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: March 31, 1997
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 May 9, 1997, 7,020,934 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
EVEREST MEDICAL CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
(Unaudited) (Note)
------------ ------------
ASSETS
Current assets
<S> <C> <C>
Cash and cash equivalents $ 379,697 $ 712,810
Accounts receivable, net 1,154,108 1,135,545
Inventories 853,632 780,129
Prepaid insurance and deposits 128,814 167,739
------------ ------------
Total current assets 2,516,251 2,796,223
Equipment
Office and display equipment 423,585 396,794
Research and development equipment 188,715 188,715
Production equipment 1,135,701 1,040,134
------------ ------------
1,748,001 1,625,643
Less allowance for depreciation (1,415,142) (1,376,389)
------------ ------------
332,859 249,254
Patents, net of amortization 11,212 15,491
------------ ------------
Total assets $ 2,860,322 $ 3,060,968
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Customer advances $ 18,000 $ 18,000
Accounts payable 423,472 241,766
Accrued compensation and related taxes 178,301 165,917
Other accrued liabilities 126,178 171,490
Convertible notes, current portion -- --
Capital lease obligations, current portion 3,660 5,409
------------ ------------
Total current liabilities 749,611 602,582
Capital lease obligations, net of current portion -- 2,496
Other accrued liabilities, net of current portion -- 16,250
Convertible notes, net of current portion -- --
Shareholders' equity
Convertible preferred stock series A,
($.01 par value, $2.50 liquidation value)
1,400,000 authorized; outstanding:
1997 - 636,937 shares; 1996 - 636,937 shares 1,561,717 1,561,717
Convertible preferred stock series B,
($.01 par value, $2.75 liquidation value)
authorized and outstanding:
1997 - 652,273 shares; 1995 - 652,273 shares 1,586,563 1,586,563
Convertible preferred stock series C,
($.01 par value, $2.75 liquidation value)
authorized and outstanding:
1997 - 410,906 shares; 1996 - 410,906 shares 1,002,832 1,002,832
Convertible preferred stock series D,
($.01 par value, $2.875 liquidation value)
authorized and outstanding:
1997 - 471,500 shares; 1996 - 471,500 shares 1,205,808 1,205,808
Common stock, ($.01 par value) 12,461,821 authorized;
outstanding:
1997 - 7,005,937 shares; 1996 - 6,970,912 shares 70,059 69,709
Additional paid-in capital 17,158,237 16,240,199
Retained deficit (20,474,505) (19,227,188)
------------ ------------
2,110,711 2,439,640
------------ ------------
Total liabilities and shareholders' equity $ 2,860,322 $ 3,060,968
============ ============
</TABLE>
Note: The balance sheet at December 31, 1996 is derived from the audited
financial statements at that date.
(2)
<PAGE>
EVEREST MEDICAL CORPORATION
STATEMENT OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
3 Months Ended March 31
1997 1996
----------- -----------
<S> <C> <C>
Net sales $ 1,504,805 $ 1,300,134
Cost of goods sold 917,672 713,883
----------- -----------
Gross margin 587,133 586,251
Cost and expenses:
Sales and marketing 528,513 377,075
Research and development 175,186 156,883
General and administrative 200,110 183,373
----------- -----------
Total operating expenses 903,809 717,331
Interest and other income (6,743) (29,120)
Interest expense 206 22,048
----------- -----------
Net loss (310,139) (124,008)
Less preferred stock dividends 86,716 90,839
----------- -----------
Loss applicable to common stock $ (396,855) $ (214,847)
=========== ===========
Net loss per common share $ (0.06) $ (0.04)
=========== ===========
Weighted average number of shares
outstanding during the period 6,993,111 5,808,700
=========== ===========
</TABLE>
(3)
<PAGE>
EVEREST MEDICAL CORPORATION
STATEMENT OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31
1997 1996
----------- -----------
OPERATING ACTIVITIES
<S> <C> <C>
Net loss $ (310,139) $ (124,008)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 43,035 45,693
Loss on sale and disposal of equipment -- --
Provision for losses on accounts receivable 227 7,500
Provision for inventory obsolescence -- 27,897
Changes in operating assets and liabilities
Accounts receivable (13,788) (130,304)
Inventories (78,505) (153,750)
Prepaid expenses 38,925 (16,379)
Customer advances -- --
Accounts payable and accrued expenses 132,002 150,782
----------- -----------
Net cash used in operating activities (188,243) (192,569)
INVESTING ACTIVITIES
Purchase of equipment (122,359) (43,314)
----------- -----------
Net cash used in investing activities (122,359) (43,314)
FINANCING ACTIVITIES
Dividends paid (86,716) (56,950)
Proceeds from debt -- --
Proceeds from warrants and options -- --
Principal payments on debt and capital leases (3,723) (126,564)
Net proceeds from sale of common stock 67,928 --
----------- -----------
Net cash provided by (used in) financing activities (22,511) (183,514)
----------- -----------
Decrease in cash and cash equivalents (333,113) (419,397)
Cash and cash equivalents at beginning of period 712,810 1,028,476
----------- -----------
Cash and cash equivalents at end of period $ 379,697 $ 609,079
=========== ===========
</TABLE>
(4)
<PAGE>
EVEREST MEDICAL CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1997
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 March 31, 1997 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1997. 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, 1996.
