SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 For the fiscal year ended June 30, 2000
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
Commission file number 0-10728
GISH BIOMEDICAL, INC.
(Name of small business issuer in its charter)
CALIFORNIA 95-3046028
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)
2681 Kelvin Avenue
Irvine, California 92614
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (949)756-5485
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
No par value common stock
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 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
--- ---
Check if there is no disclosure of delinquent filers in response to item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-K. [ ]
Issuer's revenues for the fiscal year ended June 30, 2000 were approximately
$17,741,000.
As of September 11, 2000 there were 3,592,145 shares of common stock
outstanding. The aggregate market value of the common stock held by
non-affiliates of the issuer, based upon the closing price on the NASDAQ
National Market was approximately $5.6 million.
Transitional Small Business Disclosure Format Yes No X
--- ---
DOCUMENTS INCORPORATED BY REFERENCE
Document Where Incorporated
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None.
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GISH BIOMEDICAL, INC.
INDEX
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<S> <C>
Part I: Page
Item 1. Description of Business 3
Item 2. Description of Properties 16
Item 3. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Part II:
Item 5. Market for Common Equity and Related Stockholder Matters 17
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations 17
Item 7. Financial Statements 21
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 37
Part III:
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section16(a) of the Exchange Act 38
Item 10. Executive Compensation 40
Item 11. Security Ownership of Certain Beneficial Owners and Management 44
Item 12. Certain Relationships and Related Transactions 45
Part IV:
Item 13. Exhibits, Financial Statement Schedules and Reports on Form 8-K 46
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-KSB contains forward looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Actual results could differ materially from
those projected in the forward-looking statements as a result of a number of
important factors. For a discussion of important factors that could affect the
Company's results, please refer to "Risk Factors" below.
GENERAL
Gish Biomedical, Inc. ("Gish" or the "Company"), a California corporation, was
founded in 1976 to design, produce and market innovative specialty surgical
devices. The Company develops and markets its innovative and unique devices for
various applications within the medical community. The Company operates in one
industry segment, the manufacture of medical devices, which are marketed
primarily through direct sales representatives domestically and through
international distributors. All of Gish's products are single use disposable
products or have a disposable component. The Company's primary markets include
products for use in cardiac surgery, myocardial management, infusion therapy,
and post operative blood salvage.
ACQUISITIONS
In April 1996, Gish acquired infusion pump technology and related assets from
Creative Medical Development, Inc. ("CMD").
PRODUCTS
Following is a brief description of Gish's present principal products.
Custom Cardiovascular Tubing Systems - During open-heart surgery, the patient's
blood is diverted from the heart through sterile plastic tubing and various
other devices to an oxygenator device which oxygenates the blood before it is
returned to the patient. Each hospital performing open-heart surgery specifies
the components to be included in its custom tubing sets, based on the particular
needs of its surgical team. The complexity of the sets varies from simple tubing
systems to all-inclusive operating packs. The packs usually include blood
filters, gas filters, reservoirs used to collect blood lost during surgery and
other components. Gish produces custom tubing sets using clear MediflexTM
tubing. Such components are assembled in the Gish clean room, sterilized and
then shipped either to the hospital or to one of Gish's specialty distributors
which service such hospitals. The Company also assembles custom tubing sets for
several competitive medical device manufacturers under private label agreements.
Custom tubing set sales were approximately $4,985,000 and $6,360,000 in fiscal
2000 and 1999, respectively (equal to 28% and 34% of net sales, respectively, in
each of such years).
Arterial Filters - The arterial filter is the last device the blood passes
through in the cardiovascular bypass circuit as it is being returned to the
patient. The purpose of the filter is to remove gaseous micro emboli and debris,
which are generated by the oxygenation system, from the patient's blood.
The Company introduced its first arterial filters in 1985. The Company's first
design contained a safety bypass loop incorporated into the filter housing. The
Company received FDA approval to market an improved design which became
available for sale during the second quarter of fiscal 1994.
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Cardiotomy Reservoirs - Cardiac suction is a technique employed in open-heart
surgery to recover shed blood in the chest cavity and return it to the patient.
The use of this technique reduces the requirements for whole blood replacement
from donor sources, thereby reducing the risk of blood compatibility problems
and blood-borne viral diseases such as AIDS and hepatitis.
Gish's cardiotomy reservoir systems consist of a polycarbonate reservoir,
defoaming and filtration cartridge, and mounting bracket. This enables the
perfusion team to recover high volumes of shed blood, then defoam and filter it
prior to returning it to the patient's circulatory system.
In addition to the cardiotomy reservoirs' use in the operating room, Gish has
developed several systems which allow the cardiotomy reservoir to be used as a
pleural drainage or autotransfusion system during recovery.
Cardiotomy sales were approximately $825,000 and $1,291,000 for fiscal years
ended June 30, 2000 and 1999 respectively (equal to 5% and 7% of net sales,
respectively, in such years).
Vision(TM) Oxygenator - An oxygenator enables gas exchange of oxygen and carbon
dioxide and also regulates the temperature of the patient's blood.
As a life sustaining device used during open-heart surgery, the oxygenator is a
key component of the bypass circuit. Vision is assembled in Gish's clean rooms
using state of the art equipment and biocompatible materials, and then each unit
is leak tested before shipment.
Vision's gas transfer performance is excellent, dependable and capable of
maintaining the oxygen demands of patients of all sizes for periods of up to six
hours.
Vision's unique air separation channel utilizes an arterial outlet pressure
gradient and the natural buoyancy of air to minimize the passage of gaseous
emboli towards the patient. Unwanted emboli are safely purged for safe venting
back to the reservoir. Through studies at an independent testing facility,
Vision's air handling abilities were proven superior to competitive devices.
Vision also eliminates common difficulties associated with other oxygenators.
The blood ports are oriented on one side, gas and water on the other to reduce
contamination. Different sized gas inlet and outlet ports resolve any gas line
confusion. Angled water ports allow Vision's heat exchanger to drain, minimizing
the creation of water puddles on the floor. During long pump runs, a fluid dam
and evacuation port divert condensation away from the gas scavenge port.
Finally, a protective rib below the blood inlet port prevents any contact
between the port and the floor.
The Company's Vision oxygenator was sold in selected accounts both domestically
and internationally for the first half of fiscal 1998. The Company made its full
market release of this product for sale in January 1998. The Company believes
that the Vision oxygenator's superior air handling capabilities should provide
the Company with a competitive advantage in the oxygenator market place.
Oxygenator sales were approximately $3,642,000 and $2,263,000 in fiscal 2000 and
1999, respectively (equal to 21% and 12% of net sales, respectively, in such
years).
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Venous Reservoirs - A venous reservoir is a device used to pool, filter and
defoam blood prior to its introduction to the oxygenator. Gish offers a variety
of venous reservoirs, including some which incorporate the capacity for
autologous transfusion post surgically. The Company also has several products
which incorporate the functions of cardiotomy, venous reservoir, post surgical
blood collection and blood reinfusion devices. This functional bundling is
usually cost effective for the hospital.
CAPVRF45 - The Company's CAPVRF45 hardshell venous reservoir combines a 360(0)
rotational, top-entry 1/2" inlet for unrestricted venous drainage and a high
performance cardiotomy compartment with six sucker inlet ports to handle all of
the blood coming from the surgical field. Gish has incorporated the advantages
of the depth filter in its cardiotomies into the CAPVRF45 for reduced hold-up
volumes, making more blood available to the patient. With an operating capacity
of 4500 ml, the CAPVRF45 also has the capacity to handle high blood volume
procedures such as valve replacements and second surgeries.
The CAPVRF45 is a perioperative device, capable of operating in both the
Operating Room and Recovery Room. Following surgery, through a simple conversion
process, the CAPVRF45 collects blood shed from the chest cavity and removes
unwanted debris before the filtered blood is reinfused back into the patient.
Blood recovery and autotransfusion through the CAPVRF45's closed system limits
hospital staff exposure to potential blood infections. Recovered blood may be
reinfused continuously, intermittently, or not at all, in support of all
patient's religious beliefs, including Jehovah's witnesses. The CAPVRF45's dual
role means fewer homologous blood products are needed, further reducing surgical
costs and improving patient safety.
With an estimated 80% of the market using hardshell reservoirs, the combination
of the Vision oxygenator and the hardshell CAPVRF45 reservoir provides the
Company with the products to effectively meet the needs of the 400,000
open-heart procedures performed in the U.S. and the 600,000 procedures performed
worldwide annually.
Cardioplegia Delivery Systems - Cardioplegia encompasses several techniques
employed in open-heart surgery to preserve, protect and manage the heart tissue.
The technique typically involves the use of a chilled solution which is infused
into the heart through the coronary arteries to cool the heart and reduce heart
activity and metabolism. However, there are many different techniques utilized
depending on the physician and patient needs. The use of these techniques
significantly reduces damage to heart tissue during surgery, enhances
restoration of heart function and helps return the patient to a normal heartbeat
when the surgical procedure is complete.
Gish has developed a complete line of cardioplegia delivery systems. Multiple
systems are required for this technique due to varying physician preferences.
Gish's original offerings for this procedure were a series of reservoirs with a
recirculation valve (CPS) and a series of cooling coils (CCS series). The
Company has since developed a line of cardioplegia systems and heat exchangers
designed to utilize a blood and potassium mixture and allow the surgeon to
quickly change the temperature delivered to the patient.
Cardioplegia system sales were approximately $2,615,000 and $3,147,000 for
fiscal years 2000 and 1999, respectively (equal to 15% and 17% of net sales,
respectively, in each of such years).
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Oxygen Saturation Monitor - In February 1992, the Company introduced a digital
blood saturation monitor for open-heart surgery, the StatSat(TM). The StatSat is
an electronic device which measures the oxygen content of the patient's blood
during surgery. These readings are taken continuously and the StatSat(TM) plots
the course of the blood oxygen saturation during the surgery. Although the
StatSat is reusable, it uses a disposable sensor for each surgery which is only
provided by Gish in its custom tubing systems.
Critical Care Central Venous Access Catheters and Ports - Gish's Hemed(TM)
central venous access catheter systems have applications in hyper-alimentation,
chemotherapy, and long-term vascular access. These long-term indwelling
catheters are surgically implanted to provide direct access to the central
venous system for high protein intravenous solutions needed by patients having
nonfunctional digestive systems and for rapid dilution and dispersion of highly
concentrated drug administration in chemotherapy for cancer.
The product line includes sterile single, dual and triple lumen catheters and
accessories sold in kits. The triple lumen catheters which permits three
substances to be administered through the same catheter was introduced during
fiscal 1997. In 1993, the Company introduced an enhancement to its Hemed
catheter line, the CathCap(TM). The CathCap reduces the risk of infection at the
injection site by continually bathing the injection cap in an antimicrobial
solution between injections.
Gish has enhanced the Hemed line with the VasPort(R) Implantable Ports and the
VasTack(R) Needle Support System. The VasPort consists of a silicone catheter
with an implantable injection port, allowing vascular access through small
needle sticks with the skin acting as a natural barrier to infection. This
access method eliminates the need for a cumbersome external catheter. The
Company introduced a detachable port/catheter system in fiscal 1994. The Company
also introduced a dual VasPort in July 1996 to meet the needs of patients
requiring multiple infusions. The VasTack consists of a specially designed
needle and positioning system for use with the VasPort. The needle extends the
life of the implanted injection port and the positioning system gives the
nursing staff a sure, safe method for accessing the VasPort.
