------------------------------------------------------------------------------------
Net property and equipment 3,539,300 4,012,800
Deferred tax assets 194,000 194,000
Other assets 112,900 117,700
- ---------------------------------------------------------------------------------------
$ 20,895,500 $ 21,028,000
=======================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,118,200 $ 729,400
Accrued compensation and related items 504,400 533,700
Other accrued liabilities 44,500 99,700
- ---------------------------------------------------------------------------------------
Total current liabilities 1,667,100 1,362,800
Deferred rent 322,900 317,300
Shareholders' equity:
Preferred stock, 2,250,000 shares
authorized; no shares outstanding
Common stock, no par value, 7,500,000
shares authorized, 3,444,632 shares issued
and outstanding (3,430,145 shares at June 30, 1997) 10,108,000 10,078,300
Note receivable - officer stock purchase (53,800) (35,000)
Retained earnings 8,851,300 9,304,600
- ---------------------------------------------------------------------------------------
Total shareholders' equity 18,905,500 19,347,900
- ---------------------------------------------------------------------------------------
$ 20,895,500 $ 21,028,000
=======================================================================================
</TABLE>
See accompanying notes
3
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GISH BIOMEDICAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
1998 1997 1998 1997
---------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 4,509,300 $ 5,132,800 $ 15,036,200 $ 15,786,300
Cost of sales 3,102,700 3,683,100 10,450,300 10,854,600
- -----------------------------------------------------------------------------------------------
Gross profit 1,406,600 1,449,700 4,585,900 4,931,700
Operating expenses
Selling and marketing 1,272,400 979,600 3,415,100 2,807,400
Research and development 241,900 309,000 770,300 1,015,500
General and administrative 458,500 466,200 1,347,700 1,438,000
- -----------------------------------------------------------------------------------------------
Total operating expenses 1,972,800 1,754,800 5,533,100 5,260,900
- -----------------------------------------------------------------------------------------------
Operating loss (566,200) (305,100) (947,200) (329,200)
Other income, net 56,100 49,600 204,000 161,000
- -----------------------------------------------------------------------------------------------
Loss before provision for taxes (510,100) (255,500) (743,200) (168,200)
Tax benefit (199,000) (99,600) (289,900) (65,600)
- -----------------------------------------------------------------------------------------------
Loss $ (311,100) $ (155,900) $ (453,300) $ (102,600)
===============================================================================================
Net loss per share basic and diluted $ (0.09) $ (0.05) $ (0.13) $ (0.03)
===============================================================================================
Average common and common
equivalent shares used for diluted
per share calculation 3,442,886 3,383,509 3,437,981 3,378,179
===============================================================================================
</TABLE>
See accompanying notes
4
<PAGE> 5
GISH BIOMEDICAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
--------------------------
<S> <C> <C>
Cash flows from operating activities:
Loss $ (453,300) $ (102,600)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 673,800 681,500
Amortization 18,100 173,200
Deferred rent 5,600 26,200
Changes in operating assets and liabilities (1,334,300) (186,100)
- ---------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (1,090,100) 592,200
- ---------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of property and equipment (200,300) (446,500)
Decrease in other assets (13,300) (19,200)
- ---------------------------------------------------------------------------------------------
Net cash used by investing activities (213,600) (465,700)
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Cash flows from financing activities:
Proceeds from stock options exercised 29,700 116,100
Payment (increase) on note receivable from officer (18,800) 20,000
- ---------------------------------------------------------------------------------------------
Net cash provided by financing activities 10,900 136,100
- ---------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (1,292,800) 262,600
Cash and cash equivalents at beginning of period 3,977,100 3,314,200
- ---------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 2,684,300 $ 3,576,800
=============================================================================================
</TABLE>
See accompanying notes
5
<PAGE> 6
GISH BIOMEDICAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(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 nine month periods ended March 31, 1998 and 1997, financial
position at March 31, 1998, and cash flows for the nine month periods ended
March 31, 1998 and 1997, 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 consolidated 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, 1997.
