<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Form 10-QSB of Gish Biomedical, Inc. for the period ended December 31, 1999 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000700945
<NAME> GISH BIOMEDICAL, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,044
<SECURITIES> 1,183
<RECEIVABLES> 3,492
<ALLOWANCES> 0
<INVENTORY> 6,324
<CURRENT-ASSETS> 13,220
<PP&E> 9,735
<DEPRECIATION> 7,271
<TOTAL-ASSETS> 15,834
<CURRENT-LIABILITIES> 1,762
<BONDS> 0
0
0
<COMMON> 10,171
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 15,834
<SALES> 8,948
<TOTAL-REVENUES> 8,948
<CGS> 6,836
<TOTAL-COSTS> 6,836
<OTHER-EXPENSES> 4,173
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,969)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,969)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,969)
<EPS-BASIC> (.57)
<EPS-DILUTED> (.57)
</TABLE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: December 31, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No.: 0-10728
GISH BIOMEDICAL, INC.
---------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
California 95-3046028
--------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification Number)
2681 Kelvin Avenue, Irvine, California 92614
--------------------------------------------------------------
(Address of principal executive offices)
(949) 756-5485
--------------------------------------------------------------
(Issuer's telephone number)
N/A
--------------------------------------------------------------
(Former name, former address and formal fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such
shorter period that the issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X No
As of February 8, 2000, the issuer had 3,529,902 shares of its common
stock, no par value, outstanding.
Transitional Small Business Disclosure Format (check one): Yes X No
--- ---
1
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
- ------ ---------------------
ITEM 1. - Financial Statements
- ------ --------------------
GISH BIOMEDICAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
(unaudited)
(In thousands, except share data)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,044
Short-term investments 1,183
Accounts receivable, net 3,492
Inventories 6,324
Prepaid expenses 177
---------
Total current assets 13,220
Property and equipment, at cost 9,735
Less accumulated depreciation (7,271)
---------
Net property and equipment 2,464
Other assets 150
---------
Total assets $ 15,834
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 872
Accrued compensation and related items 621
Other accrued liabilities 269
---------
Total current liabilities 1,762
Deferred rent 278
---------
Total liabilities 2,040
---------
Stockholders' equity:
Preferred stock, 2,250,000 shares authorized;
no shares outstanding
Common stock, no par value, 7,500,000 shares
authorized, 3,479,568 shares issued and outstanding 10,171
Retained earnings 3,623
---------
Total stockholders' equity 13,794
---------
Total liabilities and stockholders' equity $ 15,834
=========
See accompanying notes to condensed consolidated financial statements.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
GISH BIOMEDICAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three and Six months ended December 31, 1999 and 1998
(unaudited)
(In thousands, except share and Three months ended Six months ended
per share data) December 31, December 31,
------------------ ----------------
1999 1998 1999 1998
----------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net sales $4,532 $4,515 $ 8,948 $ 9,267
Cost of sales 3,395 3,192 6,836 6,612
- --------------------------------------- ----------------- ---------------- --------------- ---------------
Gross profit 1,137 1,323 2,112 2,655
- --------------------------------------- ----------------- ---------------- --------------- ---------------
Research and development 238 336 690 565
Selling and marketing 944 969 2,053 1,989
General and administrative 316 383 1,430 808
- --------------------------------------- ----------------- ---------------- --------------- ---------------
Total operating expenses 1,498 1,688 4,173 3,362
- --------------------------------------- ----------------- ---------------- --------------- ---------------
Operating loss (361) (365) (2,061) (707)
- --------------------------------------- ----------------- ---------------- --------------- ---------------
Interest income 27 39 92 111
- --------------------------------------- ----------------- ---------------- --------------- ---------------
Loss before provision for taxes (334) (326) (1,969) (596)
Benefit for taxes - - - -
- --------------------------------------- ----------------- ---------------- --------------- ---------------
Net loss $ (334) $ (326) $ (1,969) $ (596)
======================================= ================= ================ =============== ===============
Basic and diluted net loss per
share $ (.10) $ (.09) $ (.57) $ (.17)
======================================= ================= ================ =============== ===============
Basic and diluted weighted
average common shares 3,473,017 3,459,632 3,471,973 3,448,899
======================================= ================= ================ =============== ===============
See accompanying notes to condensed consolidated financial statements.