The Hemed VasPort and VasTack are alternative vascular access products used for
extended long-term infusion management and are designed to complement the Hemed
catheter lines. The VasPort is a device implanted entirely under the skin and
consists of a small reservoir with a diaphragm and catheter. The VasPort is
accessed by the VasTack, a small patented non-coring needle system, which
penetrates the skin and the diaphragm of the VasPort reservoir. Drugs are
readily infused through the VasTack, into the reservoir and then into the
catheter. When the infusion is complete the VasTack is removed and the skin acts
as a natural barrier against infection. Single and double reservoir VasPorts are
available in both titanium and lightweight engineering plastics.
Catheter and port sales were approximately $1,050,000 and $980,000 for fiscal
year 2000 and 1999, respectively (equal to 6% and 5% of net sales, respectively,
in each of such years).
Infusion Pumps - The acquisition of the EZ Flow infusion pump technology from
CMD in fiscal 1996 was intended to complement the Company's line of vascular
access devices. In fiscal 1997 the Company evaluated the future revenue stream
of the product and concluded that the goodwill had been impaired. In fiscal 1998
the pump was involved in an incident which precipitated a complete recall of the
product and the cessation of all infusion pump sales.
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During the fiscal year ended June 30, 1998 the Company decided to redesign the
infusion pump without utilizing the technology acquired from CMD. Consequently,
in the fourth quarter of fiscal 1998, the Company wrote off all remaining
assets, principally inventory, property and equipment associated with the CMD
infusion pump. In September, 1999 the Company discontinued development of the
new infusion pump for strategic and economic reasons.
Infusion pump disposable sales were $67,000 and $151,000 for fiscal years 2000
and 1999, respectively (equal to less than 1% of net sales in each year). There
were no infusion pump hardware sales in other fiscal year.
Orthofuser -The patented Orthofuser(TM) is designed for post-operative use in
orthopedic surgeries such as hip and knee replacements and provides for the safe
recovery and transfusion of the patient's own blood. This product is well suited
for orthopedic procedures, as it is portable and incorporates its own internal
vacuum source. Salvaging and reusing as little as 500 cc's of blood post
surgically may be enough to avoid the use of donor blood in these types of
surgeries.
Orthofuser sales were approximately $1,414,000 and $1,405,000 for fiscal years
2000 and 1999, respectively (equal to 8% and 8% of net sales respectively, in
each of such years).
Government Regulations
Gish's products are subject to the Federal Food, Drug and Cosmetic Act (the
"Act") and regulations issued thereunder. The Act is administered by the Federal
Food and Drug Administration ("FDA"), which has authority to regulate the
marketing, manufacturing, labeling, packaging and distribution of products
subject to the Act. In addition, there are requirements under other federal laws
and under state, local and foreign statutes which apply to the manufacturing and
marketing of Gish products. Gish operates a quality system certified to ISO9001,
a standard for quality recognized worldwide. In addition, Gish has been found in
compliance with the European Economic Community ("EEC") Medical Device
Directive, which equivocates to portions of the United States FDA Current Good
Manufacturing Practices ("CGMP") Quality System Regulations. This allows Gish to
export and distribute its products with free movement within the European
Community.
Following the enactment of the Medical Device Amendments of 1976 to the Act,
("Amendments") the FDA classified medical devices in commercial distribution at
the time of enactment into one of three classes --Class I, II, or III. This
classification is based on the controls necessary to reasonably ensure the
safety and effectiveness of medical devices. Class I devices are those whose
safety and effectiveness can reasonably be ensured through general controls,
such as labeling, the pre-market notification ("510(k)") process, and adherence
to FDA-mandated good manufacturing practices ("GMP") and Quality System
Regulations. Class II devices are those whose safety and effectiveness can
reasonably be ensured through the use of general controls together with special
controls, such as performance standards, post-market surveillance, patient
registries, and FDA guidelines. Generally, Class III devices are devices that
must receive pre-market approval by the FDA to ensure their safety and
effectiveness. They are typically life-sustaining, life-supporting, or
implantable devices, and also include most devices that were not on the market
before May 28, 1976 and for which the FDA has not made a finding of substantial
equivalence based upon a 510(k).
If a manufacturer or distributor of medical devices can establish to the FDA's
satisfaction that a new device is substantially equivalent to a legally marketed
Class I or Class II medical device or to a Class III device for which the FDA
has not yet required pre-market approval, the manufacturer or distributor
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may market the device. In the 510(k), a manufacturer or distributor makes a
claim of substantial equivalence, which the FDA may require to be supported by
various types of information showing that the device is as safe and effective
for its intended use as the legally marketed predicate device. Following
submission of the 510(k), the manufacturer or distributor may not place the new
device into commercial distribution until an order is issued by the FDA finding
the new device to be substantially equivalent.
Gish is registered as a medical device manufacturer with the FDA and state
agencies, such as the California Department of Health Services ("CDHS") and
files a listing of its products semi-annually. The Company is inspected
periodically by both the FDA and the CDHS for compliance with the FDA's GMP and
other requirements including the medical device reporting regulation and various
requirements for labeling and promotion. The FDA Quality System Regulations
("QSR"), which became effective June 1, 1997, no longer limit control to
manufacturing and post market controls, but specify requirements during design
(Design Control), manufacturing, and servicing as well. Much of the new QSR is
based on the ISO9001 Quality Standard, and is, as such in harmony with the
thrust towards world harmonization of medical device requirements. The FDA's GMP
regulation requires, among other things, that (i) the manufacturing process be
regulated and controlled by the use of written procedures, and (ii) the ability
to produce devices which meet the manufacturer's specifications be validated by
extensive and detailed testing of every aspect of the process. The medical
device reporting regulation requires that the device manufacturer provide
information to the FDA on deaths or serious injuries alleged to have been
associated with the use of its marketed devices, as well as product malfunctions
that would likely cause or contribute to a death or serious injury if the
malfunction were to recur. Changes in existing requirements or interpretations
(on which regulations heavily depend) or adoption of new requirements or
policies could adversely affect the ability of the Company to comply with
regulatory requirements. Failure to comply with regulatory requirements could
have a material adverse effect on Gish's business.
Gish believes all of its present products are Class I, Class II, and Class III
products and that it is in compliance in all material respects with all
applicable performance standards as well as good manufacturing practices, record
keeping and reporting requirements in the production and distribution of such
products. Most of Gish's products have been determined by the FDA to be devices
substantially similar to devices marketed by others prior to May 28, 1976, the
effective date of the Amendments, and marketing of them has been authorized
pending the classification by the FDA of such products. Gish does not anticipate
any significant difficulty or material cost increases in complying with
applicable performance standards if any such products were to be classified in
Class II by the FDA. If the FDA were to classify use of Gish's cardiovascular or
catheter products as Class III products, pre-marketing clinical testing and
evaluation would be required in order to obtain FDA approval for the sale of
such products.
Regulations under the Act permit export of products which comply with the laws
of the country to which they are exported. The Company relies upon its foreign
distributors for the necessary certifications and compliances in their
countries, except in the EEC where the Medical Device Directive prescriptively
defines requirements.
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Research and Development
Gish is actively engaged in many research and development programs. The
objectives of these programs are to develop new products in the areas of the
medical device industry in which it is already engaged, to enhance its
competitive position and to develop new products for other medical device
markets. Gish's research and development projects are principally focused on
enhancements, line extensions and manufacturing cost improvements for both its
cardiovascular and Hemed product lines.
Gish's research and development expenditures for the years ended June 30, 2000
and 1999 were $1,180,000 and $1,276,000, respectively.
Marketing and Distribution
The Company introduced the Vision Oxygenator to those domestic geographic
regions which are represented by direct salespersons and distributors who did
not market a competitive oxygenator in the third quarter of fiscal 1998.
Internationally the Company is represented by specialty medical distributors in
over fifty countries around the world. The Company's international sales
represented 20% of total sales in fiscal 2000 (18% in fiscal 1999).
International sales of the Company's new Vision Oxygenator commenced in
September 1997.
Gish has increased its marketing support of its distribution system over the
past few years through increased sales management personnel, technical support,
trade advertising, collateral materials and participation in medical
conferences. The Company has not experienced, and does not expect, sales of the
Company's products to be subject to seasonality in any material respects.
Components and Parts
Gish purchases components for its various products from vendors who sell such
components generally to the medical device industry. Most components for the
Company's proprietary products are manufactured from tooling owned by the
Company. Other components are manufactured by outside suppliers to the Company's
specifications.
Certain components of the Company's custom tubing sets are purchased from
competitors. Gish has not experienced difficulty in obtaining such components in
the past and believes adequate sources of supply for such items are available on
reasonable terms.
Patents and License Agreements
Gish has been issued or has patents pending on several of its products. There
can be no assurance that any patents issued would afford the Company adequate
protection against competitors which sell similar inventions or devices. There
also can be no assurance that the Company's patents will not be infringed upon
or designed around by others. However, the Company intends to vigorously enforce
all patents it has been issued.
Gish is obligated to pay a royalty equal to 3% of the net sales of its reservoir
style cardioplegia delivery systems to Dr. Bradley Harlan.
Gish is obligated under agreements entered into in 1988 to pay a royalty equal
to 4% of the net sales of its thoracostomy kit, the Thoraguide, and to pay
royalties equal to 5% of the net sales of its dual use uterine monitoring
catheter, AmCath, to Dr. Neil Semrad and to Dr. Levy and Dr. Rosenwieg
respectively.
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Gish is obligated to pay a royalty equal to 5% of the net sales of the Robiscek
dual channel suction wand, RBS-2 to Dr. Francis Robiscek.
The Company's aggregate royalty expenses were $31,000 and $41,000 for the years
ended June 30, 2000 and 1999, respectively.
Working Capital and Financing of Operations
Gish finances operations primarily through cash flow generated by sales of
Gish's products. Gish seeks to increase its sales by developing new products,
increasing market share for existing products and acquiring new products.
Gish entered into a Commercial Pledge Agreement, (the "Agreement") with City
National Bank in June, 2000, providing for loans up to $1,000,000 in the form of
short term advances under a revolving credit arrangement. The Agreement is
subject to expiration on September 30, 2001. Advances to Gish under the
Agreement bear interest at the bank's prime rate. City National Bank has been
granted a security interest in Gish's fixed income investment portfolio to
secure repayment of amounts borrowed by Gish under the Agreement.
Under the Agreement, amounts will not be advanced to Gish if, as a result of
such disbursement, the total outstanding principal amount secured would exceed
the total advance value of the collateral.
At June 30, 2000 the Company had no funds borrowed under the revolving credit
line, nor did the Company utilize the line during fiscal 2000.
Customer Information
The Company performs ongoing credit evaluations and maintains allowances for
potential credit losses. As of June 30, 2000 the Company believes it has no
significant concentrations of credit risk.
No single customer comprised 10% or more of the Company's net sales in fiscal
2000 or fiscal 1999.
BACKLOG
almost all of Gish's products are repetitive purchase, single use disposable
products, which are shipped shortly after receipt of a customer's purchase
order. Therefore, Gish believes that the Company and its distributors generally
maintain an adequate finished goods inventory to fulfill the customer's needs on
demand. Accordingly, Gish believes that the backlog of orders at any given point
in time is not indicative of the Company's future level of sales.
Contracts
Gish has no contracts with customers where cancellation or renegotiation would
have a material impact on the Company's sales or profit margins.
