UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
AMENDMENT NO. 2
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JULY 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For transition period from ____________ to___________
Commission file number 0-944
POSSIS MEDICAL, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-0783184
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9055 Evergreen Blvd, NW, Minneapolis, Minnesota 55433-8003
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 763-780-4555
SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:
Common Stock, 40 Cents Par Value
Preferred Shares Purchase Rights
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such 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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (X)
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of September 30, 2000 was approximately $112,705,000.
The number of shares outstanding of the registrant's common stock as of
September 30, 2000: 16,696,156.
Certain responses in Part III are incorporated herein by reference to
information contained in the Company's definitive Proxy Statement for its 2000
annual meeting to be filed on or before November 28, 2000 ("The Proxy
Statement").
POSSIS MEDICAL, INC.
This Amendment No. 2 to Possis Medical, Inc.'s Annual Report on Form 10-K
is being filed by the Company in order to expand on and clarify certain
disclosures contained in its previously filed Annual Report on 10-K for the
fiscal year ended July 31, 2000. This Amended Form 10-K contains revisions to
the business description section of the report and to Management's Discussion
and Analysis of Financial Condition and Results of Operations. This amended
report contains no revisions to financial results previously reported.
Forward-Looking Statements
This report on Form 10-K, including the description of the Company's
business and Management's Discussion and Analysis of Financial Condition and
Results of Operations, contains certain "forward-looking statements" as defined
in the Private Securities Litigation Reform Act of 1995. Such statements
relating to future events and financial performance, including statements
relating to the Company's ability to establish an adequate recurring revenue
stream from U.S. AngioJet(R) System disposable sales, the ability to maintain
manufacturing yields at acceptable levels, changes in the Company's marketing
strategies, the ability to grow sales while maintaining its current level of
U.S. sales force, the ability to achieve growing acceptance of the AngioJet
System, the ability to control expenses in order to become profitable, the
ability to develop new products, the ability to raise additional capital on
acceptable terms, the results of clinical trials and the ability to achieve
levels of interest income and interest expense. These statements involve risks
and uncertainties, and consequently, actual results may vary materially from
those projected in the forward-looking statements. It is not possible to foresee
or identify all factors affecting the Company's future results and investors
therefore should not consider any list of such factors to be an exhaustive
statement of all risks and uncertainties. Although it is not possible to create
a comprehensive list of all factors that may cause actual results to differ from
the Company's forward-looking statements, these factors include trends toward
managed health care, health care cost containment, the trend of consolidation in
the medical device industry, difficulties and uncertainties associated with the
lengthy and costly new product development and regulatory clearance processes,
changes in government laws and regulations and the enforcement there of that may
be adverse to the Company, the development of new products by competitors that
may make our products obsolete, and economic factors over which the Company has
no control, including changes in inflation and interest rates. These and other
risk factors set forth in the risk factors included in Exhibit 99 to the
Company's registration statement on Form S-3 dated April 17, 2000 are filed with
the Securities and Exchange Commission.
PART I
Item 1. Business:
General
Possis Medical, Inc. (the Company) was incorporated in 1956 and went public
in 1960 as Possis Machine Corporation. Initial operations consisted of design,
manufacturing, and sales of industrial equipment and a division that provided
temporary technical personnel. The Company's involvement with medical products
began in 1976, when it sold its rights to a patented bileaflet mechanical heart
valve, which it had obtained from Zinon C. Possis, the founder of the Company,
to St. Jude Medical, Inc. for royalty payments based on St. Jude's valve sales.
In 1982 a subsidiary was established to focus initially on the development of a
synthetic blood vessel used to bypass blocked coronary arteries. In the late
1980's the Company decided to leverage existing management expertise and entered
the pacemaker lead business. The strategic role of the pacemaker lead business
was to provide cash flow to fund the development of synthetic grafts and
thrombectomy systems and to give the Company access to and name recognition
within the medical device industry. In 1990 the Company made the decision to
focus on medical products and subsequently divested all non-medical operations,
beginning with its Technical Services division in September 1991 followed by its
industrial equipment subsidiary and related land and buildings in January 1994.
These sales enabled Possis to focus its human and financial resources
exclusively on medical products, which are currently in clinical trials and in
early stages of commercialization.
Products
ANGIOJET(R) RHEOLYTIC(TM) THROMBECTOMY SYSTEM. The development of blood
clots in various sites within the vascular system is common and is one of the
leading causes of morbidity and death. Blood clots may be caused by multiple
factors, including cardiovascular disease, trauma, impediment of normal flow
during invasive procedures or prolonged bed rest. If a blood clot becomes large
enough, it can block a blood vessel, preventing oxygenated blood from reaching
the organ or tissue it supplies. In addition, if a blood clot breaks off
(emboli), it can travel through the bloodstream and block blood flow to other
organs and tissue. Conditions caused by blood clots include peripheral ischemia,
which can lead to limb loss, vascular access failure, pulmonary embolism, acute
myocardial infarction (heart attack), stroke and deep vein obstruction.
Currently, the three primary methods of removing intravascular blood clots
are surgery, drugs and mechanical devices. Thrombolytic drug treatment involves
the administration of a drug designed to dissolve the blood clot in an intensive
or critical care setting. Thrombolytic drugs may require prolonged infusion to
be effective, may require significant time to take effect, which is costly in an
intensive or critical care setting, and then may only partially remove the clot.
In addition, thrombolytic drugs may cause uncontrolled, life-threatening
bleeding. Currently, other classes of drugs, specifically glycoprotein llb/llla
inhibitors, are being used to treat blood clots. Mechanical devices such as the
Fogarty-type catheter operate by inflating a balloon past the point of the blood
clot and then dragging the blood clot out of the patient's body through the
artery. Fogarty-type catheters require surgical intervention, which may result
in overnight hospital stays, are more limited in their applications and may
cause significant vascular trauma.
The Company believes that its AngioJet System represents a rapid, safe, and
medically effective approach to the removal of blood clots from arteries, veins
and grafts and offers certain advantages over current methods of treatment. The
AngioJet System is a non-surgical, minimally invasive catheter system designed
for rapidly removing blood clots with minimal vascular trauma. The AngioJet
System consists of three major components: a reusable drive unit to power the
pump and monitor device performance, a disposable single-use pump set that
delivers pressurized saline to the catheter, and a family of disposable,
single-use catheters. In early stages of commercialization and in U.S. clinical
trials, the AngioJet System has demonstrated the ability to safely and
effectively remove blood clots within seconds to minutes without surgical
intervention and minimizing the risk of uncontrolled bleeding.
To operate the AngioJet System, a physician first threads a catheter down a
patient's blood vessel to the site of the blood clot. The AngioJet System's
drive unit is then activated, causing a disposable pump to pressurize sterile
saline to 10,000 pounds per square inch (psi) and send it down the catheter.