Note C - Net Loss Per Share
Net loss per share is computed using the weighted average number of common
shares outstanding during the period. Common equivalent shares from stock
options and warrants are excluded from the computations as their effect is
antidilutive. In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings Per Share. This statement replaces the presentation
of primary earnings per share (EPS) with basic EPS and also requires dual
presentation of basic and diluted EPS foe entities with complex capital
structures. This Statement is effective for the fiscal year ending December 31,
1997. For the quarter ended March 31, 1997, there is no difference between the
basic earnings per share under Statement No. 128 and the primary net loss per
share as reported.
(5)
<PAGE>
Part I - Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
RESULTS OF OPERATIONS
Net Sales. Net sales in the first quarter of 1997 were $1,504,805, an increase
of $204,671, or 16%, from the first quarter of 1996. This sales increase was a
result of growth of Everest-branded laparoscopy product line offset by declines
in the Company's OEM business for laparoscopy and gastrointestinal products.
The Company realized an increase of 44% in its Everest-branded laparoscopy
product sales during the first quarter. This growth reflected the impact of the
BiCOAG(R) Bipolar Cutting Forceps which became the largest product line for the
Company and led the Everest-branded laparoscopy segment to its first $1,000,000
quarter in the Company's history. The balance of the product line was off
slightly from the same quarter of 1996.
The Company experienced a 40% decline in its OEM shipments of a private label
version of the Company's classic tip forceps to Ethicon Endo-Surgery, a division
of Johnson & Johnson, and Origin Medsystems, a division of Guidant Corporation,
as these customers balanced their inventory levels to be more reflective of
end-user demand. Sales of the Company's polypectomy snare to Japan decreased 73%
from the same quarter of 1996. The decline resulted primarily from the
distributor managing its inventory levels in anticipation for regulatory
approval of Everest's new version of the bipolar snare, which approval was
received in April. Sales of a version of the coagulating probe to C.R. Bard
increased 5%, as compared to the first quarter of 1996.
Gross Margin. Gross margin in the first quarter of 1997 was 39.0% of sales
compared to 45.1% of sales for the first quarter of 1996. The decline in gross
margin was caused by early product-cycle costs as the Company increased
production of the 5mm BiCOAG Cutting Forceps to meet the strong demand. The
impact of such decline was offset by the benefits realized from increased sales
of Everest-branded products.
Sales and Marketing. Sales and marketing expenses for the first quarter of 1997
were $528,513 an increase of $154,438, or 41%, from the same period in 1996. The
increase was a result of increased staffing to support the growing
Everest-branded product sales, marketing initiatives aimed at the Company's
participation in the emerging minimally invasive cardiovascular market, and
increases in commissions and training costs.
( 6 )
<PAGE>
Research and Development. Research and development expenses for the first
quarter of 1997 were $175,186, an increase of $18,303, or 12%, from the same
period in 1996. The Company experienced an increase in expenses due primarily to
the effort of pursuing ISO 9000 and CE Mark certification for its products to
benefit its international sales efforts.
General and Administrative. General and administrative expenses for the first
quarter of 1997 were $200,110, an increase of $16,737, or 9%, from the same
period of 1996. The Company experienced an increase in expenses as compared to
the same period of 1996 primarily due to increased costs for D&O insurance and
increased activities in investor relations, specifically the retention of an
investor relations firm.
Net Loss. Net loss for the first quarter was $310,140 compared to a net loss of
$124,008 for the same quarter in 1996. The first quarter loss was greater than
the first quarter loss of 1996 primarily due to the unfavorable impact on gross
margin of early product-cycle costs and related manufacturing inefficiencies.
Additionally, operating expenses increased reflecting the Company's planned
initiatives of ISO/CE Mark certification, marketing initiatives for the
minimally invasive cardiac surgery market and increased sales and marketing
costs to manage the sales growth and productivity of the Company's independent
sales force.
LIQUIDITY and CAPITAL RESOURCES
Cash and short-term investments were $379,697 on March 31, 1997 compared to
$712,810 on December 31, 1996. The Company used $188,243 of cash in operating
activities in the first three months of 1997 compared to $192,569 for the same
period of 1996. Operating activities in the first three months included an
increase in accounts receivable due to the sales growth. The Company also
experienced an increase in inventories, accounts payable and other accrued
expenses.
The Company spent $122,359 on capital equipment in the first three months and
expects this level of investment to decline over the next two quarters. During
the quarter, the Company also met its obligation on preferred stock dividends of
$86,716 and raised $67,928 from exercise of options and warrants.