Competition
The market for medical devices of the type sold by the Company is extremely
competitive. The Company believes that product differentiation and performance,
client service, reliability, cost and ease of use are important competitive
considerations in the markets in which it competes. Most of Gish's competitors
are larger and possess greater financial and other resources than Gish. Gish has
approximately five competitors within each of the hospital markets in which it
competes. No one competitor is a dominant force in this market. Gish believes it
has achieved its position in the marketplace for its present principal products
by means of superior design, quality, and service, and Gish intends to continue
to utilize these means of competing.
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Environmental Compliance
The Company's direct expenditures for environmental compliance were not material
in the two most recent fiscal years. However, certain costs of manufacturing
have increased due to environmental regulations placed upon suppliers of
components and services.
Employees
As of June 30, 2000, Gish had 179 full-time employees, of whom 14 were engaged
in field sales and sales management, 132 were engaged in manufacturing and the
remainder in marketing, research and development, administrative and executive
positions. The Company believes that its relationship with its employees is
excellent. None of the Company's employees are represented by a labor union.
International Operations
Sales to foreign customers, primarily in Europe and Asia, were approximately
$3,518,000 and $3,434,000 in the years ended June 30, 2000 and 1999,
respectively (equal to 20% and 18% of net sales, respectively, in each of such
years). Operating profits as a percentage of sales on foreign sales approximate
operating profits on domestic sales. All international transactions are
conducted in U.S. dollars, thus reducing the risk of currency fluctuations.
Gish does not have any facilities, property or other assets, excepting sales
representative supplies, located in any geographic area other than California,
where its offices, manufacturing and warehousing premises are located.
RISK FACTORS
The following factors should be considered carefully in evaluating the Company
and its business:
This Report on Form 10-KSB 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 in this paragraph and
below, 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) failure of the Company's Vision oxygenator to meet
sales expectations, (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 uncertain success of the Company's
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
forward-looking statements contained herein, which speak solely as of the date
of this Form 10KSB.
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Competition
The medical device industry in general, and the market for products for use
in cardiovascular surgery in particular, is intensely competitive and
characterized by rapid innovation and technological advances. Product
differentiation and performance, client service, reliability, cost and ease of
use are important competitive considerations in the medical device industry. The
Company expects that the current high levels of competition and technological
change in the medical device industry in general, and the cardiovascular surgery
products industry in particular, will continue to increase. Several companies
offer devices which compete with devices manufactured by the Company, including
Jostra-Bentley, COBE Cardiovascular, a division of Sorin Biomedica, Terumo,
Medtronic, Inc., Lifestream International, Inc. and Stryker Surgical. Most of
the Company's competitors have longer operating histories and significantly
greater financial, technical, research, marketing, sales, distribution and other
resources than the Company. In addition, the Company's competitors have greater
name recognition than the Company and frequently offer discounts as a
competitive tactic. There can be no assurance that the Company's current
competitors or potential future competitors will not succeed in developing or
marketing technologies and products that are more effective or commercially
attractive than those that have been and are being developed by the Company or
that would render the Company's technologies and products obsolete or
noncompetitive, or that such companies will not succeed in obtaining regulatory
approval for, introducing or commercializing any such products prior to the
Company. Any of the above competitive developments could have a material adverse
effect on the Company's business, financial condition and results of operations.
Risk of Declining Average Selling Prices
The Company is currently facing and may continue to face increasing pricing
pressures from its current and future competitors, especially from competitors
in the cardiovascular surgery products market. As a result of such pressures,
the Company has been forced to lower the prices of certain of its products in
order to maintain market share. There can be no assurance that the Company will
be able to maintain its market share in the cardiovascular surgery products
market in the face of continuing pricing pressures. Over time, the average
selling prices for the Company's products may continue to decline as the markets
for these products continues to become more competitive. Any material reduction
in the prices for the Company's products would negatively affect the Company's
gross margin and would require the Company to increase unit sales in order to
maintain net sales.
Dependence on International Sales
International net revenues accounted for approximately 20% and 18% of the
Company's total net sales in fiscal 2000 and 1999, respectively. International
sales are subject to a number of inherent risks, including the impact of
possible recessionary environments in economies outside the U.S., unexpected
changes in regulatory requirements and fluctuations in exchange rates of local
currencies in markets where the Company sells its products. While the Company
denominates all of its international sales in U.S. dollars, a relative
strengthening in the U.S. dollar would increase the effective cost of the
Company's products to international customers. The foregoing factors could
reduce international sales of the Company's products and could have a material
adverse effect on the Company's business, financial condition and results of
operations.
12
<PAGE>
Risk of Market Withdrawal or Product Recall
Complex medical devices, such as the Company's products, can experience
performance problems in the field that require review and possible corrective
action by the manufacturer. Similar to many other medical device manufacturers,
the Company periodically receives reports from users of its products relating to
performance difficulties they have encountered. The Company expects that it will
continue to receive customer reports regarding the performance and use of its
products. Furthermore, there can be no assurance that component failures,
manufacturing errors or design defects that could result in an unsafe condition
or injury to the patient will not occur. If any such failures or defects were
deemed serious, the Company could be required to withdraw or recall products,
which could result in significant costs to the Company. The Company has in the
past undertaken a voluntary recall of its ambulatory infusion pumps. There can
be no assurance that market withdrawals or product recalls will not occur in the
future. Any future product problems could result in market withdrawals or
recalls of products, which could have a material adverse affect on the Company's
business, financial condition or results of operations.
There can be no assurance that the Company will be able to successfully take
corrective actions if required, nor can there be any assurance that any such
corrective actions will not force the Company to incur significant costs. In
addition, there can be no assurance that the current recall or any future
recalls will not cause the Company to face increasing scrutiny from its
customers, which could cause the Company to lose market share or incur
substantial costs in order to maintain existing market share.
Risks Associated with Extensive Government Regulation
The manufacture and sale of medical devices, including products currently sold
by the Company and the Company's other potential products, are subject to
extensive regulation by numerous governmental authorities in the United States,
principally the FDA, and corresponding state agencies, such as the California
Department of Health Services ("CDHS"). In order for the Company to market its
products for clinical use in the United States, the Company must obtain
clearance from the FDA of a 510(k) premarket notification or approval of a more
extensive submission known as a premarket approval ("PMA") application. In
addition, certain material changes to medical devices also are subject to FDA
review and clearance or approval. The process of obtaining FDA and other
required regulatory clearances and approvals is lengthy, expensive and
uncertain, frequently requiring from one to several years from the date of FDA
submission if premarket clearance or approval is obtained at all. Securing FDA
clearances and approvals may require the submission of extensive clinical data
and supporting information to the FDA.
Sales of medical devices outside of the United States are subject to
international regulatory requirements that vary from country to country. The
time required to obtain approval for sales internationally may be longer or
shorter than that required for FDA clearance or approval, and the requirements
may differ. The Company has entered into distribution agreements for the foreign
distribution of its products. These agreements generally require that the
foreign distributor is responsible for obtaining all necessary regulatory
approvals in order to allow sales of the Company's products in a particular
country. There can be no assurance that the Company's foreign distributors will
be able to obtain approval in a particular country for any future products of
the Company.
13
<PAGE>
Regulatory clearances or approvals, if granted, may include significant
limitations on the indicated uses for which the product may be marketed. In
addition, to obtain such clearances or approvals, the FDA and certain foreign
regulatory authorities impose numerous other requirements with which medical
device manufacturers must comply. FDA enforcement policy strictly prohibits the
marketing of cleared or approved medical devices for uncleared or unapproved
uses. In addition, product clearances or approvals could be withdrawn for
failure to comply with regulatory standards or the occurrence of unforeseen
problems following the initial marketing. The Company will be required to adhere
to applicable FDA regulations regarding good manufacturing practices ("GMP") and
similar regulations in other countries, which include testing, control, and
documentation requirements. Ongoing compliance with GMP and other applicable
regulatory requirements will be monitored through periodic inspections by
federal and state agencies, including FDA and CDHS, and by comparable agencies
in other countries. Failure to comply with applicable regulatory requirements,
including marketing products for unapproved uses, could result in, among other
things, warning letters, fines, injunctions, civil penalties, recall or seizure
of products, total or partial suspension of production, refusal of the
government to grant premarket clearance or premarket approval for devices,
withdrawal of clearances or approvals and criminal prosecution. Changes in
existing regulations or adoption of new governmental regulations or policies
could prevent or delay regulatory approval of the Company's products.
There can be no assurance that the Company will be able to obtain FDA 510(k)
clearance or PMA approval for its products under development or other necessary
regulatory approvals or clearances on a timely basis or at all. Delays in
receipt of or failure to receive U.S. or foreign clearances or approvals, the
loss of previously obtained clearances or approvals, or failure to comply with
existing or future regulatory requirements would have a material adverse effect
on the Company's business, financial condition and results of operations.
Product Liability Risk; Limited Insurance Coverage
The manufacture and sale of medical products entail significant risk of product
liability claims. The Company maintains insurance with respect to such claims,
but there can be no assurance that the Company's existing annual insurance
coverage limits of $5 million per occurrence and $5 million in the aggregate
will be adequate to protect the Company from any liabilities it might incur in
connection with the clinical trials or sales of its products. In addition, the
Company may require increased product liability coverage if and when products
under development are successfully commercialized. Such insurance is expensive
and in the future may not be available on acceptable terms, or at all. A
successful product liability claim or series of claims brought against the
Company in excess of its insurance coverage, could have a material adverse
effect on the Company's business, financial condition and results of operations.
Risks Relating to New Product Development
The Company's success is dependent in part on the design and development of new
products in the medical device industry. The product development process is
time-consuming and costly, and there can be no assurance that product
development will be successfully completed, that necessary regulatory clearances
or approvals will be granted by the FDA on a timely basis, or at all, or that
the potential products will achieve market acceptance. Failure by the Company to
develop, obtain necessary regulatory clearances or approvals for, or
successfully market potential new products could have a material adverse effect
on the Company's business, financial condition and results of operations.
14
<PAGE>
Dependence Upon Key Personnel
The Company is dependent upon a number of key management and technical
personnel. The loss of the services of one or more key employees would have a
material adverse effect on the Company. The Company's success will also depend
on its ability to attract and retain additional highly qualified management and
technical personnel. The Company faces intense competition for qualified
personnel, many of whom are often subject to competing employment offers, and
there can be no assurance that the Company will be able to attract and retain
such personnel.
Risks Associated with Healthcare Reform Proposals
Political, economic and regulatory influences are subjecting the healthcare
industry in the United States to fundamental change. Potential reforms proposed
over the last several years have included mandated basic healthcare benefits,
controls on healthcare spending through limitations on the growth of private
health insurance premiums and Medicare and Medicaid spending, the creation of
large insurance purchasing groups and fundamental changes in the healthcare
delivery system. In addition, some states in which the Company operates are also
considering various healthcare reform proposals. The Company anticipates that
federal and state governments will continue to review and assess alternative
healthcare delivery systems and payment methodologies and public debate of these
issues will likely continue in the future. Due to uncertainties regarding the
ultimate features of reform initiatives and their enactment and implementation,
the Company cannot predict which, if any, of such reform proposals will be
adopted, when they may be adopted or what impact they may have on the Company,
and there can be no assurance that the adoption of reform proposals will not
have a material adverse effect on the Company's business, operating results or
financial condition. In addition, the actual announcement of reform proposals
and the investment community's reaction to such proposals, as well as
announcements by competitors and third-party payors of their strategies to
respond to such initiatives, could produce volatility in the trading and market
price of the Common Stock.