Saline jets spray backwards down the catheter at half the speed of sound. The
result is a jet-action that creates a localized low-pressure zone around the
catheter's tip. The difference between the low pressure at the tip and the
normal blood pressure in the vessel draws the blood clot into the catheter
through an opening at the tip. The jets then blast the clot material into
microscopic fragments which are immediately propelled down the catheter, out of
the patient's body and into a disposable collection bag located on the drive
unit.
The AngioJet Rheolytic Thrombmectomy System is a pioneering device for the
removal of intracoronary blood clots in a variety of clinical applications. It
is typically used in conjunction with other medical devices, such as angioplasty
balloons and stents, and drugs, such as thrombolytics. For these reasons, the
market potential is not readily quantifiable through widely published industry
statistics. The approach of the Company has been to estimate the total number of
cases for a given indication in a particular vascular territory. These
statistics are available through industry sources. The Company then estimates
the number of procedures that might be amenable to treatment with the AngioJet,
in conjunction with other therapies, both devices and drugs. In making these
estimates for the number of cases amenable to treatment with the AngioJet, the
Company has relied on its own estimates, as well as estimates based on data
provided by physician consultants, presentations at medical industry
conferences, peer-reviewed journal articles, security analyst publications, and
publications by industry trade and consulting groups. In cases where little or
no reliable data exists, relatively simple "rules of thumb" are used to estimate
figures for statistics like worldwide patient incidence of certain conditions.
We believe that the totality of these sources provides estimates which are
directionally and relatively accurate, although the Company cannot guarantee
that they are absolutely accurate.
The Company's marketing analysis indicates that the versatile AngioJet
System may be effective for the treatment of various blood clot-induced
conditions throughout the vasculature. The following table shows the vascular
territories and indications for which the AngioJet System may be used. In
addition, the table indicates the annual incidences worldwide and the Company's
estimated AngioJet System annual market potential.
AngioJet
Estimated System
Annual Annual
Worldwide Market
Incidence Potential
Vascular Territory Indication (Patients) (Procedures)
Coronary (1) Heart Attacks & Unstable Angina 5,300,000 550,000
Legs (2) Leg Arteries & Bypass Grafts 1,300,000 220,000
A-V Access (3) Hemodialysis Graft Thrombosis 400,000 190,000
Lungs Pulmonary Embolism 1,000,000 200,000
Cerebral (4) Ischemic Stroke 1,900,000 380,000
Venous Cerebral SInus Stroke 4,500 2,000
Cervical Carotid Stroke 6,600 1,000
Venous Deep Vein Thrombosis 2,500,000 900,000
Total 12,411,100 2,443,000
(1) Marketed under March 1999 FDA approval.
(2) Marketed under April 2000 FDA apparoval.
(3) Marketed udnder December 1996 approval.
(4) In clinical trials.
The VeGAS 2 randomized, coronary clinical trial compared the AngioJet
System with the thrombolytic drug, Urokinase. In the setting of a double-blind,
randomized trial, the AngioJet System proved to be medically effective and
cost-effective compared to Urokinase. Cost savings averaged nearly $5,000 per
patient. These results have been presented by physician investigators at major
medical meetings, and they will be published in calendar 2001.
With respect to other FDA-approved indications, such as peripheral
arteries, the Company believes that the AngioJet System offers a unique
combination of clinical benefit and cost-effectiveness, when compared with
current practices excluding the AngioJet. While the Company and some physicians
have assembled considerable data demonstrating these cost-savings, it is noted
that these savings have been documented only in settings of non-randomized
patient sets and not in randomized, clinical trials.
In April 2000, March 1999 and December 1996, the Company received FDA
clearances to commence U.S. marketing of the AngioJet System, with labeling
claims for removal of blood clots in leg arteries and bypass grafts, native
coronary arteries and coronary bypass grafts and access grafts used by patients
on kidney dialysis.
PERMA-SEAL(R) GRAFT. The Perma-Seal Graft is a self-sealing synthetic graft
comprised of silicone elastomers, with a winding of polyester yarn encapsulated
within its wall, and is manufactured using proprietary electrostatic spinning
technology developed by the Company. The Perma-Seal Graft is implanted in kidney
dialysis patients to provide necessary vascular access. The Company believes
that its Perma-Seal Graft may offer advantages over currently used synthetic
grafts because of its needle hole sealing capability. The Company believes that
this characteristic will be effective in sealing puncture sites in the grafts
with minimal compression time and bleeding as compared to other currently
available graft products and, as a result, will reduce dialysis procedures and
administrative time per patient and the costs associated therewith. In addition,
because of its ability to seal a needle puncture without depending on tissue
ingrowth, the Perma-Seal Graft may provide an option for patients who require
dialysis immediately after implant. The Company, however, recognizes that the
market potential for this product is limited by its FDA approved labeling, which
specifies that it is aproved for use in dialysis patients requiring immediate
access for hemodialysis. The Company currently sells its Perma-Seal Graft
through an independent distributor. Due to slow sales by its distributor, fiscal
2001 sales are expected to be minimal.
PERMA-FLOW(R) CORONARY BYPASS GRAFT. The Perma-Flow Graft is a synthetic
graft 5mm in diameter for use in coronary artery bypass graft (CABG) surgery.
The Perma-Flow Graft is intended to provide a graft alternative to patients who
require bypass surgery but have insufficient or inadequate native vessels as a
result of repeat procedures, trauma, disease or other factors. The market
potential for this graft product was deemed smaller than our pre-development
estimates. This fact, along with limited capital, precluded pursuing a market
for an implantable graft and a disposable product, the AngioJet System,
simultaneously. A business decision was, therefore made to focus on the AngioJet
System business.
ePTFE SYNTHETIC VASCULAR GRAFT. In February 1999, the Company received
510(k) approval from the FDA to market three expanded polytetrafluoroethylene
("ePTFE") synthetic vascular grafts. ePTFE synthetic vascular grafts are the
most commonly used synthetic grafts in peripheral vessel bypass procedures. In
2000, the Company estimates 270,000 peripheral grafting procedures will be
performed worldwide, with 200,000 of these in the United States. Currently the
Company has put all graft development activities on hold as it concentrates its
efforts on the development on new AngioJet System applications.
Research and Development
The Company's research and development program for its existing products
are focused primarily on clinical testing, obtaining necessary FDA product
registrations and validating manufacturing processes for the AngioJet System.
The Company's new product development efforts are focused primarily on
developing additional applications of the AngioJet Thrombectomy System,
including neurovascular and large vessel applications. The Company is exploring
AngioJet System applications for other blood clot conditions, such as removal of
intracranial blood clot in head trauma cases. Research and development expenses
are generally incurred for product design, development and qualification,
development and validation of manufacturing process, conduct of clinical trials,
and seeking and obtaining governmental approvals. The Company's research and
development expenses are expected to stay at its current levels or slightly
increase as the Company continues its clinical trials and current product
development plans.
