UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended: June 30, 1996
Commission File No.: 0-18900
EVEREST MEDICAL CORPORATION
(Exact name of small business issuer as specified in its charter)
13755 1st Avenue North, Suite 500, Minneapolis, MN 55441-5454
(Address of Principal executive offices) (Zip Code)
(612) 473-6262
(Issuer's Telephone number, including area code)
MINNESOTA 41-1454928
(State of incorporation) (IRS Employer I.D.#)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for 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 ___
As of August 12,1996 6,617,298 shares of Common Stock of the Registrant were
outstanding.
Transitional Small Business Disclosure Format (check one): YES___ NO X
<PAGE>
<TABLE>
<CAPTION>
EVEREST MEDICAL CORPORATION
BALANCE SHEETS
June 30,1996 December 31, 1995
(Unaudited) (Note)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 742,563 $ 1,028,476
Accounts receivable, net 1,001,275 916,341
Inventories 871,299 658,754
Prepaid insurance and deposits 67,346 51,506
- ----------------------------------------------------------------------------------------------------------------------
Total current assets 2,682,484 2,655,077
Equipment
Office and display equipment 382,175 374,278
Research and development equipment 188,715 188,715
Production equipment 995,741 941,010
---------- ----------
1,566,631 1,504,003
Less allowance for depreciation (1,313,293) (1,233,782)
- ----------------------------------------------------------------------------------------------------------------------
253,337 270,221
Patents, net of amortization 25,026 34,754
- ----------------------------------------------------------------------------------------------------------------------
Total assets $ 2,960,847 $ 2,960,052
======================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Customer advances $ 168,000 $ 168,000
Accounts payable 203,078 216,450
Accrued compensation and related taxes 190,322 140,889
Other accrued liabilities 124,441 85,113
Convertible notes, current portion - 488,975
Capital lease obligations, current portion 15,897 28,320
- ----------------------------------------------------------------------------------------------------------------------
Total current liabilities 701,738 1,127,747
Capital lease obligations, net of current portion 3,379 9,138
Other accrued liabilities, net of current portion 54,167 -
Convertible notes, net of current portion - 126,700
Shareholders' equity
Convertible preferred stock series A,
($.01 par value, $2.50 liquidation value) 1,400,000 authorized;
outstanding: 1996 - 756,237 shares; 1995 - 1,092,937 shares 1,859,967 2,701,717
Convertible preferred stock series B,
($.01 par value, $2.75 liquidation value) authorized and
outstanding: 1996 - 662,273 shares; 1995 - 727,273 shares 1,614,063 1,792,813
Convertible preferred stock series C,
($.01 par value, $2.75 liquidation value) authorized and
outstanding: 1996 - 410,906 shares; 1995 - 410,906 shares 1,002,832 1,002,832
Convertible preferred stock series D,
($.01 par value, $2.875 liquidation value) authorized and
outstanding: 1996 - 471,500 shares; 1995 - 471,500 shares 1,205,807 1,205,807
Common stock, ($.01 par value) 12,461,821 authorized;
outstanding: 1996 - 6,609,168; 1995 - 5,782,800 66,092 58,067
Additional paid-in capital 16,163,541 14,121,227
Retained deficit (19,710,738) (19,185,996)
- ----------------------------------------------------------------------------------------------------------------------
2,201,563 1,696,467
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 2,960,847 $ 2,960,052
======================================================================================================================
</TABLE>
Note: The balance sheet at December 31, 1995 is derived from the audited
financial statements at that date.
