Mail Stop 6010
April 7, 2006
J. Robert Paulson, Jr.
Chief Executive Officer
Restore Medical, Inc.
2800 Patton Road
St. Paul, Minnesota 55113
Re: Restore Medical, Inc.
Registration Statement on Form S-1
Filed March 13, 2006
Registration No. 333-132368
Dear Mr. Paulson:
We have reviewed your filing and have the following
comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
information so we may better understand your disclosure. After
reviewing this information, we may raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
General
1. Please confirm that any preliminary prospectus you circulate
will
include all non-Rule 430A information. This includes a bona fide
estimate of the range of the maximum offering price and the
maximum
number of securities offered.
2. Please provide us with copies of the industry reports you cite
throughout your prospectus. Clearly mark the relevant sections
that
support the data you have included in your prospectus and the page
number of your prospectus where such data has been used. Also
tell
us whether the sources of the cited data have consented to your
use
of their names and data and whether any of the reports were
commissioned by you or prepared specifically for your use.
3. Please provide us with copies of any graphics you intend to use
in
your prospectus or confirm that you do not intend to use any
graphics.
4. We note that you have created a number of acronyms that you use
in
various locations throughout the prospectus. If retained, please
ensure that their meanings are clear when they are used in
sections
other than where they are defined or explained.
Prospectus Summary, page 1
5. Please expand your summary section to indicate some of the more
significant challenges you face and the amount of your historical
net
losses.
Risk Factors, page 6
6. We note from your disclosure in the first paragraph on page 34
that generally your average selling price for international sales
averaged approximately 50% of your United States average selling
price. Please enhance your risk factor disclosure to indicate, if
true, that your gross margins may decline due to increased
international sales.
We depend on a few international third-party distributors..., page
11
7. Please identify the distributor that accounted for 11% of your
total sales.
Dilution, page 22
8. Expand the last paragraph to quantify the increase in dilution
and
the change in the preceding table if you assume all outstanding
options and warrants are exercised.
Selected Financial Data, page 23
9. Please revise the introductory paragraph to indicate the source
of
the statements of operations data for the years ended December 31,
2001 and 2002 and the balance sheet data as of December 31, 2001,
2002 and 2003.
Management`s Discussion and Analysis of Financial Condition and
Results of Operations, page 26
10. Please revise the last italicized sentences of your
introduction
to your "Management`s Discussion and Analysis" section to
eliminate
the implication that you have not described all material risks in
your "Risk Factors" section, and revise your risk factors as
necessary to include a discussion of all material risks.
Application of Critical Accounting Policies and Use of Estimates,
page 28
- - Stock-Based Compensation, page 30
11. You state that in the preparation of your consolidated
financial
statements you engaged an independent valuation firm to assist in
determining the fair value of your common stock. As such,
disclose
the name of the expert and include the consent of the expert. You
must provide a written consent under Securities Act Rule 436 as an
exhibit to the filing.
Series C-1 Financing, page 31
12. Please briefly indicate why you are adjusting the conversion
price of your Series C and Series C-1 preferred stock.
Results of Operations, page 33
13. We note throughout your MD&A discussion that you state that a
change is primarily attributable to more than one case. In those
instances, discuss and quantify the impact of all causes on your
results of operations. Avoid just listing causes for an
increase/decrease in a particular line item on your income
statement.
For example, for general administrative expenses in 2005, you
refer
to increased expenses for the hiring of your new CEO, expenses
associated with the resignation of your former CEO, recruiting
costs,
consulting costs and an increase in bad debt expense in describing
the change from 2004 to 2005. Similarly, in your discussion of
cost
of sales and gross margin for 2004, you refer to higher inventory
reserves, higher product insurance costs and reduced costs from
volume-related production savings. Please revise your MD&A to
provide a meaningful discussion of each increase/decrease in your
income statement line items along with the related dollar impact
for
those periods being compared.
Comparison of Years Ended December 31, 2004 and 2005, page 33
14. Please indicate why you experience the variance indicated
between
the average selling prices for products sold in the United States
versus your international sales.
Research and development expenses, page 35
15. Please briefly indicate why you suspended research and
development work on future products in 2004.