As of September 30, 2000, the Company employed approximately 37 full-time
employees in research and development, including 30 in new product concept
screening, prototype building, product and process development and validation,
and seven in regulatory and clinical affairs. The Company performs substantially
all of its research and development activities at its headquarters in Coon
Rapids, Minnesota, a suburb of Minneapolis, Minnesota. The Company spent $5.5
million, $5.7 million and $5.2 million in fiscal 2000, 1999 and 1998,
respectively, on medical product research and development. AngioJet System
research and development expense for fiscal 2000, 1999, and 1998 were $5.5
million, $4.4 million, and $3.1 million, respectively. Vascular graft research
and development expense for fiscal 1999 and 1998 were $1.3 million and $2.0
million, respectively.
Manufacturing
We assemble and test our entire product line in-house and have vertically
integrated a number of processes in an effort to provide increased quality and
reliability of the components used in the production process. Many of the
processes are proprietary and were developed by us. The Company believes that as
product and process improvements are identified, our ability to control costs
and quality will improve. Raw materials, components and subassemblies used in
our products are purchased from outside suppliers and are generally readily
available from multiple sources.
Our manufacturing facilities are subject to periodic inspections by
regulatory authorities, including Good Manufacturing Practice compliance
inspections by the FDA and the TuV Product Services. TuV is a notified body
designated by the European Union nationally competent authorities (Ministries of
Health) to determine whether a product can display the CE mark. We have
undergone inspections by the FDA for Good Manufacturing Practices compliance and
the TuV each year since 1998. All Possis products currently carry the CE mark in
the European Community.
FDA inspections focus on Good Manufacturing Practices (GMP) as defined in
federal regulation 21CFR820. These regulations define standards for the
manufacturing and quality systems used to produce medical devices. The FDA has
conducted inspections of Possis Medical, Inc. at regular intervals since 1993,
and prior to approval of some Possis Medical, Inc. marketing applications. Some
of these inspections have identified deficiencies in our compliance with certain
GMP requirements, including systems to address corrective and preventive
actions, complaint processing, design and process validation, material reject
trending and use of statistical techniques. These deficiencies are currently the
subject of a concerted effort to revise our manufacturing and quality systems.
The FDA has reviewed our plans for this work and has deemed them adequate. The
risk of non-compliance includes seizure, injunction and/or civil penalties. The
Company does not anticipate any adverse FDA action.
Marketing and Sales
The Company is marketing its AngioJet System to interventional
cardiologists, interventional radiologists, vascular surgeons and also to
physician specialty groups, including vascular, cardiovascular and thoracic
surgeons. Revenues from AngioJet System sales in the United States were
approximately 93%, 91%, and 93% of fiscal 2000, 1999, and 1998 revenues,
respectively.
The Company is currently marketing the AngioJet System for coronary
applications, peripheral vessel and graft applications and hemodialysis graft
thrombosis. The AngioJet System for stroke treatment will be marketed to
interventional neuroradiologists, neurologists and interventional cardiologists
as FDA marketing approvals are obtained.
The AngioJet System is currently marketed by a direct sales force in the
United States.
The Company is currently marketing its AngioJet System outside the United
States using an independent distributor network. Generally, the distributorship
agreements are for an initial five-year term and provide that the distributors,
at their own expense, will investigate, negotiate and obtain regulatory
approvals for the Company's products in the specified territory. All sales made
to the Company's independent distributors are denominated in United States
dollars.
In December 1998, the Company entered into an exclusive worldwide supply
and distribution agreement for its Perma-Seal Dialysis Access Graft. The first
shipment under the distribution agreement was made in January 1999. In September
2000, the distributor was in non-compliance with the terms of the distribution
agreement and the Company is currently reviewing its options.
A goal of the Company is to maximize the value of vascular graft products
and technologies for its shareholders. Its strategy is to seek partners to
distribute the products and possibly fund the graft product development program.
In addition, the Company will continue to pursue the possible sale of the
vascular graft products and technologies.
Promotional activities by the Company are designed primarily to enlist the
support of key medical opinion leaders in the United States and abroad. The
Company believes that opinion leader publications in medical journals and
presentations at medical meetings will be especially important to encourage
broad acceptance of its products. Other marketing activities include medical
journal advertising, participating in medical meetings, and supporting studies
designed to gather cost effectiveness data of the Company's products compared to
conventional treatment.
Patents, Patent Applications, Licenses and Proprietary Rights
The Company's success depends and will continue to depend in part on its
ability to maintain patent protection for products and processes, to preserve
its trade secrets and to operate without infringing the proprietary rights of
third parties. The Company's policy is to attempt to protect its technology by,
among other things, filing patent applications for technology that it considers
important to the development of its business. The patents held and applied for
by the Company describe method and apparatus claims related to thrombectomy and
atherectomy devices, as well as method and apparatus claims related to the
design and use of synthetic vascular grafts. The Company holds eight United
States patents and three foreign patents relating to the AngioJet System. Of the
eight U.S. patents, six were filed between 1990 and 1995 and are valid for
seventeen years following issuance. Two of the AngioJet-related patents are
valid for twenty years following their 1998 filing dates. In addition, the
Company has ten United States and twenty-six foreign patent applications pending
relating to the AngioJet System. In connection with the Perma-Seal Graft, the
Company holds two United States and one foreign patent and four foreign patent
applications are pending. Both Perma-Seal patents are valid for seventeen years
following their 1999 and 1998 issuance dates. The Company currently holds five
United States patents and seventeen foreign patents related to the Perma-Flow
Graft and has two patent applications pending in the United States and five
patent applications pending in foreign jurisdictions. The Perma-Flow patents
issued between 1984 and 1990 and are valid for seventeen years following their
issuance dates. The validity and breadth of claims covered in medical technology
patents involve complex legal and factual questions and, therefore, may be
highly uncertain. No assurance can be given that the Company's pending
applications will result in patents being issued or, if issued, that such
patents, or the Company's existing patents, will provide a competitive
advantage, or that competitors of the Company will not design around any patents
issued to the Company. In addition, no assurance can be given that third parties
will not receive patent protection on their own waterjet devices.
The Company requires all employees to execute non-disclosure agreements
upon commencement of employment with the Company. These agreements generally
provide that all confidential information developed or made known to the
individual by the Company during the course of the individual's employment with
the Company is to be kept confidential and not disclosed to third parties.
There can be no assurance that the Company's non-disclosure agreements and
other safeguards will protect its proprietary information and know-how or
provide adequate remedies for the Company in the event of unauthorized use or
disclosure of such information, or that others will not be able to independently
develop such information. There has been substantial litigation regarding patent
and other intellectual property rights in the medical device industry.