Risks Associated with Environmental Compliance
In the ordinary course of its manufacturing process, the Company uses solvents
and isopropyl alcohol which are stored on-site. The waste created by the use of
these products is transported off-site on a regular basis by a state-registered
waste hauler. Although the Company is not aware of any claim involving violation
of environmental or occupational safety and health laws and regulations, there
can be no assurance that such a claim may not arise in the future, which may
have a material adverse effect on the Company.
Adverse Effects of Preferred Stock on Rights of Common Stock
The Board of Directors of the Company is authorized to issue, from time to time,
without any action on the part of the Company's shareholders, up to 2,250,000
shares of Preferred Stock in one or more series, with such relative rights,
preferences, privileges and restrictions as are determined by the Board of
Directors at the time of issuance. Accordingly, the Board of Directors is
empowered to issue Preferred Stock with dividend, liquidation, conversion,
voting or other rights which could adversely affect the voting power or other
rights of the holders of Common Stock. In the event of such issuance, the
Preferred Stock could have the effect of discouraging, delaying or preventing a
change in control of the Company.
15
<PAGE>
Volatility of Stock Price; No Dividends
The trading price of the Common Stock has been and is likely to continue to be
subject to significant fluctuations in response to variations in quarterly
operating results, the gain or loss of significant contracts, changes in
management, announcements of technological innovations or new products by the
Company or its competitors, legislative or regulatory changes, general trends in
the industry and other events and factors. In addition, the stock market has
frequently experienced extreme price and volume fluctuations which have affected
the market price for many companies for reasons unrelated to the operating
performance of these companies. These broad market fluctuations may adversely
affect the market price of the Company's Common Stock. The Company currently
intends to retain any future earnings for use in its business and does not
anticipate any cash dividends in the future.
ITEM 2. DESCRIPTION OF PROPERTY
Gish's office and manufacturing facilities are located in Irvine, California in
a building containing approximately 150,000 square feet of space under a lease
which expires in December, 2002. Within this facility Gish has constructed six
clean rooms for the assembly of its products which meet all requirements under
applicable federal and state good manufacturing practice regulations.
The Company believes the Irvine facility is more than adequate for the next two
years, but is currently in negotiation with the lessor of the facility to
terminate its lease and relocate to a smaller facility. The Lessor of the Irvine
facility is offering financial incentives to the Company in exchange for the
Company's early termination of its lease. The Company's intent is to obtain
sufficient financial incentives from its current Lessor to cover the costs
associated with relocation. If the Company relocates to a new facility, it will
be required to write-off abandoned unamortized leasehold improvements related to
the Company's present facility. The unamortized book value of such leasehold
improvements is approximately $720,000 at June 30, 2000.
Additionally, if the Company relocates to a new facility, it will recognize a
benefit for unamortized deferred rent expense, as disclosed in Note 10 to the
financial statements. Deferred rent expense at June 30, 2000 is $251,000.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings other than ordinary routine
litigation incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the security holders during the fourth quarter of
the year ended June 30, 2000.
16
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the NASDAQ National Market System under
the symbol GISH. The table below sets forth the high and low per share closing
prices during each quarter of the last two fiscal years as reported on the
NASDAQ National Market System.
Fiscal 2000 Fiscal 1999
Quarter ended High Low High Low
-------------------------------------------------------------------------------
September 30 $ 3.50 $ 2.63 $ 3.06 $ 2.50
December 31 3.75 2.13 3.38 2.06
March 31 5.69 2.75 3.13 2.31
June 30 3.00 2.00 3.13 2.63
The Company has not previously paid any dividends on its Common Stock and does
not anticipate that it will do so in the foreseeable future. As of September 11,
2000, there were approximately 240 holders of record of the Company's Common
Stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS:
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 has included revenue
and costs related to the product lines from September 13, 1995 in the Company's
financial statements. The Company assumed ownership of the net assets and
technology acquired from CMD on April 17, 1996.
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 $1,824,000 associated with the purchase of the infusion
pump from CMD had little, if any future value. Accordingly, the Company recorded
a charge to earnings to write off the unamortized balance.
During the fiscal year ended June 30, 1998 the infusion pump acquired from CMD
was involved in an incident which precipitated the Company's decision to
voluntarily cease sales of the infusion pump. The Company also decided to
redesign the pump not utilizing the technology acquired from CMD. Consequently
the Company wrote off all remaining assets, principally inventory, property and
equipment, associated with the CMD infusion pump at June 30, 1998.
17
<PAGE>
In September 1999 the Company concluded that its ambulatory pump business was
not viable due to the large number of competitive models available and the
downward trend in market pricing of both hardware and disposable pump products.
Consequently, the Company discontinued development of a new infusion pump then
under development, and recognized a $429,000 charge related to the
discontinuance of the infusion pump business. For the convenience of the
existing customer base using EZ Flow products, the Company continued to sell
pump disposables on a limited basis through March 2000.
Year Ended June 30, 2000 vs. Year Ended June 30, 1999
The Company incurred a net loss of $2,847,000, or $.81 basic and diluted net
loss per share, for the fiscal year ended June 30, 2000, compared to a net loss
of $1,691,000, or $.49 basic and diluted net loss per share, for the fiscal year
ended June 30, 1999.
The increased loss relative to the prior year is partly due to non-recurring
charges of $1,034,000 which were reported in the quarter ended September 30,
1999. The charges included $429,000 related to the discontinuance of the
Company's infusion pump business, $294,000 in severance and costs related to the
resignation of the Company's chief executive officer, obsolete inventory
write-offs of $83,000 for custom tubing packs, $133,000 write-down of field
inventories, and $95,000 in severance from the Company's reduction in workforce
in September 1999. The $95,000 severance included $24,000 charged to selling and
marketing expense, $15,000 charged to research and development, and $56,000
charged to general and administrative costs.
The $429,000 charge related to the discontinuance of the infusion pump business
included $140,000 in obsolete inventories charged to cost of sales, $7,000
charged to selling and marketing for obsolete field inventories, and $282,000
charged to general and administrative expenses which included the write-off of
capitalized software development costs for the infusion pump product previously
under development.
Net sales decreased to $17,741,000 for the year ended June 30, 2000 from
$18,709,000 for the year ended June 30, 1999. The $968,000 net decrease included
a $466,000 decrease in sales of cardiotomy reservoirs, a $532,000 decrease in
sales of cardioplegia products, and a $1,375,000 decrease in sales of custom
tubing sets, partly offset by a $1,379,000 increase in sales of oxygenators.
The reduction in sales of cardiotomy reservoirs, cardioplegia products, and
custom tubing sets resulted from factors which include a loss of market share in
these products to other competitors, a shift in customer purchasing patterns
from separate components to integrated oxygenator systems which include those
components, and the increasing percentage of open heart surgeries which are
performed without stopping the heart. A majority of the Company's sales are
derived from products used in the open heart bypass circuit which is employed
when a patient's heart is stopped during cardiac surgery.
Oxygenator sales were $3,642,000 in the fiscal year ended June 30, 2000 compared
to $2,263,000 for the fiscal year ended June 30, 1999. The sales increase
resulted from additional market penetration by the Vision oxygenator which was
introduced in August 1997. The Vision oxygenator has been favorably received by
the market due to product features and operating performance.
18
<PAGE>
Gross profit decreased to $4,489,000 for the fiscal year ended June 30, 2000
compared to $5,040,000 for the fiscal year ended June 30, 1999. The primary
cause of the gross profit decrease was the decrease in sales compared to the
prior year quarter. The decrease also included the effect of obsolete inventory
write-offs totaling $223,000 which were recorded in the first quarter of fiscal
2000. The inventory writeoffs consisted of $83,000 for custom tubing packs and
$140,000 related to the discontinuance of the Company's infusion pump business.
An additional factor in the gross profit decrease was the shift in product mix
to oxygenators from other products with higher margin such as cardiotomy
reservoirs, cardioplegia products, and custom tubing packs.
Selling and marketing expenses increased to $4,089,000 for the fiscal year ended
June 30, 2000 compared to $4,031,000 for the fiscal year ended June 30, 1999.
The increase is attributable to $164,000 in nonrecurring charges incurred in the
quarter ended September 30, 1999. The nonrecurring charges consisted of $24,000
in severance from the Company's reduction in force in September 1999, $133,000
write-down of field inventories, and $7,000 write-down of discontinued infusion
pumps in field inventory.
Research and development expenses decreased to $1,180,000 for the fiscal year
ended June 30, 2000 compared to $1,276,000 for the fiscal year ended June 30,
1999. The decrease in expense compared to the prior year resulted from the staff
reduction in September 1999 and the termination of projects related to the
Company's discontinued infusion pump business.
General and administrative expenses increased to $2,250,000 for the fiscal year
ended June 30, 2000 compared to $1,621,000 for the prior year. The $629,000
increase over the prior year included $294,000 in severance and other costs
related to the resignation of the Company's chief executive officer, Jack W.
Brown, in September 1999. An employment agreement between the Company and Mr.
Brown provides for Mr. Brown's continued compensation by the Company until
September 15, 2001 at an annual salary of $100,000, for which the Company
recorded a $225,000 charge including fringe benefits. As part of the agreement,
Mr. Brown also received forgiveness of debt of $54,000 and title to a former
company automobile valued at $15,000.
General and administrative expenses for the year ended June 30, 2000 also
included a charge of $282,000 relating to the Company's ambulatory infusion
pump. The charge included the write-off of capitalized software development
costs for the new pump. Product development activities for the pump ceased in
September 1999. In addition, the current year included $56,000 in severance
related to the September 1999 reduction in force and $50,000 in additional
accrued legal costs related to the discontinuation of the infusion pump
business.
Liquidity and Capital Resources
At June 30, 2000, the Company had cash and cash equivalents of $1,477,000 and
short-term investments of $868,000. Short-term investments consisted primarily
of government-backed securities.
For the fiscal year ended June 30, 2000 net cash used in operating activities
was $1,665,000 compared to net cash provided by operating activities of $857,000
for the fiscal year ended June 30, 1999. Cash flows from operating activities
for the year ended June 30, 2000 decreased compared to the prior year due to the
increased net loss, and also due to the receipt during the prior year of an
$800,000 income tax refund in January, 1999. The cash flow effect of the
increased loss in the year ended June 30, 2000 was partially offset by the
$313,000 loss on disposal of fixed assets which was included in the loss from
operations but did not consume cash. The $313,000 loss on disposal of fixed
assets consisted primarily of a $266,000 charge in September 1999 for software
development costs associated with the Company's discontinued ambulatory infusion
pump and MyoManager product lines.
19
<PAGE>
Net cash used by investing activities for the fiscal year ended June 30, 2000
was $34,000 compared to net cash used by investing activities of $1,596,000 for
the year ended June 30, 1999. The decrease in cash used by investing activities
compared to the prior year resulted primarily from a $1,513,000 change in
investments due to sales in fiscal 2000 versus purchases in fiscal 1999.
For the year ended June 30, 2000 net cash provided by financing activities was
$384,000 compared to net cash provided by financing activities of $34,000 for
the year ended June 30, 1999. The increase in net cash provided by financing
activities over the prior year resulted from increased proceeds from stock
options exercised, and a $49,000 disgorgement of profits by a former officer and
director pursuant to section 16(6) of the Exchange Act.
