<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 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 0-10728
-------
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 (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,
1998: 3,439,195
1
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GISH BIOMEDICAL, INC.
INDEX
PART I. Financial Information Page
Item 1: Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets
as of December 31, 1997 and June 30, 1997 3
Condensed Consolidated Statements of
Operations for the three and six months
ended December 31, 1997 and 1996 4
Condensed Consolidated Statements of
Cash Flows for the six months ended
December 31, 1997 and 1996 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 10
Item 6: Exhibits and Reports on Form 8-K 11
2
<PAGE> 3
GISH BIOMEDICAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997
------------------------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,436,900 $ 3,977,100
Short-term investments 1,031,600 1,031,600
Accounts receivable, net 3,661,900 3,970,100
Inventories 7,380,500 6,698,700
Deferred tax assets 646,000 646,000
Prepaid expenses 667,200 380,000
- ------------------------------------------------------------------------------------------------
Total current assets 16,824,100 16,703,500
Property and equipment, at cost 10,539,500 10,386,900
Less accumulated depreciation (6,816,500) (6,374,100)
- ------------------------------------------------------------------------------------------------
Net property and equipment 3,723,000 4,012,800
Deferred tax assets 194,000 194,000
Other assets 112,400 117,700
- ------------------------------------------------------------------------------------------------
$20,853,500 $21,028,000
================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 745,700 $ 729,400
Accrued compensation and related items 523,200 533,700
Other accrued liabilities 57,500 99,700
- ------------------------------------------------------------------------------------------------
Total current liabilities 1,326,400 1,362,800
Deferred rent 321,400 317,300
Shareholders' equity:
Preferred stock, 2,250,000 shares
authorized; no shares outstanding
Common stock, no par value, 7,500,000
shares authorized, 3,439,195 shares issued
and outstanding (3,430,145 shares at
June 30, 1997) 10,097,100 10,078,300
Note receivable - officer stock purchase (53,800) (35,000)
Retained earnings 9,162,400 9,304,600
- ------------------------------------------------------------------------------------------------
Total shareholders' equity 19,205,700 19,347,900
- ------------------------------------------------------------------------------------------------
$20,853,500 $21,028,000
================================================================================================
</TABLE>
See accompanying notes
3
<PAGE> 4
GISH BIOMEDICAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
1997 1996 1997 1996
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $5,209,200 $5,340,900 $10,526,900 $10,653,500
Cost of sales 3,712,100 3,658,400 7,347,600 7,171,500
- ----------------------------------------------------------------------------------------------------
Gross profit 1,497,100 1,682,500 3,179,300 3,482,000
Operating expenses
Selling and marketing 1,192,700 914,600 2,142,700 1,827,800
Research and development 291,000 359,300 528,400 706,500
General and administrative 469,400 479,900 889,200 971,800
- ----------------------------------------------------------------------------------------------------
Total operating expenses 1,953,100 1,753,800 3,560,300 3,506,100
- ----------------------------------------------------------------------------------------------------
Operating income (loss) (456,000) (71,300) (381,000) (24,100)
Other income, net 74,500 57,800 147,900 111,400
- ----------------------------------------------------------------------------------------------------
Income (loss) before provision
for taxes (381,500) (13,500) (233,100) 87,300
Provision (benefit) for taxes (148,800) (5,300) (90,900) 34,000
- ----------------------------------------------------------------------------------------------------
Net income (loss) $ (232,700) $ (8,200) $ (142,200) $ 53,300
====================================================================================================
Net income (loss) per share
basic and diluted $ (.07) $ -- $ (.04) $ .02
====================================================================================================
Average common and common
equivalent shares used for
diluted per share calculation 3,439,195 3,382,895 3,434,572 3,581,070
====================================================================================================
</TABLE>
See accompanying notes
4
<PAGE> 5
GISH BIOMEDICAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
----------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (142,200) $ 53,300
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 442,400 452,200
Amortization 12,100 114,300
Deferred rent 4,100 17,700
Changes in operating assets and liabilities (697,200) (272,200)
- ------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (380,800) 365,300
- ------------------------------------------------------------------------------------------------
Cash flows for investing activities:
Purchases of property and equipment (152,600) (330,600)
(Increase) decrease in other assets (6,800) (8,500)
- ------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (159,400) (339,100)
- ------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from stock options exercised 18,800 100,900
Payment (increase) on note receivable from officer (18,800) 20,000
- ------------------------------------------------------------------------------------------------
Net cash provided by financing activities -- 120,900
Net increase (decrease) in cash and cash equivalents (540,200) 147,100
Cash and cash equivalents at beginning of period 3,977,100 3,314,200
- ------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $3,436,900 $3,461,300
================================================================================================
</TABLE>
See accompanying notes
5
<PAGE> 6
GISH BIOMEDICAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(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, 1997 and 1996, financial position at December 31, 1997, and cash flows
for the six month periods ended December 31, 1997 and 1996, 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>
Six months ended December 31, 1997 1996
- ---------------------------------------------------------------------------------------
<S> <C> <C>
(Increase) decrease in:
Accounts receivable $ 308,200 $ 210,100
Inventories (681,800) 79,000
Prepaid expenses (287,200) (357,600)
Increase (decrease) in:
Accounts payable 16,300 (224,500)
Accrued compensation and related items (10,500) 56,900
Other accrued liabilities (42,200) (36,100)
- ---------------------------------------------------------------------------------------
Changes in operating assets and liabilities $(697,200) $(272,200)
=======================================================================================
</TABLE>
The Company did not pay any Federal and State income taxes during the six
month period ending December 31, 1997 and, $184,700 in the six month
period ending December 31, 1996.