Litigation, which could result in substantial cost to and diversion of effort by
the Company, may be necessary to enforce patents issued to the Company, to
protect trade secrets or know-how owned by the Company, to defend the Company
against claimed infringement of the rights of others or to determine the
ownership, scope or validity of the proprietary rights of the Company and
others. An adverse determination in any such litigation could subject the
Company to significant liabilities to third parties, could require the Company
to seek licenses from third parties and could prevent the Company from
manufacturing, selling or using its products, any of which could have a material
adverse effect on the Company.
Competition
The Company's products will compete with a number of different products and
treatment methods for the conditions they address. The Company believes that its
AngioJet System will face intense competition from a variety of treatments for
the ablation and removal of blood clots, including thrombolytic drug therapies,
particulate capture systems, direct stenting, surgical intervention, balloon
embolectomy, mechanical and laser thrombectomy devices, ultrasound ablators, and
other thrombectomy devices based on waterjet systems that are currently being
developed by other companies.
The medical products market is characterized by rapidly evolving technology
and intense competition. The future success of the Company will depend on its
ability to keep pace with advancing technology and competitive innovations. Many
potential competitors have significantly greater research and development
capabilities, experience in obtaining regulatory approvals, established
marketing and financial and managerial resources than the Company. Many
potential competitors have developed or are in the process of developing
technologies that are, or in the future may be, the basis for competitive
products, some of which may employ an entirely different approach or means of
accomplishing the desired therapeutic effect than products being developed by
the Company.
The AngioJet(R) System is a device for the rapid, safe and effective
removal of intracoronary thrombus from native coronary vessels and saphenous
vein grafts, kidney dialysis access grafts, and leg arteries. The AngioJet
System has a unique profile of safety, clinical effectiveness, and
cost-effectiveness. In general, it competes against pharmacological dissolution
of the thrombus using thrombolytics or glycoprotein IIb/IIIa inhibitors,
mechanical removal using other devices, and against surgical revision of grafts.
Drugs take time, do not work in a significant number of cases, have deleterious
side effects and are expensive. Drugs are, however, easy to administer,
particularly in an emergency room setting or in a community hospital that lacks
interventional facilities. In general, drugs have the biggest market share among
the set of procedures which constitute our potential markets.
In the coronary area, there are no other FDA approved mechanical
thrombectomy devices. In the peripheral arteries, there is no other FDA approved
mechanical device. In the A-V access area, there are numerous mechanical
devices, under many different trade names; no individual device has a dominant
share of the market. This market is extremely price sensitive, so devices do not
necessarily gain share because of improved performance and effectiveness alone.
Government Regulation
Government regulation in the United States and other countries is a
significant factor in both the Company's products and its activities, which are
regulated by the U.S. FDA under a number of statutes, including the Food, Drug
and Cosmetic ("FDC") Act.
FDA regulations place the Company's products in either Class II or III (the
highest level), based on the extent of both the pre-market approvals and
post-market controls deemed necessary to assure that they are safe and
effective. For example, Class II devices such as the AngioJet for AV access
graft thrombectomy are subject to pre-market notification (510(k) submission) to
the FDA, whereas AngioJet for treating coronary thrombus is subject to
pre-market approval (PMA) by the FDA, and subsequent annual and other PMA
supplement reporting requirements. While FDA attempts to complete review of
these different types of pre-market submissions within specific timeframes (90
days for a 510(k); 180 days for a PMA), final action by the FDA may take
considerably longer. Any adverse determination or request for additional
information could delay market introduction and have a materially adverse effect
on the Company's continued operations.
In addition, either a 510(k) or PMA may require the inclusion of data and
analyses from the conduct of investigational clinical trials. Generally, such
clinical trials may be conducted only under an IDE (Investigational Device
Exemption) approved by FDA. The FDA monitors and oversees the conduct of
clinical trials under IDE. Such clinical trials typically take several years to
conduct, and they can cost several million dollars. Many of the Company's
products were the subject of such clinical trials in the past, and the Company
expects that some of its future products will also require investigational
clinical trials.
The AngioJet Coronary catheter is a Class III device and is marketed in the
U.S. under an approved PMA. The AngioJet AV-Access and Peripheral Arterial
Thrombus catheters are Class II devices and are marketed in the U.S. under
cleared 510(k)submissions.
Once a Company product is able to be marketed in the U.S., product labeling
and promotional activities are subject to scrutiny by the FDA and, in certain
instances, by the Federal Trade Commission. The FDA imposes other post-marketing
controls on the Company and its products, such as annual establishment
registration, annual product listings, and administration of complaint and
medical device reporting files. , Failure to meet these pervasive FDA
requirements could subject the Company and/or its employees to injunction,
prosecution, civil fines, seizure or recall of products, prohibition of sales or
suspension or withdrawal of any previously granted approvals.
AngioJet System received its first clearance for the U.S. market via a
510(k) premarket notification application approved by FDA in December 1996, for
use in treating thrombosed AV access grafts. In March 1999, the AngioJet System
received FDA approval under a PMA for treating thrombus in coronary arteries and
saphenous vein bypass grafts. In May 2000, the AngioJet System received FDA
market clearance via another 510(k) premarket approval application for treating
thrombus in leg arteries.
The Perma-Sea Dialysis Access Graft was FDA-approved for marketing under a
PMA in September 1998. The Perma-Flow Coronary Artery Bypass Graft was FDA
approved for marketing under an HDE in April 1998.
The Company's manufacturing and quality systems are also subject to FDA
regulations requiring compliance with FDA's current Good Manufacturing
Procedures (GMP) FDA conducts periodic on-site inspections of manufacturing
facilities. The Company has successfully undergone several such inspections in
the past. The Company is obliged to address any deficiency noted during such
inspections. If FDA notices violations of applicable regulations, the continued
marketing of the Company's products may be adversely affected. Such regulations
are subject to change and depend heavily on regulatory interpretations.
The Company conducts sales and marketing activities in various foreign
countries. The time required to obtain approval to market a product in a foreign
country may be longer or shorter than that required for FDA approval, and the
requirements may differ. All the Company's products currently display the CE
Mark, allowing import to the European Union. Approval to display the CE Mark is
dependant in part on annual inspections by representatives of European
regulatory bodies to successfully demonstrate compliance with the ISO 9001
Quality Standards.
There can be no assurance that future changes in regulations or
interpretations made by the FDA or other regulatory bodies, with possible
retroactive effect, will not adversely affect the Company.
Employees
As of September 30, 2000, the Company had 228 full-time employees, and five
contract employees. Of these full-time employees, 37 are in research and
development, 80 are in manufacturing and production, 18 are in quality systems,
six are in facilities/maintenance, 67 are in sales and marketing and 20 are in
management or administrative positions. None of the Company's employees are
covered by a collective bargaining agreement, and management considers its
relations with its employees to be good.