3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GISH BIOMEDICAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended December 31, 1999 and 1998
(unaudited)
(In thousands) 1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,969) $ (596)
Adjustments:
Depreciation 452 455
Loss on disposal of assets 280 -
Amortization 3 12
Deferred rent (25) (10)
Changes in operating assets and liabilities 526 41
----------- ----------
Net cash used by operating activities (733) (98)
----------- ----------
Cash flows from investing activities:
Purchases of property and equipment (343) (162)
Sale of short-term investments 307 -
Increase in other assets (2) (27)
----------- ----------
Net cash used in investing activities (38) (189)
----------- ----------
Cash flows from financing activities:
Proceeds from stock options exercised 23 16
----------- ----------
Net cash provided by financing activities 23 16
----------- ----------
Net decrease in cash and cash equivalents (748) (271)
Cash and cash equivalents at beginning of period 2,792 3,497
----------- ----------
Cash and cash equivalents at end of period $ 2,044 $ 3,226
=========== ==========
See accompanying notes to condensed consolidated financial statements.
</TABLE>
4
<PAGE>
GISH BIOMEDICAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
(unaudited)
1. General
-------
The condensed consolidated financial statements included herein have
been prepared by the Company, without audit, and include all
adjustments which, in the opinion of management, are necessary for a
fair presentation of the results of operations and cash flows for the
three and six month periods ended December 31, 1999 and 1998, and
financial position at December 31, 1999, pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC"). Certain
information and footnote disclosures normally included in consolidated
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
rules and regulations. Although the Company believes that the
disclosures in such condensed consolidated financial statements are
adequate to make the information presented not misleading, these
condensed consolidated financial statements should be read in
conjunction with the Company's consolidated financial statements and
the notes thereto included in the Company's Annual Report filed with
the SEC on Form 10-K for the year ended June 30, 1999. Commencing with
this fiscal year, the Company has elected to make its filings with the
SEC pursuant to the small business reporting alternative provided by
the SEC under Regulation S-B.
Statement of Cash Flows
-----------------------
Changes in operating assets and liabilities as shown in the condensed
consolidated statements of cash flows comprise (in thousands):
Six months ended December 31, 1999 1998
----------------------------- ---- ----
Decrease(increase) in:
Accounts receivable $ (89) $ 164
Note receivable 54 -
Inventories 856 508
Prepaid expenses (59) (71)
Income tax refund receivable - (49)
Increase (decrease) in:
Accounts payable (494) (387)
Accrued compensation and related items 26 (131)
Other accrued liabilities 232 7
------ -------
Change in operating assets and liabilities $ 526 $ 41
====== =======
The Company paid three thousand dollars in state income taxes during
the six month period ended December 31, 1999. The Company did not pay
any interest or federal income taxes during the same period. The
Company did not pay any interest or federal and state income taxes
during the six month period ended December 31, 1998.
5
<PAGE>
GISH BIOMEDICAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1999
(unaudited)
2. Inventories
-----------
Inventories are stated at the lower of cost (first-in, first-out) or
net realizable value and are summarized as follows (in thousands):
December 31, 1999
-----------------
Raw materials $ 3,734
Work in progress 686
Finished goods 1,904
-----
$ 6,324
=====
3. Earnings per share
------------------
The Company calculates earnings (loss) per share pursuant to SFAS 128
"Earnings Per Share". Due to the incurrence of losses in each reporting
period, there is no difference between basic and diluted per share
amounts.