Statement of Cash Flows
Changes in operating assets and liabilities as shown in the condensed
consolidated statements of cash flows comprise:
<TABLE>
<CAPTION>
Nine months ended March 31, 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
(Increase) decrease in:
Accounts receivable $ 298,300 $ 395,600
Inventories (1,654,400) 153,300
Prepaid expenses (282,500) (124,600)
Prepaid taxes -- (295,200)
Increase (decrease) in:
Accounts payable 388,800 (277,400)
Accrued compensation (29,300) 3,100
Accrued liabilities (55,200) (40,900)
- -------------------------------------------------------------------------------
Changes in operating assets and liabilities $(1,334,300) $ (186,100)
===============================================================================
</TABLE>
The Company did not pay any Federal or State income taxes during
the nine month period ending March 31, 1998, and paid $213,100 in the nine month
period ending March 31, 1997.
6
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GISH BIOMEDICAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
(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>
March 31, 1998 June 30,1997
--------------------------------------
<S> <C> <C>
Raw materials $4,307,500 $3,529,800
Work in progress 1,036,800 1,225,800
Finished goods 3,008,800 1,943,100
-------------------------------------------------------------------------
$8,353,100 $6,698,700
=========================================================================
</TABLE>
3. Per share amounts
Per share amounts are based upon the weighted average numbers of common
shares outstanding during the period.
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.
7
<PAGE> 8
GISH BIOMEDICAL, INC
MARCH 31, 1998
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations: The Company acquired 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. Upon closing of the transaction April 17,
1996, the Company entered into a one-year lease for the building which CMD then
occupied. The Company ceased utilizing the facility during the quarter ended
December 31, 1996 and was released from its lease obligation in February 1997.
During the fourth quarter of fiscal 1997, due to the low level of infusion pump
sales and negative cash flow projections, the Company determined that the
unamortized goodwill of $1,824,200 associated with the purchase of the infusion
pump from CMD had little, if any future value. Accordingly, the Company recorded
an impairment of goodwill of $1.8 million in fiscal 1997 to write-off the
goodwill associated with this product line.
In September 1997, the Company was informed by two of its major distributors,
Specialized Medical Systems (SMS) and CardioVascular Concepts (CVC), that they
were electing to terminate their distributor relationships with the Company
effective December 1997, subsequently renegotiated to February 1, 1998.
For the fiscal year ended June 30, 1997 SMS and CVC represented 15% and 7% of
the Company's total sales, respectively. However, the two distributors only
accounted for 12% and 5%, respectively, of the Company's gross profit for the
same period.
Sales for the three and nine month periods ended March 31, 1998 decreased by
$623,500 or 12%, and $750,100 or 5%, respectively, over the corresponding
periods of fiscal 1997. The decreases in sales for the three and nine month
periods ended March 31, 1998 were primarily due to a timing difference created
by the depletion of the terminating distributors' inventories, which
approximated a sixty day supply, versus the hospitals' commencement of purchases
direct from the Company. The Company has engaged seven direct sales persons to
replace the two distributor sales organizations. The Company anticipates that
sales volumes in these territories will normalize during the fourth quarter of
fiscal 1998.
The conversion of these territories to direct sales representation has afforded
the Company better marketing opportunities with respect to its new oxygenator.
Gish had previously excluded these two territories from its marketing plan for
the launch of the Vision(TM) oxygenator because these distributors represented a
competing oxygenator product. The conversion of these territories to a direct
sales force has allowed the Company to sell the Vision(TM) in conjunction with
custom tubing packs, cardioplegia systems, cardiotomy reservoirs and oxygen
saturation monitors in these territories.
Cost of sales for the three month period ended March 31, 1998 was 69% of sales
as compared to 72% of sales for the corresponding period of fiscal 1997. The
decrease in cost of sales as a percentage of sales for the period is primarily
due to the decrease in the sales of lower margin products to the terminated
distributors as a proportion of total sales.
Cost of sales for the nine month period ended March 31, 1998 was 70% of sales as
compared to 69% of sales for the corresponding period of fiscal 1997. The
increase in cost of sales as a percentage of sales for the nine month period
ended March 31, 1998 was primarily due to declining average unit selling prices
of the Company's cardiovascular products.