The Company believes its Irvine facility is more than adequate for the next
two years, but is currently in negotiation with the lessor of the facility to
terminate its lease and relocate to a smaller facility. The lessor of the Irvine
facility is offering financial incentives to the Company in exchange for the
Company's early termination of its lease. The Company's intent is to obtain
sufficient financial incentives from its current lessor to cover the costs
associated with relocation. However, the final outcome of the negotiations can
not be determined at this time and the relocation could result in cash generated
from operations together with available cash not being adequate to meet the
Company's planned expenditures and liquidity needs for fiscal 2001. The Company
believes there are financing sources available to the Company sufficient to
cover the potential additional cash requirement related to the relocation but
there is no assurance that the Company will be successful in securing such
financing.
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 2001.
20
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Gish Biomedical, Inc.
We have audited the accompanying consolidated balance sheet of Gish Biomedical,
Inc. as of June 30, 2000, and the related consolidated statements of operations,
shareholders' equity, and cash flows for each of the two years in the period
ended June 30, 2000. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Gish Biomedical,
Inc. at June 30, 2000 and the consolidated results of its operations and its
cash flows for each of the two years in the period ending June 30, 2000, in
conformity with accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Orange County, California
August 16, 2000
21
<PAGE>
GISH BIOMEDICAL, INC.
CONSOLIDATED BALANCE SHEET
As of June 30, 2000
($000 in thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 1,477
Short-term investments 868
Accounts receivable, net of allowance for doubtful accounts of $156 3,490
Inventories 7,475
Other assets 129
---------
Total current assets 13,439
---------
Property and Equipment, at cost:
Leasehold improvements 2,685
Machinery and equipment 1,897
Molds, dies and tooling 3,604
Vehicles 42
Office furniture and equipment 1,414
---------
Total property and equipment 9,642
Less accumulated depreciation ( 7,338)
---------
Net property and equipment 2,304
Other assets, net of accumulated patent amortization of $303 151
---------
Total assets $ 15,894
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,605
Accrued compensation and related items 570
Other accrued liabilities 208
---------
Total current liabilities 2,383
---------
Deferred rent 251
Commitments
Shareholders' Equity:
Preferred stock, 2,250,000 shares authorized; no shares outstanding -
Common stock, no par value, 7,500,000 shares authorized;
3,592,145 shares issued and outstanding 10,532
Retained earnings 2,745
Accumulated other comprehensive loss ( 17)
---------
Total shareholders' equity 13,260
---------
Total liabilities and shareholders' equity $ 15,894
=========
See accompanying notes.
22
<PAGE>
GISH BIOMEDICAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended June 30, 2000 and 1999
(In thousands, except share and per share data)
2000 1999
---------------------------
Net sales $ 17,741 $ 18,709
Cost of sales 13,252 13,669
---------------------------
Gross profit 4,489 5,040
Operating Expenses:
Selling and marketing 4,089 4,031
Research and development 1,180 1,276
General and administrative 2,250 1,621
---------------------------
Total operating expenses 7,519 6,928
---------------------------
Operating loss ( 3,030) ( 1,888)
Interest income 183 197
---------------------------
Loss before provision for taxes ( 2,847) ( 1,691)
Provision (benefit) for income taxes - -
---------------------------
Net loss ($ 2,847) ($ 1,691)
===========================
Net loss per share - basic and diluted ($ 0.81) ($ 0.49)
===========================
Basic and diluted weighted average common shares 3,515,661 3,451,410
===========================
See accompanying notes.
23
<PAGE>
GISH BIOMEDICAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended June 30, 2000 and 1999
(In thousands, except share and per share data)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Accumulated
Common Stock Other
--------------------------------
Number of Note Retained Comprehensive
Shares Amount Receivable Earnings Loss Total
----------------------------------------------------------------------------------------------------
Balance at June 30, 1998 3,444,632 $ 10,114 ($ 54) $ 7,283 $ - $ 17,343
Exercise of options 113,152 307 - - - 307
Stock received as payment
for exercise of options ( 87,422) ( 273) - - - ( 273)
Net loss - - - ( 1,691) - ( 1,691)
----------------------------------------------------------------------------------------------------
Balance at June 30, 1999 3,470,362 10,148 ( 54) 5,592 - 15,686
Exercise of options 121,783 335 - - - 335
Write off of note
receivable from officer - - 54 - - 54
Disgorgement of profits
under Section 16(b) of
the Exchange Act - 49 - - - 49
Comprehensive loss:
Unrealized gains/loss
securities - - - - ( 17) ( 17)
Net loss - - - ( 2,847) - ( 2,847)
--------
Total comprehensive loss ( 2,864)
----------------------------------------------------------------------------------------------------
Balance at June 30, 2000 3,592,145 $ 10,532 $ - $ 2,745 ($ 17) $ 13,260
===================================================================================================
</TABLE>
See accompanying notes.
24
<PAGE>
GISH BIOMEDICAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30, 2000 and 1999
(in thousands)
<TABLE>
<S> <C> <C>
2000 1999
----------------------------------
OPERATING ACTIVITIES
Net loss ($ 2,847) ($ 1,691)
Adjustments to reconcile net income to net cash provided by
Depreciation 869 908
Amortization 6 12
Noncash forgiveness of note receivable from officer 54 -
Loss on disposal of assets 313 -
Deferred rent ( 52) ( 21)
Changes in operating assets and liabilities ( 8) 1,649
----------------------------------
Net cash provided (used) by operating activities ( 1,665) 857
----------------------------------
INVESTING ACTIVITIES
Purchase of investments - ( 908)
Maturity of investments 605 -
Purchases of property and equipment ( 632) ( 675)
Purchase of other long-term assets ( 7) ( 13)
----------------------------------
Net cash provided (used) by investing activities ( 34) ( 1,596)
----------------------------------
FINANCING ACTIVITIES
Proceeds from exercise of options 335 34
Disgorgement of profits under Section 16(b) of the Exchange Act 49 -
----------------------------------
Net cash provided by financing activities 384 34
----------------------------------
Net increase (decrease) in cash and cash equivalents ( 1,315) ( 705)
Cash and cash equivalents at beginning of year 2,792 3,497
----------------------------------
Cash and cash equivalents at end of year $ 1,477 $ 2,792
==================================
</TABLE>
See accompanying notes.
25
<PAGE>
GISH BIOMEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended June 30, 2000 and 1999
(In thousands, except share and per share data)
1. Summary of Significant Accounting Policies
The accompanying consolidated financial statements include the accounts of Gish
Biomedical, Inc. and its wholly owned subsidiary, Gish International, Inc., a
foreign sales corporation. All significant intercompany accounts and
transactions have been eliminated.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
The accounting policies that affect the more significant elements of the
accompanying consolidated financial statements are summarized below:
Fair Value of Financial Instruments
The fair value of cash and cash equivalents, accounts receivable and account
payable at June 30, 2000 approximate their carrying amount due to the short
maturities of these items. The fair values of the Company's investments a June
30, 2000 are set forth in Note 3.
Investments
Marketable debt securities are classified as available-for-sale.
Available-for-sale securities are carried at fair value, with the unrealized
gains and losses, net of tax, reported in a separate component of shareholders'
equity. Realized gains and losses and declines in value judged to be
other-than-temporary on available-for-sale securities are included in investment
income. The cost of securities sold is based on the specific identification
method. Interest and dividends on securities classified as available-for-sale
are included in investment income.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or net
realizable value and consists of the following at June 30, 2000:
Raw materials $ 4,307
Work in progress 1,231
Finished goods 1,937
-----------
Total inventories $ 7,475
===========
26
<PAGE>
GISH BIOMEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. Summary of Significant Accounting Policies (continued)
Property and Equipment
Property and equipment are carried at cost. Depreciation and amortization are
provided on the straight-line method over the following estimated useful lives:
Leasehold improvements Term of lease
Machinery and equipment 5 years
Molds, dies and tooling 5 years
Office furniture and equipment 4 - 8 years
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 products.
Research and Development Costs
Research and development costs related to the development of new products and
improvements of existing products are expensed as incurred.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising expense for
fiscal year 2000 and 1999 were $178 and $119, respectively.
Net Loss per Share
The Company computes net loss per share in accordance with SFAS No. 128,
Earnings per Share. Under the provisions of SFAS No. 128, basic and diluted net
loss per share in loss periods is computed by dividing the net loss available to
holders of common stock for the period by the weighted average number of shares
of common stock outstanding during the period. The calculation of diluted net
loss per share excludes potential shares of common stock if their effect is
anti-dilutive. Potential shares of common stock consists of shares of common
stock issuable upon the exercise of stock options.
<TABLE>
<S> <C> <C>
2000 1999
-----------------------------------
Numerator:
Numerator for basic and diluted loss per share ($ 2,847) ($ 1,691)
=========================================
Denominator:
Denominator for basic net loss per share-weighted-average
shares 3,515,661 3,451,410
Effect of dilutive securities - -
-----------------------------------------
Denominator for diluted net loss per share-adjusted
weighted-average shares 3,515,661 3,451,410
=========================================
Net loss per share - basic and diluted ($ .81) ($ .49)
</TABLE>
27
<PAGE>
1. Summary of Significant Accounting Policies (continued)
Statement of Cash Flows
Changes in operating assets and liabilities (in thousands)
2000 1999
---------------------
Accounts receivable ($ 61) $ 186
Interest receivable ( 26) -
Income tax refund receivable - 754
Inventories ( 295) 430
Other current assets ( 11) 59
Accounts payable 239 265
Accrued compensation and related items ( 25) ( 71)
Other accrued liabilities 171 26
---------------------
Net change in operating assets and liabilities ($ 8) $1,649
=====================
The Company paid $4, and $13 in federal and state income tax during the years
ended June 30, 2000 and 1999, respectively.
During the year ended June 30, 2000, the Company recognized a $17 unrealized
loss in its short-term investments that are classified as available for-sale.
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
Stock Options
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB25) and related interpretation in
accounting for its employee stock options because, as discussed in Note 9, the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation", requires use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB 25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
Recent Accounting Pronouncements
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, Revenue Recognition in Financial Statements (SAB 101). SAB 101
summarizes certain areas of the Staff's views in applying generally accepted
accounting principles to revenue recognition in financial statements. The
Company believes that its current revenue recognition policies comply with SAB
101.
28
<PAGE>
GISH BIOMEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. Summary of Significant Accounting Policies (continued)
Recent Accounting Pronouncements (continued)
In March 2000, the Financial Accounting Standards Board issued Interpretation
No. 44, Accounting for Certain Transactions Involving Stock Compensation - an
interpretation of APB Opinion No. 25 (FIN 44). This Interpretation clarifies the
definition of employee for purposes of applying Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), the criteria
for determining whether a plan qualifies as a noncompensatory plan, the
accounting consequence of various modifications to the terms of a previously
fixed stock option or award, and the accounting for an exchange of stock
compensation awards in a business combination. This Interpretation is effective
July 1, 2000, but certain conclusions in this Interpretation cover specific
events that occur after either December 15, 1998, or January 12, 2000. The
Company believes that the impact of FIN 44 will not have a material effect on
its consolidated financial position or results of operations.
2. Credit Facility
Gish entered into a Commercial Pledge Agreement, (the "Agreement") with City
National Bank in June, 2000, providing for loans up to one million dollars in
the form of short term advances under a revolving credit arrangement. The
Agreement is subject to expiration on September 30, 2001. Advances to Gish under
the Agreement bear interest at the bank's prime rate (9.5% at June 30, 2000).
City National Bank has been granted a security interest in Gish's fixed income
investment portfolio to secure repayment of amounts borrowed by Gish under the
Agreement.
Under the Agreement, amounts will not be advanced to Gish if, as a result of
such disbursement, the total outstanding principal amount secured would exceed
the total advance value of the collateral.
