<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, 1999 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 April 30, 1999, were 3,450,632.
1
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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
March 31, 1999 and June 30, 1998 3
Condensed Consolidated Statements of Operations
for the three and nine months ended March 31, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows
for the nine months ended March 31, 1999 and 1998 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 11
</TABLE>
2
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GISH BIOMEDICAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 1999 June 30, 1998
-------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,922,800 $ 3,497,100
Short-term investments 581,700 581,700
Accounts receivable, net 3,404,400 3,588,800
Income tax refund receivable 3,500 754,300
Inventories 7,125,800 7,609,900
Prepaid expenses 250,300 177,300
------------ ------------
Total current assets 15,288,500 16,209,100
Property and equipment, at cost 9,472,800 9,176,400
Less accumulated depreciation (6,769,400) (6,089,800)
------------ ------------
Net property and equipment 2,703,400 3,086,600
Other assets 163,400 149,400
------------ ------------
$ 18,155,300 $ 19,445,100
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 719,000 $ 1,100,700
Accrued compensation and related items 596,700 665,700
Other accrued liabilities 37,200 11,700
------------ ------------
Total current liabilities 1,352,900 1,778,100
Deferred rent 308,500 324,400
Shareholders' equity:
Preferred stock, 2,250,000 shares
authorized; no shares outstanding
Common stock, no par value, 7,500,000
shares authorized, 3,450,632 shares issued
and outstanding (3,444,632 shares at June 30, 1998) 10,130,100 10,113,800
Note receivable - officer stock purchase (53,800) (53,800)
Retained earnings 6,417,600 7,282,600
------------ ------------
Total shareholders' equity 16,493,900 17,342,600
------------ ------------
$ 18,155,300 $ 19,445,100
============ ============
</TABLE>
See accompanying notes
3
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GISH BIOMEDICAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
--------------------------------- ---------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 4,608,900 $ 4,509,300 $ 13,876,400 $ 15,036,200
Cost of sales 3,248,700 3,102,700 9,860,900 10,450,300
------------ ------------ ------------ ------------
Gross profit 1,360,200 1,406,600 4,015,500 4,585,900
Operating expenses
Selling and marketing 935,700 1,272,400 2,925,400 3,415,100
Research and development 330,600 241,900 895,800 770,300
General and administrative 397,800 458,500 1,206,100 1,347,700
------------ ------------ ------------ ------------
Total operating expenses 1,664,100 1,972,800 5,027,300 5,533,100
------------ ------------ ------------ ------------
Operating loss (303,900) (566,200) (1,011,800) (947,200)
Interest income 34,800 56,100 146,800 204,000
------------ ------------ ------------ ------------
Loss before provision for taxes (269,100) (510,100) (865,000) (743,200)
Benefit for taxes 105,000 199,000 337,000 289,900
Valuation allowance (105,000) -- (337,000) --
------------ ------------ ------------ ------------
Net loss $ (269,100) $ (311,100) $ (865,000) $ (453,300)
============ ============ ============ ============
Net loss per share basic and diluted $ (0.08) $ (0.09) $ (0.25) $ (0.13)
============ ============ ============ ============
Average common and common equivalent
shares used for basic and diluted
per share calculation 3,450,632 3,442,886 3,449,476 3,437,981
============ ============ ============ ============
</TABLE>
See accompanying notes
4
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GISH BIOMEDICAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (865,000) $ (453,300)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 679,600 673,800
Amortization 18,100 18,100
Deferred rent (15,900) 5,600
Changes in operating assets and liabilities 921,100 (1,334,300)
----------- -----------
Net cash provided by (used in) operating activities 737,900 (1,090,100)
----------- -----------
Cash flows for investing activities:
Purchases of property and equipment (296,400) (200,300)
Increase in other assets (32,100) (13,300)
----------- -----------
Net cash used by investing activities (328,500) (213,600)
----------- -----------
Cash flows from financing activities:
Proceeds from stock options exercised 16,300 29,700
Increase in note receivable from officer -- (18,800)
----------- -----------
Net cash provided by financing activities 16,300 10,900
----------- -----------
Net increase (decrease) in cash and cash equivalents 425,700 (1,292,800)
Cash and cash equivalents at beginning of period 3,497,100 3,977,100
----------- -----------
Cash and cash equivalents at end of period $ 3,922,800 $ 2,684,300
=========== ===========
</TABLE>
See accompanying notes
5
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GISH BIOMEDICAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
1. General
The condensed financial statements included herein have been prepared by
the Company, without audit, and include all adjustments which, in the
opinion of management, are necessary for a fair presentation of the
results of operations for the three and nine month periods ended March
31, 1999 and 1998, financial position at March 31, 1999 and cash flows
for the nine month periods ended March 31, 1999 and 1998, 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 Company 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 Company's consolidated
financial statements and the notes thereto included in the Company's
Annual Report filed with the Securities and Exchange Commission on Form
10-K for the year ended June 30, 1998.