Selling and marketing expenses for the three month period ended March 31, 1998
increased $292,800 or 30% as compared with the corresponding period of fiscal
1997. Selling and marketing expenses for the
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
nine month period ended March 31, 1998 increased $607,700 or 22% over the
corresponding period of fiscal 1997. These increases were primarily due to the
engagement of seven new direct salespersons for the territory relinquished by
the two terminated distributor sales organizations and increased marketing
activity for the Vision Oxygenator. The Company anticipates that its selling and
marketing expenses will increase to approximately $1,300,000 per quarter for the
remainder of the fiscal year.
Research and development expenses for the three month period ended March 31,
1998 decreased $67,100 or 22% compared to the corresponding period in fiscal
1997 and decreased $245,200 or 24% for the nine month period ended March 31,
1998 over the corresponding period of fiscal 1997. The decreases are due to the
completion of the Company's oxygenator development program and the elimination
of the engineering staff acquired with the CMD infusion pump. The Company is
actively engaged in several new product development projects, all of which will
continue to require expenditures approximating $275,000 per quarter for the
foreseeable future.
General and administrative expenses for the three and nine month periods ended
March 31, 1998 were 10% and 9% of sales respectively, compared with 9% of sales
for the corresponding periods of fiscal 1997. The increase in general and
administrative expenses as a percentage of sales for the three month period
ended March 31, 1998 is primarily due to the lower level of sales for the
period. The Company anticipates that general and administrative expenses should
approximate $450,000 per quarter for the remainder of the fiscal year.
The income tax benefit is based upon a combined federal and state effective tax
rate of 39% for all periods presented.
Quarterly loss 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.
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, 1998, the Company had $15,382,200
of working capital, an increase of $41,500 from working capital at June 30,
1997. The increase is primarily due to normal fluctuations in the operations of
the business.
For the period ended March 31, 1998 cash used in operations of $1,090,100 was
primarily due to increases in inventory. This increase was primarily due to
stocking higher levels of inventory related to the expansion of the Company's
direct sales force. For the period ended March 31, 1997 cash provided by
operations of $592,200 was primarily due to operations, offset by increased
prepaid expenses and payment of trade payables.
For the period ended March 31, 1998 cash used in investing activities of
$213,600 was primarily due to purchases of property and equipment for the
manufacture of new products and to increase manufacturing efficiency. For the
period ended March 31, 1997 cash used by investing activities of $465,700 was
primarily due to the purchase of property and equipment for use in the
manufacture of the Company's new oxygenator.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
For the period ended March 31, 1998 cash provided by financing activities of
$10,900 was due to proceeds from the exercise of stock options offset by an
increase in the note receivable from officer. For the period ended March 31,
1997 cash provided by financing activities of 136,100 was primarily due to
proceeds from the exercise of stock options.
The Company believes that cash generated from operations together with available
cash will be adequate to meet the Company's planned expenditures and liquidity
needs for fiscal 1998.
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
this 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
redesigned MyoManager or 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 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
forwarding-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.
27.1 Financial Data Schedule
10
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GISH BIOMEDICAL, INC.
MARCH 31, 1998
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
15th day of May 1998.
GISH BIOMEDICAL, INC.
Date: May 15, 1998 By: /s/ JEANNE MILLER
JEANNE MILLER
V.P. and Chief Financial Officer
11
<PAGE> 12
EXHIBIT INDEX
27.1 Financial Data Schedule
12
<TABLE> <S> <C>
<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> 2,684,300
<SECURITIES> 1,031,600
<RECEIVABLES> 3,671,800
<ALLOWANCES> 0
<INVENTORY> 8,353,100
<CURRENT-ASSETS> 17,049,300
<PP&E> 9,557,700
<DEPRECIATION> 6,018,400
<TOTAL-ASSETS> 20,895,500
<CURRENT-LIABILITIES> 1,667,100
<BONDS> 0
10,108,000
0
<COMMON> 0
<OTHER-SE> (53,800)
<TOTAL-LIABILITY-AND-EQUITY> 20,895,500
<SALES> 15,036,200
<TOTAL-REVENUES> 15,036,200
<CGS> 10,450,300
<TOTAL-COSTS> 10,450,300
<OTHER-EXPENSES> 5,533,100
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (743,200)
<INCOME-TAX> (289,900)
<INCOME-CONTINUING> (453,300)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (453,300)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> 0
</TABLE>