At June 30, 2000 the Company had no funds borrowed under the revolving credit
line, nor did the Company utilize the line during the fiscal year ended June 30,
2000.
3. Investments
At June 30, 2000 all of the Company's investments were in commercial paper and
government backed securities, and were classified as available-for-sale. A
summary of available-for-sale securities follows (in thousands):
Available-for-Sale
<TABLE>
<S> <C> <C> <C> <C>
------------------------------------------------------------
Gross Gross
Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
------------------------------------------------------------
Investment in debt instruments $ 885 $ - $ 17 $ 868
</TABLE>
There was no realized gain or loss during the fiscal year ended June 30, 2000.
29
<PAGE>
3. Investments (continued)
The amortized cost and estimated fair value of debt securities at June 30, 2000,
by contractual maturity, are shown below.
Estimated Fair
Cost Value
-----------------------------
Available-for-Sale
Due in one year or less $ 435 $ 432
Due after one year through three years 350 341
Due after three years 100 95
-----------------------------
Total Available-for-Sales Securities $ 885 $ 868
=============================
4. Analysis of Reserve Accounts
<TABLE>
<S> <C> <C> <C> <C>
Balance at Additions
Beginning of Year Charged to Balance at
Expense Deductions End of Year
-----------------------------------------------------------------------
Allowance for doubtful accounts:
June 30, 2000 $ 94 $ 93 $ 31 $ 156
June 30, 1999 $ 209 $ 24 $ 139 $ 94
Reserve for inventory:
June 30, 2000 $ 1,121 $ 495 $ 293 $ 1,323
June 30, 1999 $ 588 $ 562 $ 29 $ 1,121
Valuation reserve for deferred tax
June 30, 2000 $ 2,024 $ 899 $ - $ 2,923
June 30, 1999 $ 1,298 $ 726 $ - $ 2,024
</TABLE>
5. Benefit Plan
The Company has a Salary Reduction Profit Sharing Plan, ("the Plan"),
established under Section 401(k) of the Internal Revenue Code, in which all
employees are eligible to participate. Total Company contributions to the Plan
were $41 and $46 for fiscal years ended June 30, 2000 and 1999, respectively.
30
<PAGE>
6. Taxes Based on Income
The Company uses the liability method of accounting for income taxes as set
forth in Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes". Under this method, deferred taxes are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. Deferred tax assets are recognized and
measured based on the likelihood of realization of the related tax benefit in
the future.
A reconciliation of the income tax benefit using the federal statutory rate to
the book provision for income taxes follows as of years ended June 30:
2000 1999
--------------------------
Income tax at statutory rate ($ 968) ($ 575)
State tax, net of federal benefit - -
Other, net ( 69) 28
Valuation allowance 899 547
--------------------------
$ - $ -
==========================
At June 30, 2000, the Company has unused net operating loss carryforwards of
approximately $3.9 million and $3.2 million for federal and California income
tax purposes, respectively. The Company also has research and development tax
credit and alternative minimum tax credit carryforwards of approximately $65 and
$104 for federal and California tax purposes, respectively. As of June 30, 2000,
the valuation allowance fully offsets the Company's net deferred tax assets
because management cannot assess that it is more likely than not that they will
be utilized.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The components of the net
deferred tax asset at June 30, 2000 and 1999 consist of the following:
2000 1999
------------------------
Net operating loss carryforward $ 1,645 $ 867
Book over tax depreciation/amortization 251 18
Inventory capitalization 753 177
Reserves and accruals 331 894
State taxes ( 227) ( 130)
Tax credit carryforward 170 198
------------------------
Total net deferred tax assets 2,923 2,024
------------------------
Less valuation allowance ( 2,923) ( 2,024)
------------------------
Net deferred tax assets $ - $ -
========================
31
<PAGE>
GISH BIOMEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. Segment Information
The Company operates in one industry segment, the manufacturer of medical
devices which are marketed principally through domestic and international
distributors. The Company performs ongoing credit evaluations and maintains
allowances for potential credit losses. As of June 30, 2000 the Company believes
it has no significant concentrations of credit risk. No one customer comprised
10% or more of the Company's net sales in fiscal 2000 or 1999.
Sales to foreign customers (primarily in Europe and Asia) aggregated
approximately $3,518 in 2000 and $3,434 in 1999. All sales are transacted in
United States dollars, accordingly the Company is not subject to foreign
currency risks.
8. Stock Option Plan
The Company has an Officers, Directors and Key Employee Incentive Plan (the
"1981" Plan) authorizing stock options, stock bonuses and cash incentive awards,
an Incentive Stock Option, Non-qualified Stock Option and Restricted Stock
Purchase Plan - 1987 (the "1987 Plan") authorizing stock options and rights to
purchase restricted stock, a 1997 Stock Incentive Plan (the "1997 Plan") and a
Non Qualified Stock Option Agreement (the "2000 Agreement"). Stock options
granted under these Plans may be either incentive stock options as defined in
the Internal Revenue Code ("incentive options"), or options that do not qualify
as incentive options ("non-qualified options"). The number of shares of the
Company's common stock approved for issuance under the 1981 Plan, the 1987 Plan,
the 1997 Plan and the 2000 Agreement is 487,500, 1,025,000, 500,000 and 190,000,
respectively.
During fiscal 1999, two employees exercised options for 100,485 shares at $2.72
per share using 87,422 shares at $3.13 per shares as consideration.
The following table summarizes information about stock options outstanding under
the 1981, 1987 and 1997 plans and the 2000 Agreement combined:
Weighted Average
Number of Exercise Price
Shares Price
-----------------------------------
Options outstanding at June 30, 1998 563,162 $2.74
Granted 78,125 2.80
Canceled ( 56,750) 2.77
Exercised ( 113,152) 2.72
-----------------------------------
Options outstanding at June 30, 1999 471,385 2.75
Granted 525,000 3.14
Canceled ( 465,184) 3.08
Exercised ( 121,783) 2.75
-----------------------------------
Options outstanding at June 30, 2000 409,418 $2.87
===================================
32
<PAGE>
8. Stock Option Plan (continued)
As of June 30, 2000, 409,418 options are outstanding of which 234,749 are
exercisable. Additionally, 378,500 options remain available for grant. During
the fiscal year ended June 30, 2000 118,059 shares available for grant under the
1987 Plan were expired. As of June 30, 1999, 423,552 were exercisable and
366,375 options were available for grant.
The weighted average fair values of options granted were $1.16 and $1.23 in
fiscal 2000 and 1999, respectively.
A summary of options outstanding and exercisable as of June 30, 2000 follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
Weighted-
Average Weighted-Average Weighted-
Options Exercise Price Exercise Remaining Options Average
Outstanding Range Price Contractual Life Exercisable Exercise Price
---------------------------------------------------------------------------------------------------------------
15,000 $2.56 - 2.69 $2.61 3.21 5,000 $2.56
133,001 $2.72 - 2.72 $2.72 0.60 132,999 $2.72
42,250 $2.75 - 2.87 $2.81 3.15 36,750 $2.81
219,167 $3.00 - 3.00 $3.00 9.10 60,000 $3.00
</TABLE>
9. Accounting for Stock Based Compensation
Adjusted pro forma information regarding net income (loss) and per share
amounts, determined as if the Company had accounted for its employee stock
options under the fair value method of Statement No. 123, is required when an
enterprise elects the disclosure only provision of that Statement of Financial
Accounting Standards. The fair value of options was estimated at the date of
grant using a Black-Scholes option pricing model with the following weighted
average assumptions for 2000 and 1999: risk free interest rate of 6.3%, a
dividend yield of 0%, volatility factors of the expected market price of the
Company's common stock of .478 and a weighted-average expected life of the
option of 3.9 years for all periods.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
33
<PAGE>
GISH BIOMEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. Accounting for Stock Based Compensation (continued)
Pro forma disclosures required by Statement No. 123 include the effects of all
stock option awards granted by the Company from July 1, 1995 through June 30,
2000. For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
2000 1999
---------------------------
Pro forma net loss $ (3,164) $ (1,901)
Pro forma diluted loss per share ($ .90) ($ .55)
10. Commitments and Contingencies
Operating Leases
The Company is committed to a ten year operating lease for its primary office
and manufacturing facilities in Irvine, California, which commenced December 15,
1992. The Company's operations do not fully occupy the facility and therefore,
the Company is subleasing approximately a third of the space. The Company's
sublease income was $183 and $168 for the years ended June 30, 2000 and 1999,
respectively. Rent expense for financial statement purposes is computed on a
straight-line basis over the term of the initial lease. The excess of
straight-line expense over cash payments during the year is shown as a deferred
rent liability.
Aggregate future minimum rental payments on a cash basis required under
operating leases for office and manufacturing space which have initial or
remaining non-cancelable lease terms in excess of one year are as follows: $810;
$842; and $387 for the fiscal years ending June 30, 2001; 2002 and 2003,
respectively, for a total of $2,039.
Rent expense charged to operations was $731 and $727 for the years ended June
30, 2000 and 1999, respectively.
The Company believes the Irvine facility is more than adequate for the next two
years, but is currently in negotiation with the lessor of the facility to
terminate its lease and relocate to a smaller facility. The Lessor of the Irvine
facility is offering financial incentives to the Company in exchange for the
Company's early termination of its lease. The Company's intent is to obtain
sufficient financial incentives from its current Lessor to cover the costs
associated with relocation. If the Company relocates to a new facility, it will
be required to write-off abandoned unamortized leasehold improvements related to
the Company's present facility. The unamortized book value of such leasehold
improvements is approximately $720 at June 30, 2000.
Additionally, if the Company relocates to a new facility, it will recognize a
benefit for unamortized deferred rent expense. Deferred rent expense at June 30,
2000 is $251.
34
<PAGE>
GISH BIOMEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. Commitments and Contingencies (continued)
Litigation
The Company is party to various legal actions arising in the ordinary course of
its business. The Company believes that the resolution of these legal actions
will not have a material adverse effect on the Company's financial position,
results of operations or cash flows.
11. Stock Purchase
During the year ended June 30, 1991 the Company loaned $100 to its than
President and Chairman of the Board for the exercise of Gish common stock
options. The note balance at June 30, 1999 was $54 which was secured by Company
stock, bore interest at 5.5% and was due within one year. During fiscal 2000,
the Company forgave this debt as part of this employee's severance agreement.
12. Infusion Pump Business
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 in cash and $2,000 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. During the quarter ended December
31, 1996, the Company ceased to utilize the building for manufacturing and was
released from the lease as of February 28, 1997.
This acquisition was accounted for as a purchase and resulted in the recognition
of $2,009 of goodwill.
During the fourth quarter of fiscal 1997, the Company reviewed the goodwill
resulting from acquisition of the assets and technology of the ambulatory
infusion pumps. Due to its poor performance and negative margins, management
believed it was unlikely that margins would improve in the near future nor would
the product line generate positive cash flows. Accordingly, the Company recorded
a $1,824 of goodwill impairment in fiscal 1997 to write-off goodwill associated
with this product line.
During the fiscal year ended June 30, 1998 the infusion pump acquired from CMD
was involved in an incident which precipitated the Company's decision to
voluntarily cease sales of the infusion pump. The Company also decided to
redesign the pump not utilizing the technology acquired from CMD. Consequently
the Company wrote off all remaining assets (principally inventory and property
and equipment) associated with the infusion pump acquired from CMD at June 30,
1998.
