Restore Medical Inc. became the latest company caught in the credit crunch, when it disclosed Thursday that it may run out of cash beginning in May because of troubled investments in short-term securities.
The Roseville-based medical device maker said problems with auction-rate securities has depleted its balance sheet. As a result, Restore's auditor warned that "the company currently does not have sufficient capital resources to fund future operations, which raises substantial doubt about the company's ability to continue as a going concern," according to documents filed with the Securities and Exchange Commission.
In an interview, CEO Bob Paulson said the company has enough money to operate through the middle of the year. Restore will also seek to raise additional funds, either through equity or debt financing or licensing intellectual property.
Combined with ongoing sales, Paulson said he is confident Restore will survive.
When asked whether Restore might file for bankruptcy, Paulson replied: "Absolutely not."
Auction-rate securities are short-term debt instruments whose interest rates are set by an auction every few days or weeks. Until recent weeks, auction-rate securities were considered safe investments.
Restore's own securities boast AAA ratings and are backed by federally guaranteed student loans.
But beginning last month, investors spooked by volatile global credit markets have avoided the securities, causing the auctions to "fail" for lack of buyers. Last month, more than $500 million in auction-rate securities backing Minnesota Office of Higher Education student loans failed to find buyers. Bristol-Myers Squibb recently wrote off $275 million related to failed auctions.
Companies holding these investments cannot cash out of them until an auction is successful. According to Restore's annual report, known as a 10K, it has $4.2 million invested in auction-rate securities. As of December, Restore's assets totaled $12.4 million, compared with $26.8 million in 2006.
Restore, which makes devices that treat sleeping disorders such as snoring, raised $32 million during its initial public offering in 2006. Last year, the company lost $13.5 million on sales of $4.1 million.
Thomas Lee • 612-673-7744