Effective July 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," ("SFAS
130") which establishes standards for reporting and displaying
comprehensive income and its components in the financial statements. For
the three and nine month periods ended March 31, 1999 and 1998, the
Company did not have any components or other comprehensive income as
defined in SFAS 130.
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, 1999 1998
- --------------------------- ----------- -----------
<S> <C> <C>
(Increase) decrease in:
Accounts receivable $ 184,400 $ 298,300
Income tax refund receivable 750,800 --
Inventories 484,100 (1,654,400)
Prepaid expenses (73,000) (282,500)
Increase (decrease) in:
Accounts payable (381,700) 388,800
Accrued compensation (69,000) (29,300)
Accrued liabilities 25,500 (55,200)
----------- -----------
Changes in operating assets and liabilities $ 921,100 $(1,334,300)
=========== ===========
</TABLE>
The Company paid $11,200 in State income taxes during the nine month
period ending March 31, 1999, and did not pay any in the nine month
period ending March 31, 1998.
6
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GISH BIOMEDICAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(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, 1999 June 30,1998
-------------- ------------
<S> <C> <C>
Raw materials $3,205,500 $3,971,500
Work in progress 1,658,400 1,082,600
Finished goods 2,261,900 2,555,800
---------- ----------
$7,125,800 $7,609,900
========== ==========
</TABLE>
3. Loss per share
In February, 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. The adoption of this standard did not
have a material effect on previously reported per share amounts.
7
<PAGE> 8
GISH BIOMEDICAL, INC.
MARCH 31, 1999
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations:
Sales for the three month period ended March 31, 1999 increased by $99,600 or 2%
over the third quarter of fiscal 1998 and increased $93,700 or 2% over the three
month period ended December 31, 1998. Although these increases are modest, and
the period ended March 31, 1998 was adversely affected by the termination of two
significant distributors in February 1998, as discussed below, the Company
believes that it has achieved a fundamental increase in business activity
primarily due to the new Vision oxygenator. Sales of the Vision oxygenator were
$587,500 and $459,000 for the three month periods ended March 31, 1999 and
December 31, 1998 respectively as compared to $121,100 and $138,600 for the
corresponding periods of fiscal 1998.
In February 1998, the Company ceased doing business with two distributors of the
Company's products, Specialized Medical Systems (SMS) and CardioVascular
Concepts (CVC). Therefore, sales for the three and nine month periods ended
March 31, 1998 were adversely affected by 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.
During the second quarter of fiscal 1998, the Company engaged a direct sales
force of seven persons, which has subsequently been reduced to five, to replace
the two distributor sales organizations discussed above. The Company retained
approximately 72% and 52% of the sales previously attributable to SMS and CVC,
respectively, while increasing margins on such sales.
Sales for the nine month period ended March 31, 1999 decreased $1,159,800 or 8%
over the corresponding period of fiscal 1998. The decrease in sales was due
primarily to the loss of two original equipment manufacturing or (OEM) customers
who together accounted for sales of approximately $1,800,000 per year of private
labeled custom tubing packs. Additionally, sales were adversely affected by a
general industry-wide price decline for cardiovascular products, lost business
relating to the discontinued distributors discussed above and new European
Economic Community (EEC) regulations which resulted in the deferral of shipments
of some of the Company's products to the EEC. These decreases in sales were
offset, in part, by sales of the Vision(TM) oxygenator. Sales of the Vision(TM)
oxygenator for the nine months ended March 31, 1999 were $1,297,400 as compared
to $276,700 for the same period of fiscal 1998.
The Company expects further declines in its OEM business to result from the
merger of several of its existing OEM customers. The OEM portion of the
Company's business was 9% and 11 % of total sales for the three and nine month
periods ended March 31, 1999, respectively, as compared to 20% and, 17% for the
corresponding periods of fiscal 1998.
Cost of sales for the three and nine month periods ended March 31, 1999 was 70%
and 71%, respectively, of sales as compared to 69% and 70% of sales for the
corresponding period of fiscal 1998. The increase in cost of sales of 1% for the
three and nine month periods ended March 31, 1999 is primarily due to fixed
costs associated with excess capacity offset by cost reductions pursuant to the
Company's cost reduction program and a favorable product mix change.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Research and development expenses for the three and nine month periods ended
March 31, 1999 increased $88,700 and $125,500 or 37% and 16% compared to the
corresponding periods of fiscal 1998. The Company anticipates increasing its
investment in research and development over the next few fiscal quarters as it
expands its development staff and project list. The Company is actively engaged
in several new product development projects which will require expenditures
approximating $375,000 per quarter for the foreseeable future.
Selling and marketing expenses for the three and nine month periods ended March
31, 1999 decreased $336,700 and $489,700 or 26% and 14% as compared to the
corresponding periods of fiscal 1998. The decreases were due to a reduction of
sales and marketing staff and lower commissions resulting from lower sales
volumes. The Company anticipates that its selling and marketing expenses will be
approximately $1,000,000 per quarter for the remainder of the fiscal year.
