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: September 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 November 6, 1996 6,965,886 shares of Common Stock of the Registrant were
outstanding.
Transitional Small Business Disclosure Format (check one): YES___ NO X
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
<TABLE>
<CAPTION>
EVEREST MEDICAL CORPORATION
BALANCE SHEETS
September 30,1996 December 31, 1995
(Unaudited) (Note)
---------- -----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 901,190 $ 1,028,476
Accounts receivable, net 1,093,946 916,341
Inventories 847,849 658,754
Prepaid insurance and deposits 108,678 51,506
------------ ------------
Total current assets 2,951,663 2,655,077
Equipment
Office and display equipment 398,043 374,278
Research and development equipment 188,715 188,715
Production equipment 1,015,625 941,010
------------ ------------
1,602,384 1,504,003
Less allowance for depreciation (1,347,781) (1,233,782)
------------ ------------
254,603 270,221
Patents, net of amortization 20,162 34,754
------------ ------------
Total assets $ 3,226,428 $ 2,960,052
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Customer advances $ 168,000 $ 168,000
Accounts payable 206,196 216,450
Accrued compensation and related taxes 149,664 140,889
Other accrued liabilities 135,742 85,113
Convertible notes, current portion -- 488,975
Capital lease obligations, current portion 10,745 28,320
------------ ------------
Total current liabilities 670,346 1,127,747
Capital lease obligations, net of current portion 2,945 9,138
Other accrued liabilities, net of current portion 37,917 --
Convertible notes, net of current portion -- 126,700
Shareholders' equity
Convertible preferred stock series A, ($.01 par value,
$2.50 liquidation value) 1,400,000 authorized; outstanding:
1996 - 636,937 shares; 1995 - 1,092,937 shares 1,561,717 2,701,717
Convertible preferred stock series B, ($.01 par value,
$2.75 liquidation value) authorized and outstanding:
1996 - 652,273 shares; 1995 - 727,273 shares 1,586,563 1,792,813
Convertible preferred stock series C, ($.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 -6,965,586; 1995 - 5,782,800 69,656 58,067
Additional paid-in capital 17,078,786 14,121,227
Retained deficit (19,990,141) (19,185,996)
------------ ------------
2,515,220 1,696,467
------------ ------------
Total liabilities and shareholders' equity $ 3,226,428 $ 2,960,052
============ ============
</TABLE>
Note: The balance sheet at December 31, 1995 is derived from the audited
financial statements at that date.
<PAGE>
<TABLE>
<CAPTION>
EVEREST MEDICAL CORPORATION
STATEMENT OF OPERATIONS (Unaudited)
3 Months Ended September 30 9 Months Ended September 30
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales $ 1,521,472 $ 1,001,564 $ 4,291,896 $ 3,061,177
Cost of goods sold 869,312 709,646 2,409,456 1,958,506
---------- ---------- ---------- ----------
Gross margin 652,160 291,918 1,882,440 1,102,671
Cost and expenses:
Sales and marketing 365,431 313,044 1,108,439 806,551
Research and development 136,924 125,619 453,701 413,371
General and administrative 189,503 155,669 553,568 503,994
---------- ---------- ---------- ----------
Total operating expenses 691,858 594,332 2,115,708 1,723,916
Interest and other income (10,685) (53,016) (45,943) (92,395)
Interest expense 613 30,966 150,889 98,337
---------- ---------- ---------- ----------
Net loss (29,626) (280,364) (338,214) (627,187)
Less preferred stock dividends 86,714 62,600 268,132 187,800
---------- ---------- ---------- ----------
Loss applicable to common stock $ (116,340) $ (342,964) $ (606,346) $ (814,987)
---------- ---------- ---------- ----------
Net loss per common share $ (0.02) $ (0.06) $ (0.10) $ (0.14)
---------- ---------- ---------- ----------
Weighted average number of shares outstanding
during the period 6,709,014 5,796,963 6,170,246 5,785,051
-----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EVEREST MEDICAL CORPORATION
STATEMENT OF CASH FLOWS (Unaudited)
Nine Months Ended September 30
1996 1995
------ ------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (338,266) $ (627,189)
Adjustments to reconcile net loss to net cash used
in operating activities
Depreciation and amortization 128,592 164,794
Loss on sale and disposal of equipment -- 4,429
Provision for losses on accounts receivable 22,500 (23,056)
Provision for inventory obsolescence 52,810 19,037
Changes in operating assets and liabilities
Accounts receivable (200,411) 55,628
Inventories (241,598) (50,463)
Prepaid expenses (57,172) (6,843)
Customer advances -- 85,470
Accounts payable and accrued expenses 95,439 58,619
----------- -----------
Net cash used in operating activities (538,106) (319,574)
INVESTING ACTIVITIES
Purchase of equipment (98,382) (25,877)
----------- -----------
Net cash used in investing activities (98,382) (25,877)
FINANCING ACTIVITIES
Dividends paid (302,021) (160,000)
Proceeds from debt 500,000 --
Proceeds from warrants and options 939,456 --
Principal payments on debt and capital leases (647,817) (164,277)
Net proceeds from sale of common stock 19,584 16,630
Net proceeds from sale of preferred stock -- --
----------- -----------
Net cash provided by financing activities 509,202 (307,647)
----------- -----------
Decrease in cash and cash equivalents (127,286) (653,098)
Cash and cash equivalents at beginning of period 1,028,476 1,326,353
----------- -----------
Cash and cash equivalents at end of period $ 901,190 $ 902,301
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</TABLE>
<PAGE>
EVEREST MEDICAL CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
September 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 September 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 third quarter of 1996 were $1,521,472, an increase
of $519,908, or 52%, from the third quarter of 1995. This sales increase was a
combination of the expansion of the Everest-branded laparoscopy product line and
strong growth in the sales to the Company's OEM laparoscopy customers.