<PAGE>
EVEREST MEDICAL CORPORATION
STATEMENT OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
3 Months Ended June 30 6 Months Ended June 30
1996 1995 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 1,470,291 $ 1,027,119 $ 2,770,424 $ 2,059,613
Cost of goods sold 826,260 596,762 1,540,143 1,248,860
- ---------------------------------------------------------------------------------------------------------------------------
Gross margin 644,031 430,357 1,230,281 810,753
Cost and expenses:
Sales and marketing 365,933 266,610 743,009 493,507
Research and development 159,894 143,896 316,777 287,751
General and administrative 180,692 172,912 364,065 348,325
- ---------------------------------------------------------------------------------------------------------------------------
Total operating expenses 706,519 583,418 1,423,851 1,129,583
Interest and other income (6,137) (12,489) (35,257) (34,380)
Interest expense 128,229 30,208 150,277 62,372
- ---------------------------------------------------------------------------------------------------------------------------
Net loss (184,580) (170,780) (308,589) (346,822)
Less preferred stock dividends 90,579 62,600 181,418 125,200
- ---------------------------------------------------------------------------------------------------------------------------
Loss applicable to common stock $ (275,159) $ (233,380) $ (490,007) $ (472,022)
===========================================================================================================================
Net loss per common share $ (0.05) $ (0.04) $ (0.08) $ (0.08)
===========================================================================================================================
Weighted average number of shares outstanding
during the period 6,012,867 5,785,514 5,925,081 5,780,620
===========================================================================================================================
</TABLE>
<PAGE>
EVEREST MEDICAL CORPORATION
STATEMENT OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30
1996 1995
OPERATING ACTIVITIES
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net loss $ (308,589) $ (346,822)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization 89,241 120,973
Loss on sale and disposal of equipment - 4,429
Provision for losses on accounts receivable 15,000 (25,556)
Provision for inventory obsolescence 48,977 14,037
Changes in operating assets and liabilities
Accounts receivable (100,241) 55,628
Inventories (261,215) (50,463)
Prepaid expenses (15,841) (6,843)
Customer advances - 85,470
Accounts payable and accrued expenses 132,513 58,619
- --------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (400,155) (90,528)
INVESTING ACTIVITIES
Purchase of equipment (62,629) (25,877)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (62,629) (25,877)
FINANCING ACTIVITIES
Dividends paid (113,640) (160,000)
Proceeds from debt 500,000 -
Proceeds from warrants and options 427,326 -
Principal payments on debt and capital leases (636,815) (164,277)
Net proceeds from sale of common stock - 16,630
Net proceeds from sale of preferred stock - -
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 176,871 (307,647)
- ---------------------------------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (285,913) (424,052)
Cash and cash equivalents at beginning of period 1,028,476 1,326,353
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 742,563 $ 902,301
===========================================================================================================================
</TABLE>
<PAGE>
EVEREST MEDICAL CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 1996
Note A - Business Activity
Everest Medical Corporation is engaged in the development, manufacturing and
marketing of bipolar electrosurgical devices for the gastrointestinal endoscopy,
laparoscopy and other minimally invasive surgery markets. The Company no longer
considers itself in the development stage.
Note B - Basis of Presentation
The accompanying unaudited, condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for three months ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1996. For further information, refer to the financial statements
and footnotes thereto included in the Company's annual report on Form 10-KSB for
the year ended December 31, 1995.
Note C - Debt
The $500,000 convertible note was converted to 200,000 shares of common stock on
June 28, 1996. The supplemental loss per share, as if the conversion had
occurred on the date of issuance (February 18, 1996) of the notes, would be
$.08.
(5)
<PAGE>
Part I - Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
RESULTS OF OPERATIONS
Net Sales. Net sales in the second quarter of 1996 were $1,470,291, an increase
of $443,172, or 43%, from the second quarter of 1995. This sales increase was a
combination of the expansion of the Everest-branded laparoscopy product line and
strong growth of the Company's OEM laparoscopy customers. The sales increases
were offset in part by declines in the shipments of the Company's
gastrointestinal products, in particular bipolar snares to Japan.
Net sales for the six months ended June 30, 1996 were $2,770,424, an increase of
$710,811, or 35% from the same period of 1995. The sales for the period reflect
the ongoing growth in the Company's laparoscopy product offerings with growth of
70% in the Everest distribution channel and a 62% growth in sales to its OEM
laparoscopy customers. These sales increases were offset by a 41% decline in
shipments of bipolar snares to Japan.
The Company realized an increase of 70% in its Everest-branded laparoscopy
product sales for the first six months of 1996 which reflects the ongoing sales
and marketing effort to focus on the Company's independent distribution channel.