In September 1999 the Company discontinued development of the new infusion pump
for strategic and economic reasons and recognized a charge of $429 related to
the discontinuance of the infusion pump line. The total charges related to the
discontinuance of the infusion pump operations consisted of $140 charged to cost
of sales for inventory obsolescence, $7 charged to selling and marketing expense
for the write-down of field inventories, and $282 charged to general and
administrative expense consisting primarily of software development cost.
35
<PAGE>
GISH BIOMEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
12. Infusion Pump Business (continued)
The table below sets forth the operating results of the discontinued infusion
pump business for the past two fiscal years as if it were an operating segment:
<TABLE>
<S> <C> <C>
Infusion pump operations June 30, June 30,
2000 1999
---------------------------
Sales (returns) $ - ($ 27)
Cost of sales 140 -
---------------------------
Gross profit (loss) ( 140) ( 27)
---------------------------
Selling and marketing expenses 7 -
General and administrative expenses 282 -
---------------------------
Total operating expenses 289 -
---------------------------
Operating loss ( 429) ( 27)
Adjustment to write-off of plant and equipment in 1998 - ( 53)
---------------------------
Contribution to pretax loss ($ 429) $ 26
===========================
</TABLE>
13. Fourth Quarter Adjustments
Fiscal 1999
During the fourth quarter of fiscal 1999, the Company made certain adjustments
to its financial statements based on events and decisions occurring either
during the fourth quarter of fiscal 1999 or which occurred shortly thereafter.
Obsolete Inventory Adjustments
------------------------------
During the fourth quarter of fiscal 1999, the Company charged $118 to cost of
sales for obsolete inventory not previously identified. The total charge
consisted of a $100 direct charge representing inventory disposed of during the
quarter, plus on additional $18 inventory reserve based on an analysis of
inventory.
Valuation of Field Inventories
------------------------------
During fiscal 1999, the Company provided a valuation reserve of $67 for field
inventories consigned to sales representatives primarily for demonstration
purposes.
Fiscal 2000
During the fourth quarter of fiscal 2000, the Company made certain adjustments
to its financial statements based on events and decisions occurring either
during the fourth quarter of fiscal 2000 or which occurred shortly thereafter.
36
<PAGE>
GISH BIOMEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
13. Fourth Quarter Adjustments (continued)
Fiscal 2000 (continued)
Obsolete Inventory Adjustments
------------------------------
During the fourth quarter of fiscal 2000 the Company increased obsolete
inventory reserve by $101 for slow-moving inventory.
14. Disgorgement of Profits
Section 16(b) of the Securities Exchange Act of 1934, as amended, generally
provides that any profit realized by a director or officer in connection with
the purchase and sale of the Company's common stock within any period of less
than six months shall be recoverable by the Company. During fiscal 2000 the
Company recovered $49 in profits from a former officer and a former director.
This amount was credited directly to shareholder equity.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Inapplicable.
37
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Directors of the Registrant
The following persons are currently serving on the Board of Directors of the
Company:
<TABLE>
<S> <C> <C> <C>
Name Principal Occupation Age Director Since
------------------------------------------------------------------------------------------------
James J. Cotter Attorney, Winston & Strawn 31 1999
Ray R. Coulter Practicing Attorney in
Rancho Mirage, California 67 1979
John W. Galuchie, Jr. President, T.R. Winston &
Company, Inc. 47 1999
John S. Hagestad Managing Director,
Sares/Regis Group 53 1979
Kelly D. Scott President and Chief Executive 44 2000
Officer of the Company
</TABLE>
Mr. Cotter has been an attorney with Winston & Strawn since 1997. Previously,
he was with Cecelia Packing Corporation. Mr. Cotter received his L.L.M. and J.D.
degrees in 1995 from New York University School of Law.
Mr. Coulter is a practicing attorney in Rancho Mirage, California, specializing
in corporate, Food and Drug Administration and health care law. For more than
the previous 5 years, he was the co-founder and chief financial officer of
Wintec Energy, Ltd., an alternate energy company.
Mr. Galuchie, a Certified Public Accountant and Chairman of the Company, is
principally engaged in the following businesses: (i) T.R. Winston & Company,
Inc., a securities broker/dealer, as President since January 1990 and director
since September 1989; (ii) Kent Financial Services, Inc., in various executive
positions since 1986 including Treasurer and Secretary of Asset Value Management
Inc, the sole general partner of Asset Value Fund Limited Partnership; (iii)
Pure World, Inc., a manufacturer and distributor of natural products, as
Executive Vice President since April 1988; (iv) Cortech, Inc., a
biopharmaceutical company, as President and director since September 1998. Mr.
Galuchie served as a director of Crown NorthCorp, Inc. from June 1992 to August
1996, a director of HealthRite, Inc. from December 1998 to June 1999 and a
director of Golfrounds.com, Inc. from July 1992 to January 2000.
Mr. Hagestad is a Managing Director of Sares/Regis Group, a firm
specializing in real estate acquisition, development and management, located in
Irvine, California. He has been associated with Sares/Regis Group for more than
20 years.
Mr. Scott joined the Company in May 2000 as President and Chief Executive
Officer. Prior to joining Gish, Mr. Scott was employed for more than twenty
years by Sorin Biomedica and its predecessor, Shiley, Inc. a subsidiary of
Pfizer, Inc. He was most recently Managing Director of Sorin Biomedica Asia, a
position held since 1998. From 1996 to 1997 he was Managing Director of Sorin
Biomedica U.K. Ltd. and from 1994 to 1996 Director of National Accounts for
Sorin Biomedical, Inc.
38
<PAGE>
Executive Officers of the Registrant
<TABLE>
<S> <C> <C> <C>
First Year
Name Position with Company Age Elected Office
------------------------------------------------------------------------------------------------
Kelly D. Scott President and Chief Executive 44 2000
Officer of the Company
James R. Talevich Former Chief Financial Officer 49 1999
</TABLE>
For certain information concerning the business experience of Mr. Scott refer to
previous section titled "Directors of the Registrant".
Mr. Talevich became Vice President, Chief Financial Officer in July, 1999.
He resigned from the Company in August, 2000.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
Directors and executive officers, and persons who beneficially own more than ten
percent of the Company's Common Stock, to file reports of holdings and
transactions in the Company's shares with the SEC. Based on Gish's records and
other information, Gish believes that in fiscal 2000 Gish's Directors and
executive officers met all applicable SEC filing requirements, except that the
following individuals inadvertently filed late Form 4s relating to the
transactions described below:
In June 1999, John Hagestad, a Director, exercised options to purchase 6,667
shares. The purchase was reported on a Form 4 in November, 1999.
James R. Yarter, who was Chief Executive Officer of the Company during a portion
of fiscal 2000, purchased 16,000 shares in December 1999. The purchase was
reported on a Form 4 in February, 2000. Mr. Yarter sold 52,000 shares in March,
2000 which was reported 10 days late during April, 2000.
39
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION.
Summary Compensation Table. The following table sets forth the aggregate
-----------------------------
compensation for services rendered in all capacities during the fiscal years
ended June 30, 2000, 1999 and 1998 of all persons serving as Chief Executive
Officer and all other executive officers whose salary and bonus exceeded
$100,000 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Long-Term
Compensa-
Annual Compensation tion
------------------------------------------------------------------------
Other Annual Securities All Other
Name and Bonus Compensation Underlying Compensation
Principal Position Year Salary ($) ($) (1) ($) (2) Options (#) ($) (3)
--------------------------------------------------------------------------------------------------------------
Kelly D. Scott, 2000 22,500 - - 190,000 -
President and CEO
2000 118,958 - 3,332 - 15,629
Jack W. Brown, Former 1999 191,000 28,650 4,926 - 250
President and CEO 1998 175,500 47,750 5,269 225,000 250
James R. Talevich, 2000 126,583 - - 35,000 250
Former Chief
Financial Officer
--------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Bonuses paid to the Named Executive Officers are pursuant to annual
incentive compensation programs established each year for selected
employees of the Company, including the Company's executive officers.
Under this program, performance goals, relating to such matters as
sales growth, gross profit margin and net income as a percentage of
sales, and individual efforts are established each year. Incentive
compensation, in the form of cash bonuses, was awarded based on the
extent to which the Company and the individual achieved or exceeded the
performance goals.
(2) Other Annual Compensation consists of the personal use portion of
company-provided automobiles and premiums paid on executive disability
policies.
(3) All Other Compensation consists of the Company's matching contributions
to the Gish Salary Savings Plan under Section 401(k) of $250 in each
fiscal year, plus the value of a company-owned vehicle which was given
to Mr. Brown under the terms of his employment agreement.
40
<PAGE>
(4) Mr. Scott joined the Company in May 2000 as President and Chief
Executive Officer. Mr. Scott entered into a written employment
agreement with the Company whereby he is entitled to an annual base
salary of $180,000, a signing bonus of $20,000 upon the commencement of
his employment, and a bonus to be determined by the Board of Directors
based on the achievement of specified corporate profitability targets.
In the event that his employment is involuntarily terminated on or
before May 18, 2001, he will be entitled to severance equivalent to two
times the annual salary then in effect on the date of such termination.
In the event that involuntary termination occurs after May 18, 2001 but
before May 18, 2002, he will receive a payment equal to two times the
annual salary then in effect, less the amount of base salary received
from May 18, 2001 until the date of termination. Mr. Scott was granted
options to purchase 190,000 shares of the Company's Common Stock at an
exercise price of $3.00 per share. Options will vest and become
exercisable at the rate of 60,000 shares on May 18, 2000, 40,000 shares
on May 18, 2001, 40,000 shares on May 18, 2002, and 50,000 shares on
May 18, 2003.
Stock Options Granted During Fiscal 2000. The following table shows information
-----------------------------------------
regarding stock options granted to the Named Executive Officers during fiscal
year 2000.
OPTION GRANTS IN LAST FISCAL YEAR
(Individual Grants)
<TABLE>
<S> <C> <C> <C> <C>
Number of
Securities % of total Options
Underlying Granted to
Options Granted Employees in Exercise or Base
(#) (1) Fiscal Year Price ($/Share) Expiration Date
-------------------------------------------------------------------------------------------------------------
Kelly D. Scott 190,000 36.2% $3.00 05-18-10
James R. Yarter 300,000 57.1% $3.25 12-01-04
Jack W. Brown - - $ - -
James R. Talevich 35,000 6.7% $3.00 07-12-04
</TABLE>
(1) The options granted to Mr. Scott become exercisable at the rate of
60,000 shares on May 18, 2000, 40,000 shares on May 18, 2001, 40,000
shares on May 18, 2002, and 50,000 shares on May 18, 2003. The options
granted to Mr. Yarter were cancelled on March 15, 2000 following his
resignation. The options granted to Mr. Talevich vest one-sixth every
six months, beginning six months from the date of grant.
41
<PAGE>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Values. The
---------------------------------------------------------------------------
following table sets forth, for each of the executive officers named in the
Summary Compensation Table above, each exercise of stock options during the year
ended June 30, 2000 and the year-end value of unexercised options:
<TABLE>
<S> <C> <C> <C> <C>
Number of Securities
Underlying Unexercised
Shares Options Value of Unexercised
Acquired at Fiscal End 2000 In-the-Money Options
on Value Exercisable at Fiscal Year End 2000
Exercise Realized Unexercisable Exercisable Unexercisable
Name (#) ($)(1) (#) (#) ($)(2) ($)(2)
--------------------------------------------------------------------------------------------------------------
Kelly D. Scott - - 60,000 130,000 - -
James Yarter - - - - - -
Jack W. Brown 20,913 $62,091 100,000 - - -
James R.
Talevich 5,833 $15,312 - 29,167 - -
</TABLE>
(1) Excess of market price over exercise price, on the date of exercise.