Net sales for the nine months ended September 30, 1996 were $4,291,896, an
increase of $1,230,719, or 40%,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 71% in the Everest distribution channel and a 63% growth in sales
to its OEM laparoscopy customers.
Bard.
The Company realized an increase of 71% in its Everest-branded laparoscopy
product sales for the first nine 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 15% of the sales in
this segment for the first nine months. The Company commenced shipments of a 5mm
version of the BiCOAG Cutting Forceps late in the second quarter. The demand for
this product and the 10mm version has contributed significantly to the growth of
Everest-branded sales. The Company expects that its sales of this product will
continue to lead the growth of Everest-branded laparoscopy for the balance of
1996.
For the year, the Company has experienced a 63% increase in shipments to its OEM
laparoscopy customers. The Company expects these levels of growth will slow in
the fourth quarter of 1996 as the inventory levels of these customers appear to
be in balance. The Company has experienced flat shipments of its bipolar snare
to Japan for the year despite the 81% increase in third quarter sales, due to
delays in obtaining regulatory approval. Additionally, the Company experienced a
11% decline in sales of its private label version of the bipolar coagulating
probe to C.R. Bard in the first nine 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 third quarter of 1996 was 42.9% of sales
compared to 29.1% of sales for the third 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 nine months of 1996 was 43.9% as compared to 36.0%
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 third quarter of 1996
were $365,431, an increase of $52,387, or 17%, 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 nine months of
1996, sales and marketing expenses were $1,108,439, an increase of $301,888, or
37% 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 third
quarter of 1996 were $136,924, an increase of $11,305, or 9%, 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 nine months of 1996, research
and development expenses were $453,701, an increase of $40,330, 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 third
quarter of 1996 were $189,503, an increase of $33,834, or 22%, from the same
period of 1995. For the first nine months of 1996, general and administrative
expenses were $553,568, an increase of $49,574, or 10%, from the same period of
1995. The cost increase is primarily related to additional legal fees associated
with recent registration statements and higher insurance costs. The Company does
not expect significant general and administrative cost increases in the near
future.
(7)
<PAGE>
Net Loss. Net loss for the third quarter was $29,626 compared to a net loss of
$280,364 for the same quarter in 1995. The third quarter loss was decreased from
the third quarter of 1995 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 nine months
of 1996 was $338,214 compared to a net loss of $627,187 for the first nine
months of 1995. The Company recorded a one-time charge of $111,042 for the
balance of the fee due the noteholder of a $500,000 Company note which was
converted to 200,000 shares of common stock on June 28, 1996.
LIQUIDITY and CAPITAL RESOURCES
Cash and cash equivalents were $901,190 on September 30, 1996 compared to
$1,028,476 on December 31, 1995. The Company used $538,106 of cash in operating
activities in the first nine months of 1996 compared to $319,574 for the same
period of 1995. Operating activities in the first nine 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 $98,382 on capital equipment in the first nine months of 1996
and expects this level of investment to remain constant over the next quarter as
the Company redesigns the handle of its laparoscopy product line. In the second
quarter of 1996 the $500,000 note, sold 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 third quarter of 1996. In addition, 401,700 shares
of preferred stock were converted to common shares in the first nine months of
1996. The Company also met its obligation on preferred stock dividends of
$302,021.
The Company believes it has sufficient capital to fund operations for the next
twelve month based on its current cash position and the just completed Revolving
Line of Credit agreement with Riverside Bank for $300,000. Based on the current
cash position, the credit facility and the projections of revenues and expenses,
the Company believes that it will be able to meet its working capital needs for
the next 12 months.
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 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
November 12, 1996 By: /s/ John L. Shannon, Jr.
John L. Shannon, Jr.,
President and Chief Executive Officer
(Principal executive officer)
November 12, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 901,190
<SECURITIES> 0
<RECEIVABLES> 1,093,946
<ALLOWANCES> 38,500
<INVENTORY> 847,849
<CURRENT-ASSETS> 2,951,663
<PP&E> 1,602,384
<DEPRECIATION> 1,347,781
<TOTAL-ASSETS> 3,226,428
<CURRENT-LIABILITIES> 670,346
<BONDS> 0
0
5,356,919
<COMMON> 69,656
<OTHER-SE> (2,911,355)
<TOTAL-LIABILITY-AND-EQUITY> 3,226,428
<SALES> 4,291,896
<TOTAL-REVENUES> 4,291,896
<CGS> 2,409,456
<TOTAL-COSTS> 2,115,708
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 38,500
<INTEREST-EXPENSE> 150,889
<INCOME-PRETAX> (338,214)
<INCOME-TAX> 0
<INCOME-CONTINUING> (338,214)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (338,214)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
</TABLE>