Item 2. Properties:
The Company leases approximately 51,000 square feet of office and
manufacturing space (including approximately 6,500 square feet of clean
manufacturing space) at 9055 Evergreen Boulevard NW, Minneapolis, Minnesota
55433-8003. See Note 6 of Notes to Consolidated Financial Statements in Part II,
Item 8, in this Form 10-K.
Item 3. Legal Proceedings:
None
Item 4. Submission of Matters to a Vote of Security-Holders:
None
EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Position
Robert G. Dutcher 55 Director,
Chief Executive Officer and President
Eapen Chacko 52 Vice President of Finance
and Chief Financial Officer
Irving R. Colacci 47 Vice President of Legal Affairs
and Human Resources General Counsel and Secretary
James D. Gustafson 44 Vice President of Quality Systems
and Regulatory/Clinical Affairs
T. V. Rao 57 Vice President and General Manager
Martin A. Rossing 47 Vice President of Technology and
Product Development
Robert J. Scott 55 Vice President of Manufacturing Operations
Robert G. Dutcher has served as Chief Executive Officer and President, and
has been a director of the Company since October 1993. Since 1987, he has served
as President and Chief Operating Officer of Possis Holdings, Inc. (a subsidiary
formerly known as Possis Medical, Inc.). Prior to joining the Company, Mr.
Dutcher had served in several positions (most recently as Director of Research
and Development) at Medtronic, Inc. Mr. Dutcher received a master's degree in
biomedical engineering from the University of Minnesota.
Eapen Chacko has served as Vice President of Finance and Chief Financial
Officer since September 2000. Mr. Chacko joined the Company in September 1999 as
Vice President of Investor/Public Relations. Before joining Possis Medical, Mr.
Chacko had been Director of Investor Relations for Fingerhut Companies, Inc., a
$2 billion direct marketing company, since March 1995. Mr. Chacko earned a
master's degree in economics from The Johns Hopkins University.
Irving R. Colacci has served as Vice President and General Counsel since
December 1993, and as Secretary and Corporate Counsel of the Company since July
1988. From 1988 to 1993, Mr. Colacci also served in various other management
positions with the Company and its subsidiaries. Prior to joining the Company in
1988, Mr. Colacci was an associate attorney at Dorsey & Whitney LLP, a major law
firm in Minneapolis. Mr. Colacci received his law degree from William Mitchell
College of Law.
James D. Gustafson has served as a Vice President of the Company since
January 1, 1994; prior to this he was Director of Quality Systems and
Regulatory/Clinical Affairs for Possis Holdings, Inc. since his hire June 1993.
Prior to joining the Company, Mr. Gustafson had served as Manager of Clinical
and Regulatory Affairs and of Clinical Programs at St. Jude Medical, Inc., a
medical device manufacturer, since June 1989, and as a Senior Clinical Scientist
at Shiley, Inc., Irvine, California, since March 1985. Mr. Gustafson received a
master's degree in management from University of Redlands and a master's degree
in biology from the University of California at Irvine.
T. V. Rao has served as Vice President and General Manager of Possis
Medical since February 1999. From June 1988 to February 1999, he was Vice
President and General Manager of the AngioJet System business. Before joining
the Company, Mr. Rao served as Vice President of Sales and Marketing for Angeion
Corporation from July 1995 to June 1998, as Vice President of Sales and
Marketing for Brunswick Biomedical Corporation from July 1994 to June 1995 and
served in several positions (most recently as Director of Marketing,
Tachyarrhythmia Business) at Medtronic Inc. since 1980. Mr. Rao holds a master's
degree in business from the College of St. Thomas.
Martin A. Rossing joined Possis Medical, Inc. in March of 2000 as Vice
President of Technology and Product Development. Prior to joining the Company,
Mr. Rossing served in several positions, most recently as Sr. Director of
Implantable Defibrilator Development, at Medtronic since 1973. Mr. Rossing holds
a MBA from Minnesota's Carlson School of Management.
Robert J. Scott has served as Vice President of the Company since December
1993, as Vice President of Manufacturing Operations of Possis Holdings, Inc.
since 1988 and was Director of Manufacturing Operations for Possis Holdings,
Inc. from 1984 through 1988. Prior to joining the Company, Mr. Scott had served
as a consultant to various medical and nonmedical manufacturing companies and as
Manufacturing Manager for Aequitron Medical, Inc. and Resistance Technology
Incorporated and in various corporate and technical positions for Daig
Corporation and Medtronic, Inc. Mr. Scott has an associates degree in
electronics and a bachelor of science degree in business from Northwestern
College.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters:
The Company had 1,613 common shareholders of record at July 31, 2000. The
common stock is traded on The Nasdaq Stock Market under the symbol POSS. High
and low closing sale prices for each quarter of fiscal years ended July 31, 2000
and 1999 are presented below:
2000 1999
High Low High Low
QUARTER:
First................. $12.50 $8.06 $ 9.88 $ 4.31
Second................ 11.37 7.63 11.38 6.75
Third................. 14.12 8.28 14.88 7.50
Fourth................ 8.63 6.00 12.50 10.31
The Company has not paid cash dividends on its common stock since 1983. The
Company currently intends to retain all earnings for use in its business and
does not anticipate paying cash dividends in the foreseeable future.
On March 6, 2000, the Company sold an aggregate of 1,594,049 shares of
Common Stock and warrants to purchase a total of 318,810 shares of Common Stock
for aggregate consideration of $15,000,000. The securities were privately sold
to accredited investors. Gerard, Klauer & Mattison received a placement fee of
$900,000 in connection with the private placement. The warrant exercise price is
$12.67 per share, and the warrants are exercisable for a period of four years.
The securities were sold pursuant to Rule 506 of Regulation D promulgated under
the Securities Exchange Act of 1934.
