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: September 30, 2000
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File No.: 0-10728
GISH BIOMEDICAL, INC.
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(Exact name of small business issuer as specified in its charter)
California 95-3046028
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification Number)
2681 Kelvin Avenue, Irvine, California 92614
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(Address of principal executive offices)
(949) 756-5485
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(Issuer's telephone number)
N/A
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(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
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State the number of shares outstanding of each of the issuer's classes of
common equity: As of November 8, 2000, the issuer had 3,592,145 shares of its
common stock, no par value, outstanding.
Transitional Small Business Disclosure Format (check one): Yes No X
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PART I - FINANCIAL INFORMATION
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ITEM 1. - Financial Statements
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GISH BIOMEDICAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2000
(unaudited)
ASSETS (In thousands, except share data)
<TABLE>
<S> <C>
Current assets:
Cash and cash equivalents $ 461
Short-term investments 685
Accounts receivable, net 3,158
Inventories 8,040
Prepaid expenses 82
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Total current assets 12,426
Property and equipment, at cost 9,673
Less accumulated depreciation ( 7,512)
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Net property and equipment 2,161
Other assets 155
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Total assets $ 14,742
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,022
Accrued compensation and related items 546
Other accrued liabilities 177
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Total current liabilities 1,745
Deferred rent 231
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Total liabilities 1,976
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Stockholders' 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 2,245
Accumulated other comprehensive loss ( 11)
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Total stockholders' equity 12,766
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Total liabilities and stockholders' equity $ 14,742
========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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GISH BIOMEDICAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended September 30, 2000 and 1999
(unaudited)
<TABLE>
<S> <C> <C>
(In thousands, except share and per share data) 2000 1999
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Net sales $ 4,285 $ 4,416
Cost of sales 3,132 3,441
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Gross profit 1,153 975
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Research and development 249 452
Selling and marketing 1,011 1,109
General and administrative 444 1,114
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Total operating expenses 1,704 2,675
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Operating loss ( 551) ( 1,700)
Interest income 51 65
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Loss before provision for taxes ( 500) ( 1,635)
Provision for taxes - -
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Net loss ($ 500) ($ 1,635)
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Basic and diluted net loss per share ($ .14) ($ .47)
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Basic and diluted weighted average common shares 3,592,145 3,472,084
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</TABLE>
See accompanying notes to condensed consolidated financial statements.
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GISH BIOMEDICAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended September 30, 2000 and 1999
(unaudited)
<TABLE>
<S> <C> <C>
(In thousands) 2000 1999
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Cash flows from operating activities:
Net loss ($ 500) ($ 1,635)
Adjustments:
Depreciation 206 229
Loss on disposal of assets - 280
Amortization 1 1
Deferred rent ( 20) ( 12)
Changes in operating assets and liabilities ( 823) 318
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Net cash provided (used) by operating activities ( 1,136) ( 819)
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Cash flows from investing activities:
Purchases of property and equipment ( 63) ( 194)
Sale (purchase) of short-term investments 189 ( 20)
Increase in other assets ( 6) ( 1)
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Net cash provided (used) by investing activities 120 ( 215)
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Cash flows from financing activities:
Proceeds from stock options exercised - 3
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Net cash provided by financing activities - 3
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Net decrease in cash and cash equivalents ( 1,016) ( 1,031)
Cash and cash equivalents at beginning of period 1,477 2,792
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Cash and cash equivalents at end of period $ 461 $ 1,761
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</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE>
GISH BIOMEDICAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 (unaudited)
1. General
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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 month periods ended
September 30, 2000 and 1999, and financial position at September 30, 2000,
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-KSB for the
year ended June 30, 2000.
Statement of Cash Flows
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Changes in operating assets and liabilities as shown in the condensed
consolidated statements of cash flows comprise (in thousands):
Three Months Ended September 30, 2000 1999
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Decrease(increase) in:
Accounts receivable $ 332 $ 248
Note receivable - 54
Inventories ( 565) ( 93)
Prepaid expenses 47 96
Increase (decrease) in:
Accounts payable ( 583) ( 176)
Accrued compensation and related items ( 24) 49
Other accrued liabilities ( 30) 140
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Change in operating assets and liabilities ($ 823) $ 318
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The Company did not pay any interest or federal income taxes during the
three month period ended September 30, 2000 or September 30, 1999.
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GISH BIOMEDICAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
September 30, 2000
(unaudited)
2. Inventories
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Inventories are stated at the lower of cost (first-in, first-out) or net
realizable value and are summarized as follows (in thousands):
September 30, 2000
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Raw materials $ 4,360
Work in progress $ 1,426
Finished goods $ 2,254
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$ 8,040
3. Loss per share
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The Company calculates 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. Nonrecurring Charges
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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,
consignment inventory shrinkage of $133,000, severance and other costs
associated with 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% as compared to 26.9% reported for the comparable period of the
current fiscal year.
5. Subsequent Event - Early Lease Termination
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In October 2000 the Company completed negotiations with its current landlord
to terminate the lease on its Irvine facility that was due to expire in
December 2002. Pursuant to an agreement the Company will vacate the Irvine
facility in stages commencing in October 2000 and ending in January 2001.
The agreement provides for the current landlord to pay to the Company
incentive fees for this early termination in the aggregate amount of
$1,550,000, $400,000 of which has been received subsequent to September 30,
2000, and the final payment of $1,150,000 is anticipated during January
2001. It is projected that the cash incentive fees received will be used to
pay for the cost of moving and constructing leasehold improvements at a new
facility. As the company vacates the Irvine facility its rental payments are
reduced accordingly. The early termination will require the Company to write
6
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off assets of approximately $700,000, consisting principally of the
unamortized portion of leasehold improvements. This will be offset by
recognizing a benefit for unamortized rent expense of approximately
$211,000. Additionally, this agreement provided mutual releases and the
current landlord withdrew the unlawful detainer action it had earlier
commenced.