The Pillar Procedure..., page 47
16. In the table, add a footnote to explain the entry "In process"
in
the Pillar column on the "Reimbursement (OSA)" line.
Government Regulations, page 57
17. Please disclose with greater specificity the international
countries in which your products are approved for sale. We note,
for
example, that you have indicated market potential in China and
India
but it is not clear whether your products are cleared for sale in
those countries. We also note that you have sales into "Asia
Pacific" and the "Middle East." Please tell us which countries
you
include in these categories.
Management, page 61
18. We note from your disclosure on page 15 that you recently
hired a
chief financial officer. Please tell us why you have not
identified
your CFO in your management section.
19. Please describe Mr. Foster`s business experience from 2003
until
he joined your company in June 2004.
20. We note that Messers. Liszt and Nigon will become directors
upon
the completion of your offering. Please file the written consents
of
such persons as required by Rule 438 of the Securities Act.
Principal Stockholders, page 72
21. Please identify the natural person(s) with voting or
investment
control over the shares held by Bessemer Venture Partners, State
Street Bank & Trust, TH Lee Putnam Investment Trust and General
Electric Pension Trust.
Related-Party Transactions, page 75
22. As required by Item 404 of Regulation S-K, please include the
monthly service fees paid to Venturi for the use and maintenance
of
certain equipment referred to in footnote 13 to your financial
statements.
Common Stock, page 79
23. We note the disclosure in your second paragraph that all
outstanding shares of your common stock are validly issued, fully
paid and nonassessable and that the shares to be issued by you in
your offering will be, when issued and paid for, validly issued,
fully paid and nonassessable. This disclosure appears to be the
opinion of legal counsel. If so, please revise your disclosure to
indicate on whose opinion you have relied in making this
disclosure
and file all required consents.
Financial Statements
General
24. As appropriate, please revise to provide updated financial
information as required by Rule 3-12 of Regulation S-X.
Report of Independent Registered Accounting Firm, page F-3 and
consent
25. Upon consummation of the transaction and prior to the planned
effectiveness of the Company`s public offering, please revise your
report to remove the explanatory paragraph at the top of the page
and
to reflect the appropriate report date; ensure the final version
is
compliant with Article 2 of Regulation S-X. Also, please file a
consent with the pre-effective amendment.
Balance Sheets, page F-3
26. Revise to include a pro forma balance sheet (excluding effect
of
offering proceeds) along the side of the historical balance sheet
to
give effect to the conversion of your preferred stock that will
occur
in conjunction with the offering. Also, include a footnote to
describe the basis of presentation of the pro forma balance sheet.
Note 1 - Summary of Significant Accounting Policies, page F-7
- - (v) Recently Issued Accounting Statements, page F-14
27. Based on your current disclosures here and MD&A, we note that
you
are adopting SFAS 123(R) on January 1, 2006 using the modified
prospective method. As stated in paragraph 72 and 83 of SFAS
123(R),
nonpublic entities that used the minimum value method in Statement
123 for either recognition or pro forma disclosures are required
to
apply the prospective transition method. Please revise or advise
us.
Note 2 - Restatement of Financial Instruments, page F-15
Restated Statement of Cash Flows for the Year Ended December 31,
2003, page F-22
28. We note that you present a total adjustment to `non-cash
interest
expense` of $2,103,266 and reference this adjustment to items (a)
and
(b). It appears that the adjustments you reference does not
entirely
account for the total amount of the adjustment. Please revise and
tell us about the adjustments that were made by you other than
those
currently referenced.
Note 7 - Income Taxes, page F-26
29. Please confirm to us that the detail of the deferred tax
assets
shown on page F-27 for 2003 and 2004 are restated. If so, please
revise to clearly label such information as restated. If not,
please
tell us how you considered the impact of the restatement
adjustments
disclosed in Note 2 on your deferred tax assets.
Note 10 - Stock Options, page F-33
30. Provide the estimated IPO price or range when available. If
the
difference between the IPO price and the fair value used to value
stock, options or warrants granted during the 12 months prior to
the
date of the most recent balance sheet is significant please
provide
us with details of the significant factors contributing to the
difference. Please note that we will defer our final evaluation
of
stock compensation and other costs recognized until you provide
the
offering price. We may have further comments in this regard when
the
amendment containing that information is filed.