Item 6. Selected Financial Data:
SELECTED FINANCIAL DATA
POSSIS MEDICAL, INC. AND SUBSIDIARIES
YEARS ENDED JULY 31,
In Thousands Except Per Share Data
2000 1999 1998 1997 1996
INCOME STATEMENT DATA:
Operating revenues-
Continuing operations...................... $ 20,428 $ 13,123 $ 6,118 $ 4,834 $ 1,606
Net income (loss):
Continuing operations...................... (10,590) (12,021) (11,969) (8,608) (8,578)
Discontinued operations.................... -- -- -- 112 405
Net income (loss) per common share -
basic and diluted:
Continuing operations...................... (.67) (.90) (.98) (.71) (.74)
Discontinued operations.................... -- -- -- .01 .04
Weighted average shares outstanding -
basic and diluted........................... 15,697 13,356 12,191 12,099 11,611
BALANCE SHEET DATA:
Working capital............................. $ 16,788 $13,530 $16,598 $16,840 $24,780
Total assets................................ 25,004 19,821 23,897 22,423 29,361
Long-term debt,
excluding current maturities............ 7 100 11,493 10 39
Shareholders' equity........................ 20,495 16,315 8,744 19,800 27,597
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations:
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company was incorporated in 1956 and went public in 1960 as Possis
Machine Corporation. Initial operations consisted of design, manufacturing and
sales of industrial equipment and a division that provided temporary technical
personnel. The Company's involvement with medical products began in 1976, when
it sold its rights to a patented bileaflet mechanical heart valve, which it had
obtained from Zinon C. Possis, the founder of the Company, to St. Jude Medical,
Inc. for royalty payments based on St. Jude's valve sales. In 1982 a subsidiary
was established to focus initially on the development of a synthetic blood
vessel used to bypass blocked coronary arteries. In the late 1980's the Company
decided to leverage existing management expertise and entered the pacemaker lead
business. The strategic role of the pacemaker lead business was to provide cash
flow to fund the development of synthetic grafts and thrombectomy systems and to
give the Company access to and name recognition within the medical device
industry. In 1990 the Company made the decision to focus on medical products and
subsequently divested all non-medical operations, beginning with its Technical
Services division in September 1991 followed by its industrial equipment
subsidiary and related land and buildings in January 1994. In March 1994 the
Company sold its pacemaker lead business because it anticipated that revenues
from this business would decrease due to a pacemaker lead technology shift. This
sale enabled Possis to focus its resources exclusively on its other products,
which are currently in clinical trials and in early stages of commercialization.
The Company operates in one business segment -- the manufacture and sale of
medical devices. Possis Medical, Inc. evaluates revenue performance based on the
worldwide revenues of each major product line and profitability based on an
enterprise-wide basis due to shared infrastructures to make operating and
strategic decisions.
Over the past several fiscal years, the Company has transitioned its
revenue stream from pacemaker leads and royalty revenues to revenues from the
sale of its new products. The resulting cash flow, together with the
approximately $34.0 million net proceeds from the Company's calendar 1994 and
1995 common stock offerings, the $12.0 million gross proceeds from the issuance
of 5% convertible subordinated debentures in 1998, the $7.0 million gross
proceeds from the Company's 1999 private placement of common stock, and the
$15.0 million gross proceeds from the Company's 2000 private placement of common
stock, have been used to fund the Company's operations, including research and
development related to its products. Over 98% of fiscal 2000 revenues were from
product sales in the United States. The importance of United States revenue
generation is expected to continue for the foreseeable future.
Results of Operations
Fiscal Years ended July 31, 2000, 1999 and 1998
Total product sales for 2000 increased $7,305,000, or 56%, to $20,428,000
compared to $13,123,000 in 1999. Total product sales for 1999 increased
$7,005,000, or 115%, to $13,123,000 compared to $6,118,000 in 1998. The main
factors in the revenue increase were the April 2000 and March 1999 FDA
clearances to commence U.S. marketing of the AngioJet Rheolytic Thrombectomy
System (AngioJet System), with labeling claims for removal of blood clots in leg
(peripheral) arteries and in symptomatic native coronary arteries and coronary
bypass grafts. U.S. AngioJet System product revenue was $19,029,000, $12,040,000
and $5,662,000 for fiscal 2000, 1999 and 1998, respectively. This represents an
increase of 58% and 113% in fiscal 2000 and 1999, respectively, compared to
prior years.
Revenue - AngioJet
As of July 31, 2000 the Company had a total of 493 domestic AngioJet System
drive units in the field, compared to 300 and 191 at the end of the previous two
fiscal years. During fiscal 2000 the Company sold approximately 16,100 catheters
and pump sets versus approximately 9,100 and 4,700 in fiscal 1999 and 1998,
respectively. This represents a 77% and 94% increase in unit catheter sales from
the previous years. The significant increases in unit catheter sales were due to
the April 2000 and March 1999 FDA clearances to commence U.S. marketing of the
AngioJet System with labeling claims for removal of blood clots in leg
(peripheral) arteries and in symptomatic native coronary arteries and coronary
bypass grafts. During the fiscal years ended July 31, 2000, 1999 and 1998. The
Company sold 138, 162 and 29 AngioJet System drive units, respectively. The
decrease in AngioJet System drive unit sales in fiscal 2000 was due to cost
constraints at U.S. hospitals related to the Balanced Budget Act of 1997. The
Balanced Budget Reform Act of 1997 ("BBA") mandated the removal of $17 billion
from hospital operating budgets by the end of 2002 and $61 billion by 2010.
Hospitals responded to this mandate by freezing or reducing expenditures in
major cost centers such as the pharmacy, and by deferring purchases of capital
equipment such as the AngioJet drive unit. The extent of these cost constraints
across hospitals and within departments of the same hospital were not
proportional, and depend on the unique revenue, cost and capital budget
situation of the institution in question. The Company believes the BBA had an
adverse affect on its AngioJet System drive unit sales and its competitors sales
because of the pressure it put on to reduce hospital expenditures. However, the
Company does not have any data which allows it to calculate the amount of the
adverse affect the BBA had on its competitors. The significant increase in
AngioJet System drive unit sales in fiscal 1999 was due to the FDA approval in
March 1999 for use in the native coronary arteries and coronary bypass grafts.
Of the 582 drive units in the field at the end of the most recent quarter,
179 are company-owned and are being used by customers on some form of
evaluation. The other 69 percent of drive units in the field have been sold.
Rental units are minimal and immaterial to revenue. The change in this mix in
recent quarters has had a relatively minimal impact on margins.
Currently the Company lists its AngioJet System drive unit, considered
capital equipment, at $35,000 to U.S. Hospitals. The Company employs a variety
of flexible drive unit acquisition programs including outright purchase, rental,
and capital free program. The capital free program allows the customer to use
the drive unit in exchange for an increase in the catheter unit price. The
purchasing cycle for the AngioJet System drive unit varies from purchasing the
drive unit with no evaluation to an evaluation period of up to six months,
depending on the customer's budget cycle. The Company has recently signed
contracts with three large purchasing groups in order to accelerate orders and
increase marketing penetration. These purchasing groups acquire drive units for
their member hospitals at pre-negotiated discounts. The large purchasing groups
received a modest discount on their purchases from the Company. This discount
has been offset with the increase of sales with the large purchasing groups.
There has been no material negative effect on the Company's margins due to these
discounts.
The Company expects U.S. AngioJet System sales to continue to grow
primarily through obtaining additional FDA approved product uses, introduction
of new catheter models for existing indications, more face time selling to
existing accounts, peer-to-peer selling, and the publication of clinical
performance and cost effectiveness data. The recent sales increases are believed
to be generated primarily from the FDA approval received in April 2000 for use
of the AngioJet System for removal of blood clots in leg (peripheral) arteries,
and the FDA approval received in May 2000 for its new Xpeedior catheters for
removing clots from dialysis access grafts.