4. Acquisition
-----------
On April 17, 1996, the Company assumed ownership of the net assets and
technology of Creative Medical Development ("CMD") in exchange for a
payment of $600,000 in cash and $2,000,000 of Gish Biomedical, Inc.
common stock. During the fourth quarter of fiscal 1997, the Company
recorded an impairment of goodwill of $1,800,000 to write off the
goodwill associated with this product line.
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, and recognized
charges aggregating $827,000.
5. Nonrecurring Charges
--------------------
In September, 1999 the Company discontinued development of the new
infusion pump for strategic and economic reasons and recognized
$429,000 in charges related to the discontinuance. The total charge
consisted of $140,000 charged to cost of sales for inventory
obsolescence, $7,000 charged to selling and marketing expense for the
write-down of field inventories, and $282,000 charged to general and
administrative expense consisting primarily of software development
costs.
Additionally, in the quarter ended September 30, 1999, the Company
recognized obsolete inventory write-offs of $83,000 for custom tubing
packs, field inventory shrinkage of $133,000, severance and other
costs associated with the resignation of the Company's chief executive
of $294,000, and severance of $95,000 resulting from a reduction in
force. Excluding nonrecurring charges, the Company's gross profit
margin for the quarter ended September 30, 1999 was 27.1% compared to
28.0% in the comparable period of the prior fiscal year.
6
<PAGE>
ITEM 2. - Management's Discussion and Analysis of Financial Condition and
- ------- Results of Operations
---------------------
This Quarterly Report on Form 10-QSB contains certain 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 and the Company intends that such
forward-looking statements be subject to the safe harbors created thereby. Words
such as "anticipates", "expects", "intends", "plans", "believes", "seeks",
"estimates", variations of such words and similar expressions are intended to
identify such forward-looking statements, which include (i) the existence and
development of the Company's technical and manufacturing capabilities, (ii)
anticipated competition, (iii) potential future growth in revenues and income,
(iv) potential future decreases in costs, and (v) the need for, and availability
of, additional financing.
In light of the important factors that can materially affect results, including
those set forth below and elsewhere in this Quarterly Report on Form 10-QSB, the
inclusion of forward-looking information herein should not be regarded as a
representation by Gish or any other person that our objectives or plans will be
achieved. We may encounter competitive, technological, financial and business
challenges making it more difficult than expected to continue to develop and
market our products; the market may not accept our existing and future products;
we may be unable to retain key management personnel; and there may be other
material adverse changes in our operations or business. Certain important
factors affecting the forward looking statements made herein include, but are
not limited to (i) continued downward pricing pressures in our targeted markets,
(ii) the continued acquisition of our customers by certain of our competitors
and (iii) our decision to replace our distributor network with a direct sales
force in certain geographic territories. Assumptions relating to budgeting,
marketing product development and other management decisions are subjective in
many respects and thus susceptible to interpretations and periodic revisions
based on actual experience and business developments, the impact of which may
cause us to alter our marketing, capital expenditure or other budgets, which may
in turn affect our financial position and results of operations. The reader is
therefore cautioned not to place undue reliance on forward-looking statements
contained herein, which speak as of the date of this report.
The following is management's discussion and analysis of certain significant
factors which have affected the earnings and financial position of the Company
during the period included in the accompanying financial statements. This
discussion compares the three month period ending December 31, 1999 with the
three month period ended December 31, 1998, as well as the six month period
ended December 31, 1999 with the six month period ended December 31, 1998. This
discussion should be read in conjunction with the financial statements and
associated notes.
Results of Operations:
- ----------------------
We incurred a net loss of $334,000, or $.10 basic and diluted net loss per
share, for the three months ended December 31, 1999 compared to a net loss of
$326,000, or $.09 basic and diluted net loss per share, for the comparable
period in the prior fiscal year.
For the six months ended December 31, 1999, we incurred a net loss of
$1,969,000, or $.57 basic and diluted net loss per share, compared to a net loss
of $596,000, or $.17 basic and diluted net loss per share, for the six months
ended December 31, 1998.