Sales of the BiCOAG(R) Bipolar Cutting Forceps account for 24% of the sales in
this segment for the first six months. The Company, during the second quarter
commenced shipments of a new locking feature on the 10mm version of this device
and also commenced shipments of a 5mm version of the BiCOAG Cutting Forceps late
in the quarter. The Company expects this category will continue to lead the
growth of Everest-branded laparoscopy for the balance of 1996.
For the year, the Company has experienced a 62% increase in shipments to its OEM
laparoscopy customers. The Company expects these levels of growth will slow
throughout the second half of 1996 as the inventory levels of these customers
appear to be in balance. The Company has experienced a 41% decline in shipments
of its bipolar snare to Japan due to delays in obtaining regulatory approval.
The Company expects, now that approval has been obtained, that sales of this
product to Japan will continue to grow throughout the balance of 1996.
Additionally, the Company experienced a 4% growth in sales of its private label
version of the bipolar coagulating probe to C.R. Bard in the first six months.
The Company expects this level of sales to continue throughout the balance of
1996 as this product line appears to have reached a mature level of sales.
(6)
<PAGE>
Gross Margin. Gross margin in the second quarter of 1996 was 43.8% of sales
compared to 41.9% of sales for the second quarter of 1995. The improved gross
margin was primarily a reflection of the growing share of Everest-branded
products. Gross margin increased from 1995 levels due to the strong sales mix of
Everest-branded products, ongoing expense controls implemented by the Company,
increased production levels and raw materials cost reductions.
Gross margin for the first six months of 1996 was 44.4% as compared to 39.4% for
the same period of 1995. The increase in gross margin is reflective of the sales
increases, the growing share of Everest-branded products and the higher
production levels. The Company expects that the gross margin will continue to
improve from 1995 levels due to the sales growth in Everest-branded products and
increased production output.
Sales and Marketing. Sales and marketing expenses for the second quarter of 1996
were $365,933, an increase of $99,323, or 37%, from the same period in 1995.
This increase was a result of the growth in commission expenses due to changing
sales mix to a larger portion of Everest-branded sales, the ongoing marketing
efforts with the use of new product samples, the additional clinical fees to
promote the product through professional articles and papers, and the full
impact of staff additions made throughout 1995. For the first six months of
1996, sales and marketing expenses were $743,009, an increase of $249,502, or
51% from the same period of 1995. The Company expects the level of spending on
sales and marketing to continue to increase in 1996 compared to 1995 levels due
to the growth in Everest-branded sales and strategic marketing investments.
Research and Development. Research and development expenses for the second
quarter of 1996 were $159,894 , an increase of $15,998 , or 11%, from the same
period in 1995. The Company experienced an increase in costs due to the ongoing
development of the BiCOAG Cutting Forceps to add a locking mechanism and the
introduction of a 5mm version. Shipments of the cutting forceps with the new
locking feature commenced in April and the 5mm version in June. The Company also
continues to support its intellectual property portfolio and incur professional
fees in support of these activities. For the first six months of 1996, research
and development expenses were $316,777 an increase of $29,026, or 10% from the
same period of 1995. The Company expects spending in this area to increase over
1995 levels due to development projects and intellectual property issues.
General and Administrative. General and administrative expense for the second
quarter of 1996 were $180,692, an increase of $7,780, or 4%, from the same
period of 1995. For the first six months of 1996, general and administrative
expenses were $364,064, an increase of $15,740, or 4% from the same period of
1995. The Company does not expect significant general and administrative cost
increases in the near future.
(7)
<PAGE>
Net Loss. Net loss for the second quarter was $184,580 compared to a net loss of
$170,780 for the same quarter in 1995. The second quarter loss was increased
from the second quarter of 1995 due to the Company recording a one-time charge
of $111,042 for the balance of the fee due the noteholder on the Company's
$500,000 note which was converted to 200,000 shares of common stock on June 28,
1996. Aside from this financing activity the Company reduced its operating loss
in the second quarter due primarily to the growth in sales, the increase in
gross margin as a result of the changing sales mix and the continued cost
control efforts initiated by management. The net loss for the first six months
of 1996 was $308,589 compared to a net loss of $346,822 for the first six months
of 1995. The Company believes that with its changing sales mix, the projected
sales increases and its continuing control of its operating expenses will result
in the Company approaching profitability by year-end.