6
<PAGE> 7
GISH BIOMEDICAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(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, 1997 June 30, 1997
------------------------------------
<S> <C> <C>
Raw materials $4,123,800 $3,529,800
Work in progress 995,400 1,225,800
Finished goods 2,261,300 1,943,100
- ------------------------------------------------------------------------------------------
$7,380,500 $6,698,700
==========================================================================================
</TABLE>
3. Earnings per share
------------------
Earnings per share is based on the weighted average number of common and,
where dilutive, 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 reflects additional dilution, from the assumed exercise of the
dilutive common stock options at the beginning of 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.
4. Acquisition
-----------
On September 13, 1995 the Company entered into an agreement to acquire the
assets and technology of Creative Medical Development, Inc. ("CMD") a
manufacturer of ambulatory infusion pumps and began to operate the
business under a management agreement whereby Gish assumed the risks and
rewards of the operation of the acquired assets until the closing date of
the acquisition. The agreement provided for a payment of $600,000 in cash
and $2,000,000 of Gish Biomedical, Inc. common stock for these assets. The
Company assumed ownership of the net assets and technology acquired from
CMD on April 17, 1996 and entered into a one-year lease for the building
CMD occupied. The Company also executed one-year employee agreements with
four key employees which included 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> 8
GISH BIOMEDICAL, INC
DECEMBER 31, 1997
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 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 and assumed management of the assets and the risks and rewards from
operation of the assets to be acquired. Accordingly, the Company has included
revenue and costs related to the product lines acquired for the period September
13, 1995 through December 31, 1996 in the Company's financial statements.
Additionally, the Company upon closing of the transaction April 17, 1996,
entered into a one-year lease for the building which CMD currently occupies. 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 has 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.
Sales for the three and six month periods ended December 31, 1997 decreased by
$131,700, or 3%, and $126,600 or 1%, respectively, over the corresponding
periods of fiscal 1997. The decreases in sales for the three and six month
periods ended December 31, 1997 were primarily due to declinining average unit
selling prices of the Company's cardiovascular products.
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.
The Company engaged, during the three month period ended December 31, 1997 seven
direct sales persons to replace the two distributor sales organizations.
The conversion of these territories to direct sales representation should afford
the Company better marketing opportunities with respect to its new oxygenator.
Gish had previously excluded these two territories from its initial marketing
plan for the launch of its new Vision(TM) oxygenator because these distributors
represented a competing oxygenator product. With the conversion of these
territories to a direct sales force, the Company will be able to sell the
Vision(TM) in conjunction with custom tubing packs, cardioplegia systems,
cardiotomy reservoirs and oxygen saturation monitors without geographic
limitations.
The anticipated short term impact of this transition scheduled to take place in
third quarter of fiscal 1998 will be to reduce sales for the third quarter by
approximately $800,000, or 15%. The $800,000 in sales is the equivalent of sixty
days of inventory formerly carried by these distributors. This reduction is a
one time timing difference which will eventually be offset by increased selling
prices in those territories over the next year. Consequently the Company
anticipates a loss in the third quarter.
Cost of sales for the three month period ended December 31, 1997 was 71% of
sales as compared to 68% of sales for the corresponding period of fiscal 1997.
Cost of sales for the six month period ended December 31, 1997 was 70% of sales
as compared to 67% of sales for the corresponding period of fiscal
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
1997. The increases in cost of sales as a percentage of sales for the three and
six month periods ended December 31, 1997 were due primarily to decreases in
sales is primarily due to declinining average unit selling prices of the
Company's cardiovascular products.