The increased loss relative to the six months ended December 31, 1998 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
<PAGE>
discontinuance of our infusion pump business, $294,000 in severance and costs
related to the resignation of our chief executive, 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 reduction in our workforce in September, 1999.
The $95,000 severance was for 46 employees, and 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. Substantially all of the
$95,000 severance was paid in the fiscal quarter ended September 30, 1999.
In September, 1999 we concluded that our ambulatory infusion 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, we discontinued development of a new infusion pump then under
development, and wrote off inventory and other assets associated with the
infusion pump product line.
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.
We had sales of $4,532,000 for the quarter ended December 31, 1999 compared to
sales of $4,515,000 for the comparable quarter in the prior fiscal year. For the
six months ended December 31, 1999, we had sales of $8,948,000 compared to sales
of $9,267,000 for the six months ended December 31, 1998.
The $319,000 net decrease in sales for the six months ended December 31, 1999
compared to the prior year period included a $432,000 decrease in sales of
cardiotomy reservoirs, a $296,000 decrease in sales of cardioplegia products,
and an $865,000 decrease in sales of custom tubing sets, partly offset by a
$934,000 increase in sales of oxygenators.
The reduction in sales of cardiotomy reservoirs, cardioplegia products, and
custom tubing sets is partially due to a loss of market share in these products
to other competitors, and partially due to the increasing percentage of
open-heart surgeries which are performed without stopping the heart. A majority
of our 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. An
additional factor in the reduction of cardiotomy reservoir sales is a shift in
usage by our customers from a separate cardiotomy reservoir to a combined
product including both a Gish oxygenator and an integral reservoir, all of which
is included in the oxygenator sales category.
Oxygenator sales were $923,000 for the three months ended December 31, 1999
compared to $464,000 for the three months ended December 31, 1998. For the six
months ended December 31, 1999, oxygenator sales were $1,662,000 compared to
$728,000 for the comparable period in the prior fiscal year. The sales increase
resulted from additional market penetration by the Vision(TM) oxygenator which
was introduced in August, 1997. The Vision oxygenator has been favorably
received by the market due to product features and operating performance.
Gross profit decreased to $1,137,000 for the three months ended December 31,
1999 compared to $1,323,000 for the three months ended December 31, 1998. The
primary cause of the gross profit decrease was the decrease in production volume
and resulting increase in overhead cost per unit compared to the prior year
quarter. A secondary factor was the shift in product mix to oxygenators from
other products with higher margins.
8
<PAGE>
For the six months ended December 31, 1999, gross profit was $2,112,000 compared
to $2,655,000 for the six months ended December 31, 1998. The decrease included
the effect of obsolete inventory writeoffs 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
our infusion pump business. Additional factors in the gross profit decrease were
the decrease in total net sales, and the shift in product mix to oxygenators
from other products with higher margin such as cardiotomy reservoirs and custom
tubing packs.
Research and development expenses for the three months ended December 31, 1999
were $238,000 compared to $336,000 for the three months ended December 31, 1998.
The decrease in research and development expense compared to the comparable
quarter in the prior year resulted from the staff reduction and discontinuation
of our infusion pump business, both of which occurred in September, 1999.
Research and development expenses for the six months ended December 31, 1999
were $690,000 compared to $565,000 for the comparable period in the prior year.
The net increase resulted from additional staff and increased prototype expenses
incurred during the quarter ended September 30, 1999 compared to the quarter
ended September 30, 1998. The quarter ended September 30, 1999 also included
$15,000 in severance related to the September, 1999 reduction in the size of our
workforce.
Selling and marketing expenses for the three months ended December 31, 1999 were
$944,000 compared to $969,000 for the three months ended December 31, 1998.
Selling and marketing expenses for the six months ended December 31, 1999 were
$2,053,000 compared to $1,989,000 for the six months ended December 31, 1998.