LIQUIDITY and CAPITAL RESOURCES
Cash and cash equivalents were $742,563 on June 30, 1996 compared to $1,028,476
on December 31, 1995. The Company used $400,155 of cash in operating activities
in the first six months of 1996 compared to $90,528 for the same period of 1995.
Operating activities in the first six months included an increase in accounts
receivable due to the sales growth, an increase in inventories relating to the
increasing demand and achievement of desired inventory levels and a growth in
accounts payable.
The Company spent $62,629 on capital equipment in the first six months of 1996
and expects this level of investment to remain constant over the next two
quarters as the Company redesigns the handle of its laparoscopy product line. In
the second quarter of 1996 the $500,000 note, raised in February to pay off
outstanding principal and interest under certain 13% notes, was converted into
200,000 shares of common stock. The Company also raised $427,326 from the
exercise of warrants and options in the second quarter of 1996. In addition,
401,700 shares of preferred stock were converted to common shares in the first
six months of 1996. The Company also met its obligation on preferred stock
dividends of $113,640.
The Company believes it has sufficient capital to fund operations through 1996,
on the assumption that its sales goals are met and there are no significant
unexpected expenditures. If for any reason the Company's sales goals are not met
or it incurs significant unexpected expenditures, the Company may require
additional debt or equity financing. There is no assurance that such financing
will be available.
Certain statements in this Management's Discussion and Analysis section are
forward looking statements that involve a number of risks and uncertainties,
including those described in the Company's Form 10-KSB for the year ended
December 31, 1995 under Part I "Cautionary Statements."
EFFECT OF INFLATION
The Company does not believe that inflation will have a significant effect on
operations.
(8)
<PAGE>
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting on Tuesday, April 30, 1996. Proxies for the
Annual Meeting were solicited pursuant to Regulation 14 under the Securities
Exchange Act of 1934. There was no solicitation in opposition to management's
nominees as listed in the Company's proxy statement, and all nominees were
elected.
The following persons were elected to serve as directors of the Company, by the
votes indicated, until the next annual meeting of shareholders:
Number of Number of
Nominee Votes For Votes Withheld
------- --------- --------------
David D. Koentopf 7,030,382 38,513
John L. Shannon, Jr. 7,027,006 41,889
Donald R. Brattain 7,036,082 32,813
Richard J. Migliori, M.D. 7,031,682 37,213
By a vote of 6,805,592 shares in favor, with 244,631 shares opposed and 18,312
shares abstaining, the shareholders also ratified the appointment of Ernst &
Young LLP as independent auditors for the fiscal year ending December 31, 1996.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits:
27. Financial Data Schedule (filed with electronic version only)
(b) Reports on Form 8-K:
None filed in the period.
(9)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
EVEREST MEDICAL CORPORATION
August 13, 1996 By: /s/ John L. Shannon, Jr.
John L. Shannon, Jr.,
President and Chief Executive Officer
(Principal executive officer)
August 13, 1996 By: /s/ Thomas F. Murphy
Thomas F. Murphy
Chief Financial Officer and Assistant
Secretary (Principal financial and
accounting officer)
(10)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 742,563
<SECURITIES> 0
<RECEIVABLES> 1,032,275
<ALLOWANCES> 31,000
<INVENTORY> 871,299
<CURRENT-ASSETS> 2,682,484
<PP&E> 1,566,631
<DEPRECIATION> 1,313,293
<TOTAL-ASSETS> 2,960,847
<CURRENT-LIABILITIES> 701,738
<BONDS> 0
5,682,669
0
<COMMON> 66,092
<OTHER-SE> 16,163,541
<TOTAL-LIABILITY-AND-EQUITY> 2,960,847
<SALES> 2,770,424
<TOTAL-REVENUES> 2,770,424
<CGS> 1,540,143
<TOTAL-COSTS> 1,423,851
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 150,277
<INCOME-PRETAX> (490,007)
<INCOME-TAX> 0
<INCOME-CONTINUING> (490,007)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (490,007)
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