In conjunction with the early lease termination the Company entered into a
lease during October 2000 for a new facility in Rancho Santa Margarita,
California. This new lease expires in February 2011 and contains a five-year
renewal option. The lease provides for initial monthly payments, commencing
February 2001, of approximately $34,000 with annual increases, based on the
Consumer Price Index, but in no event less than 3% or more than 5% per
annum. A letter of credit in the amount of $300,000 was posted as a security
deposit for this lease with the Company pledging as collateral a certificate
of deposit in a like amount. The security deposit is to be reduced to
$195,000 and $90,000 during February 2002 and 2003, respectively, based on
provisions contained in the lease. The new landlord agreed to reimburse the
Company $156,000 for leasehold improvements. In November 2000, The Company
entered into a contract in the amount of $1,500,000 for the construction of
improvements to the Rancho Santa Margarita Facility.
The Irvine facility was 150,000 square feet as compared to the Rancho Santa
Margarita facility which contains 52,000 square feet. The Company may be
required to lease additional storage facilities for its finished goods.
7
<PAGE>
ITEM 2. - Management's Discussion and Analysis of Financial Condition and
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Results of Operations
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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 September 30, 2000 with the
three month period ended September 30, 1999. This discussion should be read in
conjunction with the financial statements and associated notes.
Results of Operations:
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The Company incurred a net loss of $500,000, or $.14 basic and diluted net loss
per share, for the three months ended September 30, 2000 compared to a net loss
of $1,635,000, or $.47 basic and diluted net loss per share, for the comparable
period in the prior fiscal year.
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<PAGE>
The decreased loss relative to the three months ended September 30, 1999 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.
In September 1999 the Company concluded that its 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, the Company 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.
The Company had sales of $4,285,000 for the quarter ended September 30, 2000
compared to sales of $4,416,000 for the comparable quarter in the prior fiscal
year.
The $131,000 net sales decrease for the quarter ended September 30, 2000
compared to the quarter ended September 30, 1999 included a general reduction of
sales volume of 10% to 20% across all product lines, except for oxygenator
sales, which increased 49%.
The reduction in sales of products, other than oxygenators, 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 $1,100,000 for the three months ended September 30, 2000
compared to $739,000 for the three months ended September 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.
Gross profit decreased to $1,153,000 for the three months ended September 30,
2000 compared to $1,198,000 (after adjustment for previously discussed
nonrecurring charges) for the three months ended September 30, 1999. The primary
cause of the gross profit decrease was the decrease in sales compared to the
prior year quarter.
Research and development expenses for the three months ended September 30, 2000
were $249,000 compared to $452,000 for the three months ended September 30,
1999. The decrease in expense compared to the comparable quarter in the current
year resulted from the staff reduction in September 1999 and the discontinuation
of the Company's infusion pump business, also in September 1999.
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Selling and marketing expenses for the three months ended September 30, 2000
were $1,011,000 compared to $1,109,000 for the three months ended September 30,
1999. The increase (after adjustment for 1999 non-recurring costs) resulted from
additions to the sales force and increased promotional activities. 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.
For the three months ended September 30, 2000, general and administrative
expenses were $444,000 compared to $1,114,000 for the three months ended
September 30, 1999. The $670,000 decrease from the prior year period 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 three months ended September 30,
1999 also included a charge of $282,000 relating to the Company's 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
prior year period included $56,000 in severance related to the September 1999
reduction in force, $29,000 loss on disposal of fixed assets, and $20,000
accrued legal costs related to the discontinuation of the infusion pump
business.
Liquidity and Capital Resources:
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At September 30, 2000, the Company had cash and cash equivalents of $461,000 and
short-term investments of $685,000. Short-term investments consisted of
government-backed securities.
For the three months ended September 30, 2000 net cash used by operating
activities was $1,136,000 compared to net cash used by operating activities of
$819,000 for the three months ended September 30, 1999. The 1999 $280,000 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.
Net cash provided by investing activities for the three months ended September
30, 2000 was $120,000 compared to net cash used by investing activities of
$215,000 for the three months ended September 30, 1999. The increase in cash
provided from the prior year period resulted primarily from increased sales of
short-term investments and by decreased purchases of manufacturing equipment.
The Company believes the financial incentives to be received from its current
lessor for the early termination of its present lease when combined with the
reimbursement of improvements to be received related to its new facility will be
sufficient to cover the costs associated with relocation. However, the final
costs associated with the relocation can not be determined at this time and the
relocation could result in cash received related to the relocation when combined
with cash generated from operations and 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.
10
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PART II - OTHER INFORMATION
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ITEM 6. - Exhibits and Reports on Form 8-K
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a. Exhibits
10.15 Lease Amendment, Settlement Agreement and Mutual Release
dated October 26, 2000 between ISCO-Irvine North Ltd., and
the Company
10.16 Lease between the Company and Eric and Shirley Pepys dated
October 26, 2000
10.17 Contract dated November 3, 2000 between the Company and
Image Builders Consortium, Inc.
27 Financial Data Schedule for the three months ended September
30, 2000
b. Reports on Form 8-K
None.
11
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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: November 14, 2000 /s/ Leslie M. Taeger
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Leslie M. Taeger
Vice President/CFO
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