(2) Value of unexercised in-the-money options is based on the Nasdaq last
sale price on June 30, 2000 ($2.50 per share).
Compensation of Directors
Directors who are not officers of the Company each receive a fee of $8,000 per
fiscal year and an additional fee of $500 for attendance at each Board of
Directors' and committee meeting. Officers of the Company do not receive
additional compensation for attendance at Board of Directors' meetings or
committee meetings. Effective February 1, 1999, the Board approved the waiver of
Directors' compensation until such time as the Company returns to profitability.
Information Regarding Compensation Committee Interlocks and Insider
Participation
The Compensation Committee is a standing committee of the Board of
Directors of the Company. The Compensation Committee is responsible for
establishing and evaluating the effectiveness of compensation policies and
programs for the Company and for making determinations regarding the
compensation of the Company's executive officers, subject to review by the full
Board of Directors. During the fiscal year ended June 30, 2000, the members of
the Committee were John S. Hagestad and Ray R. Coulter, both of whom are
non-employee directors of the Company.
No member of the Compensation Committee is a former or current officer or
employee of the Company or a subsidiary of the Company. Furthermore, there are
no Compensation Committee interlocks between the Company and other entities
involving the Company's executive officers and board members.
42
<PAGE>
Board Compensation Committee Report on Executive Compensation
The following report was submitted by the Compensation Committee members as
of June 30, 1999 with respect to the executive compensation policies established
by the Compensation Committee and compensation paid or awarded to executive
officers who consisted of Jack Brown (the Company's former Chief Executive
Officer) and Jeanne Miller (the Company's former Vice President and Chief
Financial Officer) (the "Executive Officers") for fiscal year 1999. During
fiscal year 2000 the Company employed new Chief Executive Officers and a new
Chief Financial Officer. The compensation of these officers were based on
negotiated employment contracts which were subsequently approved by the Board of
Directors. Accordingly no report was issued from the Compensation Committee for
the fiscal year ended June 30, 2000.
Compensation Policies and Objectives
In establishing and evaluating the effectiveness of compensation programs for
Executive Officers, the Compensation Committee is guided by three basic
principals:
o The Company must offer competitive salaries to be able to attract and
retain highly qualified and experienced executives and other management
personnel.
o Executive compensation in excess of base salaries should be tied to the
Company's performance, measured in terms of sales growth, gross profit
and profitability, as well as attainment of individual objectives.
o The financial interests of the Company's executives should be aligned
with the financial interests of the shareholders, primarily through
stock option grants which reward executives for improvements in the
market performance of the Company's Common Stock.
Salaries and Employee Benefit Programs
In order to retain executives and other key employees, and to be able to attract
additional, well-qualified executives when the need arises, the Company strives
to offer salaries, health care and other employee benefit programs, to its
executives and other employees which are comparable to those offered by
competing businesses.
In establishing salaries for the Executive Officers, the Compensation Committee
reviews (i) the historical performance of the Executive Officers; and (ii)
available information regarding prevailing salaries and compensation programs
offered by competing businesses.
Performance-Based Compensation
The Compensation Committee believes that annual compensation in excess of base
salaries should be made dependent on both the Company's performance and the
individual executive's performance. Accordingly, at the beginning of each fiscal
year, the Compensation Committee establishes an incentive compensation program
for Executive Officers and other key management personnel under which the
Executive Officers and other key management personnel may earn bonuses, in
amounts ranging from 15% to 40% of their annual salaries, provided the
individuals meet their individual performance goals and the Company achieves or
exceeds the corporate performance goals for the year.
43
<PAGE>
Bonuses under the incentive plan are awarded not only on the basis of the
Company's performance, but also on the achievement by an executive of specific
objectives within his or her area of responsibility. The maximum bonus that may
be awarded for individual achievement of specific objectives is half of the
total available under the program.
In the fiscal year ended June 30, 1999, Mr. Brown earned $28,650 under the
incentive plan for the first six months of the year, which resulted from a
determination that Mr. Brown met 100% of his individual goals, and that 50% of
the Company's performance goals were met.
Effective February 1, 1999, the Company's Board of Directors voted to
discontinue all payments to executive officers of the Company under the
incentive plan until such time as the Company returns to profitability.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of September 11, 2000
except as otherwise indicated, regarding the beneficial ownership of Common
Stock of the Company by (i) each person who is known to the Company to be the
beneficial owner of 5% or more of the Company's Common Stock, (ii) each director
of the Company, (iii) certain executive officers of the Company and (iv) all
directors and executive officers as a group. To the Company's knowledge, the
beneficial owners named in the table have sole voting and investment power with
respect to the shares.
<TABLE>
<S> <C> <C>
Shares Beneficially Percent of
Name Owned Class (1)
--------------------------------------------------------------------------------------------------
Asset Value Fund Limited Partnership 549,800 15%
376 Main Street
Bedminster, NJ 07921
Craig Corporation 548,800(2) 15%
550 South Hope Street, Suite 1825
Los Angeles, CA 90071
Dimensional Fund Advisors, Inc. 233,500 7%
1299 Ocean Avenue
Santa Monica, CA 90401
Jack W. Brown 234,360(3) 6%
James J. Cotter 2,383 *
Ray R. Coulter 21,450(4) 1%
John W. Galuchie, Jr. 549,800(5) 15%
John S. Hagestad 145,856(4) 4%
Kelly D. Scott 125,000(6) 3%
All directors and executive officers as a group 844,489 (7) 23%
----------------
* Less than 1%
</TABLE>
44
<PAGE>
(1) Percent of the outstanding shares of Common Stock, treating as
outstanding all shares issuable upon exercise of options held by
particular beneficial owners that are included in the first column.
(2) Craig Corporation is beneficial owner of Common Stock of Gish
Biomedical, Inc. through its controlling interest in Citadel Holding
Corporation.
(3) Includes 33,333 shares subject to options exercisable currently or
within 60 days.
(4) Includes 11,666 shares subject to options exercisable currently or
within 60 days.
(5) Mr. Galuchie is deemed to be the beneficial owner of Common Stock of
Gish Biomedical, Inc. through his position as Treasurer and Secretary
of Asset Value Management, Inc. the sole general partner of Asset Value
Fund Limited Partnership.
(6) Includes 60,000 shares subject to options exercisable currently or
within 60 days.
(7) Includes 83,332 shares subject to options exercisable currently or
within 60 days.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
45
<PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS
ON FORM 8-K
(A) Exhibits
The following Exhibits are filed as part of this Report:
Exhibit
Number Description
------- -----------
3.1 Restated Articles of Incorporation as filed with the
California Secretary of State on November 9, 1981,
incorporated herein by this reference to Exhibit 2(a)
to the Company's Registration Statement on Form S-18,
No. 2-73602LA (the "S-18 Registration Statement").
3.2 Certificate of Amendment of Articles of Incorporation
as filed with the California Secretary of State on
May 19, 1982, incorporated herein by this reference
to Exhibit 2(b) to the S-18 Registration Statement.
3.3 Certificate of Amendment of Articles of Incorporation
as filed with the California Secretary of State on
December 19, 1988, incorporated herein by this
reference to Exhibit 3.3 to the Company's Report on
Form 10-K for the year ended June 30, 1990.
3.4 Certificate of Amendment of Articles of Incorporation
as filed with the California Secretary of State on
June 13, 1990 incorporated herein by this reference
to Exhibit 3.4 to the Company's Report on Form 10-K
for the year ended June 30, 1990.
3.5 Bylaws, incorporated herein by this reference to
Exhibit 2 to the S-18 Registration Statement.
10.1* 401-K Salary Reduction Profit Sharing Plan,
incorporated herein by this reference to Exhibit
10(e) to the S-18 Registration Statement.
46
<PAGE>
(A) Exhibits
The following Exhibits are filed as part of this Report:
Exhibit
Number Description
------- -----------
10.2* Officer, Director and Key Employee Incentive Plan, as
amended, incorporated herein by this reference to
Exhibit 10(x) to the Company's Report on Form 10-K
for the year ended June 30, 1985.
10.3* Incentive Stock Option, Non-qualified Stock Option
and Restricted Stock Purchase Plan-1987, as amended
(the "1987 Plan"), incorporated herein by this
reference to Exhibit 4 to the Company's Registration
Statement on Form S-8, No. 33-36432.
10.4* Form of Incentive Stock Option Agreement for use with
the 1987 Plan, incorporated herein by this reference
to Exhibit 4.3 to the Company's Registration
Statement on Form S-8, No. 33-19714 (the "S-8
Registration Statement").
10.5* Form of Non-qualified Stock Option Agreement for use
with the 1987 Plan, incorporated herein by this
reference to Exhibit 4.4 to the S-8 Registration
Statement.
10.6* Form of Restricted Common Stock Purchase Agreement
for use with the 1987 Plan, incorporated herein by
this reference to Exhibit 4.5 to the S-8 Registration
Statement.
10.7* Form of 1997 Stock Incentive Plan (the "1997 Plan"),
incorporated herein by this reference to the
Company's Report on Form 10-K for the year ended June
30, 1998.
10.8* Form of Option Agreement for the use with the 1997
Plan, incorporated herein by this reference to the
Company's Report on Form 10-K for the year ended June
30, 1998.
10.9 Commercial Security Agreement dated December 2,
1998 between the Company and City National Bank.
10.10* Form of Indemnification Agreement entered into by the
Company and its executive officers and directors,
incorporated herein by this reference to Exhibit
3(iv) to the Company's report on Form 10-K for the
year ended June 30, 1989.
10.11 Lease dated July 8, 1992 between the Company and ISCO
- Irvine North, Ltd. incorporated herein by this
reference to the Company's Report on Form 10-K for
the year ended June 30, 1993.
47
<PAGE>
(A) Exhibits
The following Exhibits are filed as part of this Report:
Exhibit
Number Description
------- -----------
10.12 Lease dated as of April 17, 1996, between the Company
and LBI, a California General Partnership.
Incorporated herein by this reference to the
Company's Report on the form 10-K for the year ended
June 30, 1996
10.13 Registration rights agreement dated April 17, 1996,
between the Company and Creative Medical
Development, Inc., a Delaware Corporation.
Incorporated herein by this reference to
the Company's Report on the form 10-K for the year
ended June 30, 1996
10.14* Employment agreement dated as of May 15, 2000 between
the Company and Kelly D. Scott.
21.1 Subsidiaries of the Company. Incorporated herein by
this reference to the Company's Report on the
form 10-K for the year ended June 30, 1996.
27.1 Financial Data Schedule
(B) Reports on Form 8-K
-------------------
No reports were filed by the Company on Form 8-K during the quarterly
period ended June 30, 2000.
------------------
*Management contract or compensatory plan or arrangement.
48
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
Signature Title Date
September 28, 2000
JAMES J. COTTER Director
---------------------------
JAMES J. COTTER
JOHN W. GALUCHIE, JR. Director, Chairman of the September 28, 2000
---------------------------
JOHN W. GALUCHIE, JR. Board and Acting Chief
Financial Officer
NOMA S. BATES Controller and Acting September 28, 2000
---------------------------
NOMA S. BATES Corporate Secretary
JOHN S. HAGESTAD Director September 28, 2000
---------------------------
JOHN S. HAGESTAD
RAY R. COULTER Director September 28, 2000
---------------------------
RAY R. COULTER
KELLY D. SCOTT Director, President and Chief September 28, 2000
---------------------------
KELLY D. SCOTT Executive Officer
</TABLE>
49