In April 2000, the Company received FDA clearance to market the Company's
LF140 catheter for treating thrombus in leg (peripheral) arteries. This
clearance makes the AngioJet System the first and only new-generation
thrombectomy device with FDA-approved labeling for this indication. In May 2000,
the Company received FDA clearance to market its new Xpeedior 60 and 100
catheters for removing clots from dialysis access grafts. The Xpeedior catheters
are the first catheters marketed by Possis Medical based on its proprietary
Cross-Stream(TM) Technology. This exclusive technology platform intensifies the
action at the tip of the catheter, which doubles the clot removal rate and
triples the treatable vessel size compared to other available mechanical
thrombectomy devices on the market today. In addition, Cross-Stream Technology
can deal more effectively with "mural thrombus," the older, more organized
material that adheres to vessel walls and can complicate patient results.
In October 1999, the Company received full FDA approval for its
Investigational Device Exemption (IDE) application for the clinical trial (Time
1) of the AngioJet System in the treatment of severe acute ischemic stroke. The
first patient was enrolled in May 2000. After the first five patients had been
treated in the TIME 1 clinical trial for ischemic stroke, a planned review was
conducted. This review concluded that the AngioJet NV150 neurocatheter can
access the middle cerebral artery where most ischemic strokes occur, and that
the device can effectively remove clot from this territory. The review suggested
changes to the protocl covering a variety of areas, including patient selection,
exclusion criteria, and specifications for physician technique in deploying and
moving the device in the cerebral vasculature. Physician reviewers also
suggested changes to the device, to improve the trackability, flexibility and
efficacy profile. Estimated costs in making these enhancements is between
$500,000 and $1,000,000. Patient enrollment in TIME 1 will continue after these
enhancements are in place, anticipated for February 2001. Due to the start of
the stroke clinical trial, the Company has stopped enrolling patients in the
clinical trial of the AngioJet System for use in the treatment of stroke caused
by the blockage of the carotid arteries, the main vessels supplying blood to the
brain. A total of five patients were enrolled in the carotid stroke clinical
trial (ReACT). Carotid patients proved to be an extremely sick subset of
patients with multiple complications. Although our device initially showed
favorable results in use for carotids (successful thrombus removal), the Company
estimated that the ischemic stroke market was larger and more amenable to early
intervention using mechanical means.
Foreign sales of the AngioJet System during fiscal 2000, 1999 and 1998 were
$393,000, $491,000 and $351,000, respectively. The limited foreign sales are due
to cost constraints in overseas markets. In foreign markets, where public sector
funds are more crucial for hospital operation, Euro devaluations generated
higher public sector deficits, which, in turn, forced reductions in hospital
procedure and equipment budgets. In Japan, the coronary AngioJet System clinical
study was completed in April 1998 and a regulatory filing was completed in
November 1999 with the Japanese Ministry of Health and Welfare. Japanese
approval for coronary use of the AngioJet System is expected by the end of
calendar 2000 or in early calendar 2001.
Revenue - Vascular Grafts
During fiscal 2000, 1999 and 1998, sales of Perma-Seal(R) Dialysis Access
Grafts were $1,006,000, $593,000 and $0, respectively. In September 1998 the
Company received FDA marketing approval for its Perma-Seal Dialysis Access
Graft. In December 1998, the Company entered into an exclusive worldwide supply
and distribution agreement for its Perma-Seal Dialysis Access Graft. The first
shipment under this distribution agreement was made in January 1999. In
September 2000, the distributor failed to comply with contractually obligated
levels of product purchases and failed to comply with payment schedules. This
put the distributor in non-compliance. The Company is currently reviewing its
options. Sales of Perma-Seal Dialysis Access Grafts are expected to be minimal
in fiscal 2001.
During 1998, sales of Perma-Flow(R)Coronary Bypass Grafts were $105,000
through a distributor. In April 1998, the Company received Humanitarian Device
Exemption (HDE) approval from the FDA, allowing U.S. marketing of the Perma-Flow
Cornonary Bypass Graft for patients who require coronary bypass surgery, but who
have inadequate blood vessels of their own for use in the surgery. In March
1999, the distribution agreement with the Company's independent distributor
expired. Currently the Company is exploring strategic options relating to future
development and commercialization of the product.
In February 1999, the Company received 510(k) clearance from the FDA to
market three expanded polytetrafluoroethylene (ePTFE) synthetic grafts. ePTFE
synthetic grafts are the most commonly used synthetic grafts in peripheral
vessel bypass procedures.
A goal of the Company is to maximize the value of these graft products and
technologies for its shareholders. Its strategy is to seek partners to
distribute the products and possibly fund the graft product development program.
In addition, the Company will continue to pursue the possible sale of its
vascular graft products and technologies. While the Company works toward
completing these activities, it has placed vascular graft product development
and production on hold and due to the uncertainty, management has written off
various vascular graft assets in the current year. In fiscal 2000, the Company
wrote down $213,000 of fixed assets and $125,922 of goodwill. The value of these
vascular graft assets was determined to be impaired due to the reduction of
sales by the Company's vascular graft distributor.
Cost of Medical Products
Cost of medical products, compared to prior years, increased 27% and 36% in
fiscal 2000 and 1999, respectively. The increases are primarily due to the
significant growth in the AngioJet product sales. Medical product gross margins
improved by $5,172,000 and $4,917,000 in fiscal 2000 and 1999, respectively,
compared to prior years. The gross margin percentage in fiscal 2000 was 51%
compared to 40% and 5% in fiscal 1999 and 1998. The Company believes that
manufacturing costs per unit will be reduced and gross margins will continue to
improve as product sales and related volumes continue to grow and as identified
product and process improvements are made.
Selling, General and Administrative Expense
Selling, general and administrative expenses increased $4,442,000 and
$4,055,000 in fiscal 2000 and 1999, respectively, as compared to prior periods.
The primary factors are increases in sales and marketing expenses related to the
establishment of a U.S. direct sales organization to sell the AngioJet System
and market the product in the United States. Based upon early physician interest
and the AngioJet System FDA approvals for coronary and leg artery use, the
Company has grown the U.S. sales marketing organization from 53 employees in
July 1999 to 67 employees in July 2000. The Company expects that the current
level of the U.S. sales force will be able to grow sales and service the
customer base for the Company's AngioJet System through fiscal 2001.
Research and Development
Research and development expenses decreased 4% in fiscal 2000 and increased
11% in fiscal 1999, as compared to prior periods. The decrease in fiscal 2000
was due mainly to the shutdown of graft product development. The reduction in
graft product development was offset by an increase in development of new
AngioJet System applications. The increase in fiscal 1999 was due to the
development of new AngioJet System applications. The Company believes that
research and development will increase as it completes the development of its
current products and invests in development of new AngioJet System thrombectomy
applications and new high-pressure waterjet technology-based products.