The $64,000 increase for the six month period is attributable to $164,000 in
nonrecurring charges incurred in the quarter ended September 30, 1999. The
nonrecurring charges included $24,000 in severance from the reduction in the
size of our workforce in September, 1999, a $133,000 write-down of field
inventories, and a $7,000 write-down of discontinued infusion pumps in field
inventory.
General and administrative expenses for the three months ended December 31, 1999
were $316,000 compared to $383,000 for the three months ended December 31, 1998.
The $67,000 decrease resulted from a $38,000 decrease in management incentive
bonuses, and salary savings of $32,000 due to a two month vacancy in the chief
executive position following the resignation of Jack W. Brown in September,
1999.
For the six month period ending December 31, 1999, general and administrative
expenses were $1,430,000 compared to $808,000 for the six month period ending
December 31, 1998. The increase over the prior year period included $294,000 in
severance and other costs related to the resignation of our chief executive,
Jack W. Brown, in September, 1999. An employment agreement between us and Mr.
Brown provides for Mr. Brown's continued compensation by us until September 15,
2001 at an annual salary of $100,000, for which we 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 six months ended December 31, 1999
also included a charge of $282,000 relating to our ambulatory infusion pump
product previously under development. 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
period included $56,000 in severance related to the September, 1999 reduction in
the size of our workforce.
9
<PAGE>
Year 2000 Compliance Update:
- ----------------------------
We earlier disclosed our estimate of cost and risk associated with the potential
Y2K computer issue. We also informed you of our efforts to reduce the risk to
the Company from the Y2K problems. The measures that we had undertaken to
alleviate the internal and external issues regarding potential Year 2000
problems proved to be appropriate and effective. Our internal operating systems
have not suffered any significant Year 2000 related problems that impacted
operations during the transition to the new millennium. Any issues encountered
were minor and were resolved immediately without any impact on our operating
systems. However, we continue to monitor our internal and external operations to
ensure that these problems have truly been resolved. Issues may surface
regarding Year 2000 compliance but we expect these issues, if any, to be
relatively insignificant.
Liquidity and Capital Resources:
- --------------------------------
At December 31, 1999, we had cash and cash equivalents of $2,044,000 and
short-term investments of $1,183,000. Short-term investments consisted of
government-backed securities and short-term certificates of deposit.
For the six months ended December 31, 1999 net cash used by operating activities
was $733,000 compared to net cash used by operating activities of $98,000 for
the six months ended December 31, 1998. Cash flows from operating activities for
the six months ended December 31, 1999 decreased from the comparable period in
the prior year principally from the increased net loss. The cash flow effect of
the increased loss in the six months ended December 31, 1999 was partially
offset by the $280,000 loss on disposal of fixed assets which was included in
the loss from operations but did not consume cash. The $280,000 loss on disposal
of fixed assets consisted primarily of software development costs associated
with our discontinued ambulatory infusion pump and MyoManager product lines.
Net cash used in investing activities for the six months ended December 31, 1999
was $38,000 compared to $189,000 for the six months ended December 31, 1998. The
decrease from the prior year period resulted primarily from increased sales of
short-term investments partially offset by increased purchases of manufacturing
tooling and equipment.
For the six months ended December 31, 1999 net cash provided by financing
activities was $23,000 compared to net cash provided by financing activities of
$16,000 for the six months ended December 31, 1998. The increase in net cash
provided by financing activities from the comparable period in the prior year
resulted from increased proceeds from stock options exercised.
We believe that cash generated from operations together with available cash will
be adequate to meet the Company's planned expenditures and liquidity needs for
fiscal 2000.
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. - Exhibits and Reports on Form 8-K
a. Exhibits
27 Financial Data Schedule for the six months ended
December 31, 1999
b. Reports on Form 8-K
None.
11
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GISH BIOMEDICAL, INC.
Date: February 14, 1999 /s/ James R. Talevich
-----------------------------
James R. Talevich
Vice President/CFO
12