General and administrative expenses decreased $60,700 and $141,600 or 13% and
11% for the three and nine month periods ended March 31, 1999, respectively. The
decreases were primarily due to cost cutting measures implemented by the Company
over the past twelve months, primarily lower insurance costs and expenditure
reductions with outside service providers. The Company anticipates that general
and administrative expenses should approximate $400,000 per quarter for the
remainder of the fiscal year.
The benefit for taxes is based upon a combined federal and state effective tax
rate of 39% for all periods presented entirely offset by a valuation allowance
against the Company's deferred tax assets of $105,000 and $337,000 established
in the three and nine month periods ended March 31, 1999. The valuation
allowance reflects the uncertain ability of the Company to utilize its net loss
carryforwards in future periods.
The effects of inflation have not been a significant factor in the results of
the Company's operations. The cardiovascular surgery market has been
experiencing downward competitive pricing pressures which are reflected in lower
sales dollars per unit sold.
Year 2000
The Year 2000 Problem in computers arises from the common computer industry
practice of using the last two digits of a year to represent a date in computer
software code and databases to enhance both processing time and save storage
space. Therefore, when dates in the year 2000 and beyond are indicated and
computer programs read date "00," the computer may default to the year "1900"
rather than the correct "2000". This could result in incorrect calculations,
faulty data and computer shutdowns, potentially impairing the conduct of
business.
The Company has reviewed its significant or critical computerized financial,
operations and facility management computer systems. These systems utilize
licensed third party software most of which has been converted so as to be year
2000 compliant at minimal cost to the Company.
The Company has also reviewed and analyzed all of its products which contain a
software component and has determined that none of these electronic products are
vulnerable to year 2000 issues.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
The Company has instituted a year 2000 compliance program for its significant
vendors and customers during fiscal 1999 to evaluate the risks and potential
impact on the Company of their non-compliance. Year 2000 compliance issues have
been addressed during the Company's routinely scheduled vendor audits and have
not represented a material expense. In the event that any significant vendor is
unable to provide reasonable assurances to the Company of its year 2000
compliance, the Company intends to evaluate and qualify alternate sources of
supply on a case-by-case basis.
Although the Company expects its internal systems are Year 2000 compliant as
described above, the Company intends to prepare a contingency plan that will
specify what it plans to do if it or its significant vendors are not Year 2000
compliant in a timely manner. The Company expects to prepare its contingency
plan in calendar year 1999 following the anticipated completion of its internal
remediation and the assessment of the compliance of the Company's significant
vendors. Even if these plans are completed on time and put in place, there can
be no assurance that such plans will be sufficient to address any third party
failures or that unresolved or undetected internal and external Year 2000 issues
will not have a material effect on the Company's business, financial condition
and results of operations.
Liquidity and capital resources:
For the nine month period ended March 31, 1999 cash provided by operations of
$737,900 was primarily due to changes in operating assets and liabilities and
non-cash expenses offset by cash used to fund unprofitable operations.
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 nine month periods ended March 31, 1999 and 1998, cash used in investing
activities of $328,500 and $213,600, respectively, were primarily due to
purchases of property and equipment for the manufacture of new products and to
improve operating efficiencies.
For the period ended March 31, 1999 cash provided by financing activities of
$16,300 was a result of proceeds from the exercise of stock options.
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.
As a result of the above matters, in the nine month period ended March 31, 1999
the Company's working capital decreased by $495,400.
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 1999.
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
10
<PAGE> 11
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
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
No current reports on Form 8-K were filed during the quarterly period
ended March 31, 1999.
11
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GISH BIOMEDICAL, INC.
MARCH 31, 1999
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
11th day of May 1999.
GISH BIOMEDICAL, INC.
Date: May 10, 1999 By: JEANNE MILLER
---------------------------------
JEANNE MILLER
V.P. and Chief Financial Officer
12
<PAGE> 13
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
27.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 3,922,800
<SECURITIES> 581,700
<RECEIVABLES> 3,404,400
<ALLOWANCES> 0
<INVENTORY> 7,125,800
<CURRENT-ASSETS> 15,288,500
<PP&E> 9,472,800
<DEPRECIATION> 6,769,400
<TOTAL-ASSETS> 18,155,300
<CURRENT-LIABILITIES> 1,352,900
<BONDS> 0
0
0
<COMMON> 10,130,100
<OTHER-SE> (53,800)
<TOTAL-LIABILITY-AND-EQUITY> 18,155,300
<SALES> 13,876,400
<TOTAL-REVENUES> 13,876,400
<CGS> 9,860,900
<TOTAL-COSTS> 9,860,900
<OTHER-EXPENSES> 5,027,300
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (865,000)
<INCOME-TAX> (337,000)
<INCOME-CONTINUING> (865,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (865,000)
<EPS-PRIMARY> (.25)
<EPS-DILUTED> (.25)
</TABLE>