The Company secured a $1,000,000 line of credit with Riverside Bank on May 6,
1997. This credit facility is intended to meet the Company's working capital
needs for 1997. The Company believes the line of credit will provide for the
Company's working capital needs for the balance of 1997. The line carries a rate
of interest equal to prime and was secured via an arrangement with a private
investor.
The Company believes that cash and short-term investments onhand, cash generated
from operations and funds available from its line of credit will be sufficient
to fund operations for at least the next twelve months assuming that its sales
goals are met and there are no significant unexpected expenditures.
( 7 )
<PAGE>
EFFECT OF INFLATION
The Company does not believe that inflation will have a significant effect on
operations.
OUTLOOK AND RISKS
As provided for under the Private Securities Litigation Reform Act of 1995, the
Company wishes to caution investors that the following important factors, among
others, in some cases have affected and in the future could affect the Company's
actual results of operations and cause such results to differ materially from
those anticipated in forward-looking statements made in this document.
Everest-branded laparoscopy product sales. The Company expects that as it
continues to invest in sales and marketing support programs, increased revenues
will result from the Everest-branded laparoscopy products as it gains market
share. In addition, the Company expects its recent introduction of a new smaller
version of its BiCOAG Bipolar Cutting Forceps to contribute to greater sales of
Everest-branded products. The Company also expects that surgeons will increase
their use of bipolar technology as alternative to existing monopolar and
ultrasonic technologies because bipolar technology provides a safe and effective
way of cutting and coagulating tissue in minimally invasive laparoscopy and
gynecology procedures. There are no assurances that the Company will be
successful in increasing its market share as it competes with large,
well-capitalized companies who have the ability to enter into contract
purchasing agreements with large institutions due to their broad product
offerings which may exclude the Company's products.
Sales of OEM products and GI products. Although there can be no assurance, the
Company expects sales to its OEM laparoscopy customers to meet expectations in
the short term, but at levels reduced from 1996. The Company expects sales of
its gastrointestinal products to meet its expectations which are at increased
levels from those of 1996.
New version of bipolar snare. The Company received regulatory approval in April
on its new bipolar snare version, and shipments of its bipolar snares are
expected to increase in the second quarter. There can be no assurance that such
new version will compete more favorably with other polypectomy snares on the
market.
Gross margins. The Company expects its gross margins for the remainder of 1997
to rebound to levels experienced in the past. The Company believes such
improvements in margins will result from production efficiencies and higher
sales levels. There can be, however, no assurance that the production changes
the Company has recently implemented will have the results expected, and higher
sales are dependent on more widespread acceptance of bipolar technology and
successful sales and marketing efforts.
( 8 )
<PAGE>
Sales and marketing. Although the Company intends to increase spending on sales
and marketing in 1997 in order to pursue growth in branded sales, to support
ongoing initiatives for the cardiovascular opportunity, and to invest in
strategic marketing endeavors, there can be no assurance that such increased
spending will result in greater revenue.
Minimally invasive cardiac surgery. The Company also plans to expand its efforts
relating to minimally invasive cardiac surgery, an emerging market segment.
Although the Company intends to continue to investigate and commence market
activities in 1997, there are no assurances that it will be successful in
demonstrating its bipolar products as superior in this market. In addition, the
Company cannot guarantee that this market segment will evolve to a significant
market size.
Profitability. The Company believes that with projected sales increases, an
improvement in gross margins and responsible management of operating expenses,
the Company will achieve profitability by year end. Because profitability is
dependent on all of the risks discussed in the Outlook and Risks section, among
others, there can be no assurance of profitability.
( 9 )
<PAGE>
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule (filed in electronic format only)
(b) Reports on Form 8-K:
None filed in the period.
( 10)
<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
May 12, 1997 By: /s/ John L. Shannon, Jr.
John L. Shannon, Jr.,
President and Chief Executive Officer
May 12, 1997 By: /s/ Thomas F. Murphy
Thomas F. Murphy
Vice President and Assistant Secretary
( 11 )
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 379,697
<SECURITIES> 0
<RECEIVABLES> 1,154,108
<ALLOWANCES> 41,225
<INVENTORY> 853,632
<CURRENT-ASSETS> 2,516,251
<PP&E> 1,748,001
<DEPRECIATION> 1,415,142
<TOTAL-ASSETS> 2,860,322
<CURRENT-LIABILITIES> 749,611
<BONDS> 0
0
5,356,920
<COMMON> 70,059
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,860,322
<SALES> 1,504,805
<TOTAL-REVENUES> 1,504,805
<CGS> 917,672
<TOTAL-COSTS> 903,809
<OTHER-EXPENSES> (6,743)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 206
<INCOME-PRETAX> (310,139)
<INCOME-TAX> 0
<INCOME-CONTINUING> (310,139)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (310,139)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