Selling and marketing expenses for the three month period ended December 31,
1997 increased $278,000 or 30% as compared with the corresponding period of
fiscal 1997. Selling and marketing expenses for the six month period ended
December 31, 1997 increased $314.800 or 17% over the corresponding period of
fiscal 1997. These increases were primarily due to the engagement of seven new
direct salespersons for the territory being relinquished by two terminating
distributor sales organizations. 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 December 31,
1997 decreased $68,300 or 19% compared to the corresponding period in fiscal
1997 and decreased $178,000 or 25% for the six month period ended December 31,
1997 over the corresponding periods of fiscal 1997. The decreases are due to the
completion of the Company's oxygenator development program and the elimination
of the engineering staff aquired 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 $350,000 per quarter for the
foreseeable future.
General and administrative expenses for the three month period ended December
31, 1997 remained constant at 9% of sales over the corresponding period of
fiscal 1997. General and administrative expenses for the six month period ended
December 31, 1997 decreased to 8% of sales over the corresponding period of
fiscal 1997. The decrease is due primarily to the cessation of amortization of
excess purchase price associated with the purchase of the assets of CMD of
approximately $50,000 per quarter. The Company anticipates that general and
administrative expenses should approximate $450,000 per quarter for the
remainder of the fiscal year.
The provision (benefit), for taxes is based upon a combined federal and state
effective tax rate of 39% for all periods presented.
Quarterly earnings (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 and the treasury
stock method for determining the number of outstanding options to be included as
common stock equivalents. These 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.
Liquidity and capital resources: At December 31, 1997, the Company had
$15,498,000 of working capital, an increase of $157,000 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 December 31, 1997 cash used in operations of $380,800 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 December 31, 1996 cash provided by
operations of $365,300 was primarily due to operating income offset by increased
prepaids and payment of trade payables.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
For the period ended December 31, 1997 cash used in investing activities of
$159,400 was primarily due to purchases of property and equipment for the
manufacturer of new products. For the period ended December 31, 1996 cash used
by investing activities of $339,100 was primarily due to the purchase of
property and equipment for use in the manufacture of the Company's new
oxygenator.
For the period ended December 31, 1997 no cash was provided by financing
activities. For the period ended December 31, 1996 cash provided by financing
activities of 120,900 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 4. Submission of Matters to a Vote of Security-Holders.
The Company held its annual meeting of Shareholders ("Annual Meeting") on
November 25, 1997. At the Annual Meeting the Shareholders voted upon the
following three proposals: (1) the election of all directors for the ensuing
year (proposal one); (2) the approval of the Gish Biomedical, Inc. 1997 Stock
Incentive Plan (proposal two) (3) the ratification of the selection of Ernst &
Young, LLP as the Company's auditors for 1998 (proposal three). The number of
votes cast for or withheld for each of the Directors were: Jack W. Brown
2,745,734 and 326,444; Richard A. Braun 2,739,734 and 332,112; Ray R. Coulter
2,736,934 and 334,912; Richard W. Dutrisac 2,747,302 and 324,544; James B.
Glavin 2,743,934 and 327,912; James S. Hagestad 2,746,952 and 324,894,
respectively. The number of votes cast for, against or withheld, as well as the
number of abstentions and broker non-votes for proposal two were: 1,633,628,
584,892, and 853,326 respectively. The number of votes cast for, against or
withheld, as well as the number of abstentions and broker non-votes for proposal
three were: 3,044,561, 16,050, and 11,235 respectively.
10
<PAGE> 11
PART II. OTHER INFORMATION (CONTINUED)
ITEM 6. Exhibits and reports on Form 8K.
(a) Exhibits
27.1 Financial Data Schedule
11
<PAGE> 12
GISH BIOMEDICAL, INC.
DECEMBER 31, 1997
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
16th day of February 1998.
GISH BIOMEDICAL, INC.
Date: February 16, 1998 By: JACK W. BROWN
-------------
JACK W. BROWN
Chairman and President
Date: February 16, 1998 By: JEANNE MILLER
-------------
JEANNE MILLER
V.P. and Chief Financial Officer
12
<PAGE> 13
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,436,900
<SECURITIES> 1,031,600
<RECEIVABLES> 3,661,900
<ALLOWANCES> 0
<INVENTORY> 7,380,500
<CURRENT-ASSETS> 16,824,100
<PP&E> 10,539,500
<DEPRECIATION> 6,816,500
<TOTAL-ASSETS> 20,853,500
<CURRENT-LIABILITIES> 1,326,400
<BONDS> 0
0
0
<COMMON> 10,097,100
<OTHER-SE> (53,800)
<TOTAL-LIABILITY-AND-EQUITY> 20,853,500
<SALES> 10,526,900
<TOTAL-REVENUES> 10,526,900
<CGS> 7,347,600
<TOTAL-COSTS> 7,347,600
<OTHER-EXPENSES> 3,560,300
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (233,100)
<INCOME-TAX> (90,900)
<INCOME-CONTINUING> (142,200)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (142,200)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