Note 11 - Debt Financing Arrangement and Warrant Issuances, page
F-34
- - 2003 Bridge Notes, page F-35
31. We note in June 2003 you issued convertible notes that were
convertible into the next defined round of equity financing at a
25%
discount from the fair market price. In regards to your
accounting
for these convertible notes please tell us and revise to clarify
the
following:
* In connection with the original terms of the financing, the
notes
provided for conversion into equity. At the time of the issuance
of
the notes and based on its original terms, tell us how you
considered
the guidance in SFAS 133 Implementation Issue B16 and paragraphs
12
and 13 of SFAS 133 in accounting for the conversion terms. It
appears that the debt instrument contained an embedded put option
and
the value of the equity financing due to the holders of these
notes
provided for a higher rate of return on the debt.
* Clarify to us what you mean by "the contingent beneficial
conversion feature was eliminated."
* We note your disclosure that upon the conversion of the 2003
Bridge
Notes into Series C-1 preferred stock in March 2004, the put was
no
longer outstanding and the remaining fair value of the put of
$870,692 was recorded as a gain. Please tell us why you believed
it
was appropriate to record a gain on the conversion as oppose to
reflecting the value of the bifurcated embedded feature (fair
value
of the put option liability) on conversion as part of the basis of
the preferred stock.
* We note that the features of your 2002 Bridge Notes were similar
to
the 2003 Bridge Notes. In this regard, please apply this comment
to
the accounting for the 2002 Bridge Notes.
Note 17 - Subsequent Events, page F-39
32. Please confirm our understanding that the 1-for-2 reverse
stock
split of all of your issued and outstanding common stock will
occur
before the effectiveness of your registration statement.
Part II
Item 13. Other Expenses of Issuance and Distribution, page II-1
33. Please include as a separate item any premium paid on any
policy
obtained in connection with your offering which insures or
indemnifies directors or officers against any liabilities they may
incur in connection with the registration, offering or sale of
your
securities. Refer to Instruction to Item 511 of Regulation S-K.
Item 16. Exhibits, page II-4
34. Please file the 2002 and 2003 bridge loan agreements and notes
as
exhibits to your registration statement.
Item 17. Undertakings, page II-5
35. Please include the undertakings in Item 512(a)(5)(ii) and
512(a)(6) of Regulation S-K.
* * * * *
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested information. Detailed cover
letters greatly facilitate our review. Please understand that we
may
have additional comments after reviewing your amendment and
responses
to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing to be certain that they
have
provided all information required for an informed investment
decision. Since the company and its management are in possession
of
all facts relating to a company`s disclosure, they are responsible
for the accuracy and adequacy of the disclosures they have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that:
* should the Commission or the staff, acting pursuant to delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
* the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
* the company may not assert staff comments and the declaration of
effectiveness as a defense in any proceeding initiated by the
Commission or any person under the federal securities laws of the
United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in connection with our review of
your
filing or in response to our comments on your filing.
We will consider a written request for acceleration of the
effective date of the registration statement as a confirmation of
the
fact that those requesting acceleration are aware of their
respective
responsibilities under the Securities Act of 1933 and the
Securities
Exchange Act of 1934 as they relate to the proposed public
offering
of the securities specified in the above registration statement.
We
will act on the request and, pursuant to delegated authority,
grant
acceleration of the effective date.
We direct your attention to Rules 460 and 461 regarding
requesting acceleration of a registration statement. Please allow
adequate time after the filing of any registration statement for
further review before submitting a request for acceleration.
Please
provide this request at least two business days in advance of the
requested effective date.
You may contact Kevin L. Vaughn at (202) 551-3643 or Michele
Gohlke, Branch Chief, at (202) 551-3327 if you have questions
regarding comments on the financial statements and related
matters.
Please contact Tim Buchmiller at (202) 551-3635 or me at (202)
551-
3800 with any other questions.
Sincerely,
Peggy A. Fisher
Assistant Director
cc (via fax): Kenneth L. Cutler, Esq.
Robert A. Kuhns, Esq.
J. Robert Paulson, Jr.
Restore Medical, Inc.
April 7, 2006
Page 9