Interest Income
Interest income increased $110,000 in fiscal 2000 from fiscal 1999 due to
the gross proceeds of $15,000,000 received from the private placement offering
in March 2000. Interest income decreased $14,000 in fiscal 1999 from fiscal
1998. The gross proceeds of $7,000,000 received in May and June 1999 was offset
by the cash reserves used to fund the operations. The Company expects interest
income to decrease in fiscal 2001 as the Company's cash reserves are used to
fund the Company's operations.
Interest Expense
Interest expense decreased $372,000 in fiscal 2000 as compared to 1999 due
to the 5% convertible subordinated debentures being converted into the Company's
common stock in March 1999. Interest expense increased $341,000 in fiscal 1999
as compared to 1998 due to issuance of the 5% convertible subordinated
debentures in July 1998. The Company expects interest expense to stay at low
levels in fiscal 2001 unless a line of credit through a bank is obtained. If a
line of credit is obtained, the amount of increase in interest expense is
dependent upon how much is borrowed, the interest rate, and the length of time
the borrowing is outstanding.
Liquidity and Capital Resources
The Company's cash, cash equivalents and marketable securities totaled
approximately $12,971,000 at July 31, 2000, an increase of $3.8 million from the
prior year. The primary factors in the increase of the Company's cash position
was the net proceeds of $14.0 million from the private placement offering in
March 2000 which was partially offset by cash used in operating activities of
$8.8 million and capital expenditures of approximately $1.9 million.
During fiscal 2000, cash used in operating activities was $8.8 million,
which resulted primarily from the $10.6 million net loss and a $1.2 million
increase in inventory, partially offset by non-cash charges, a decrease in
receivables, and an increase in accounts payable totaling $3.0 million. The $1.2
million increase in inventories was due to the increase in the number of
evaluation drive units in the field as of July 31, 2000 as compared to July 31,
1999 and due to the expected increase in future Angio-Jet System revenue. The
$100,000 decrease in receivables was due to reduction in days sales outstanding
for U.S. Angio-Jet System receivables as of July 31, 2000 as compared to July
31, 1999. The $1.0 million increase in accounts payable was due to the
purchasing of software and computers toward the end of fiscal 2000. The capital
expenditures were paid in August 2000. Cash used in investing activities was
$10.8 million which resulted from the purchase of marketable securities of $24.1
million and the purchase of plant and equipment of $1.9 million, partially
offset by the proceeds from the maturity of marketable securities of $15.2
million. Net cash provided by financing activities was $14.5 million, which
resulted from the net proceeds of the private placement offering of $14.0
million and the exercise of stock options of $462,000.
During fiscal 1999, cash used in operating activities was $11.9 million,
which resulted primarily from $12.0 million net loss, a $1.9 million increase in
receivables and $366,000 decrease in accounts payable, partially offset by
depreciation, amortization, stock compensation and an increase in accrued
liabilities totaling $2.4 million. The $1.9 million increase in receivables was
due to the significant increase in the revenue in fiscal 1999 as compared to
fiscal 1998. The $366,000 reduction in accounts payable was due to the timing of
when payables are paid. The $788,000 increase in accrued liabilities was
primarily due to the increase in accrued salaries, wages and commissions. The
increase in accrued salaries, wages and commissions was due to the increase in
personnel and in revenue in fiscal 1999 as compared to fiscal 1998. Cash used in
investing activities was $700,000 which was used to purchase plant and
equipment. Net cash provided by financing activities was $7.9 million, which
resulted from the net proceeds of the private placement offering of $6.7
million, the exercise of stock warrants of $828,000 and the exercise of stock
options of $417,000. As of March 1999, all of the 5% convertible subordinated
debentures and related accrued interest totaling $12.3 million were converted
into approximately 1.7 million shares of the Company's common stock at an
average conversion price of $7.12 per share.
During fiscal 1998, cash used in operating activities was $11.8 million,
which resulted primarily from a $12.0 million net loss and a $1.8 million
increase in receivables, inventories and other current assets, partially offset
by depreciation, amortization, stock compensation, and an increase in accounts
payable and accrued liabilities totaling $2.0 million. The $1.6 million increase
in inventory was due to the significant increase in the revenue in fiscal 1998
as compared to fiscal 1997. The $597,000 increase in accounts payable was due to
the fee in conjunction with the 5% convertible subordinated debentures included
in accounts payable as of July 31, 1998. This fee was paid in August 1998. Cash
provided by investing activities was $10.4 million, which resulted from the net
proceeds from the sale/maturity of marketable securities of $11.0 million,
offset by additions to plant and equipment of $614,000. Net cash provided by
financing activities was $11.4 million, which resulted from the net proceeds
from the issuance of 5% convertible subordinated debentures of $11.1 million,
proceeds from long-term debt of $175,000 and the exercise of stock options of
$142,000.
The Company believes that product sales of the AngioJet System, primarily
from the U.S., will yield meaningful sales growth going forward. The Company
expects the current level of the U.S. sales force will be able to grow sales and
service the customer base for the Company's AngioJet System through the fiscal
year 2001. Research and development expenditures are expected to increase as the
Company completes the development of its current products and invests in
development of new AngioJet System thrombectomy applications and new
high-pressure waterjet technology-based products. Possis expects to report a
loss for fiscal 2001, which is expected to be less than the fiscal 2000 loss. In
addition, the Company expects that increasing working capital investments in
trade receivables and inventory will be required to support growing product
sales. The Company has no plan to raise additional outside capital in fiscal
2001, although there can be no assurance that additional capital will not be
required during that time. Subsequent to fiscal 2001 the Company expects that
its operations will become profitable and that no additional outside capital
will be needed to fund its current operations. However, debt financing and
additional outside capital will be considered if the terms are favorable in
order to facilitate the growth of the Company.
Change of Control Plan
On September 15, 1999, the Company's Board of Directors approved a Change
in Control Termination Pay Plan that provides, at the discretion of the Board,
salary and benefit continuation payments to executive officers and selected key
management and technical personnel in the event they are terminated within 24
months of a change in control. At this time, the Board of Directors has
committed to a three-year salary and benefit continuation for the Company's CEO
and two-year salary and benefit continuations for other Named Executive
Officers. In addition, the Company's other officers, key management and
technical personnel are entitled to salary and benefit continuation benefits
ranging in duration from six to 24 months. The Board of Directors has also
recognized the potential for additional payments upon a change in control
notwithstanding employment status following a change in control. These payments
are described as Cash Bonus payments that are strictly at the discretion of the
Board, are only to be awarded if the Company achieves "substantial growth" as
determined by the Board in its discretion, and are based on the value of the
Company at the time of the Change in Control and the Board's assessment of
Company performance and growth. Cash awards are limited to senior executive
officers and other key management personnel. The amount of the pool available
for such payments is limited, in aggregate, to between one and four percent of
the value of the Company at the time of the Change in Control, as measured based
on revenue. Such payments , however, are at the discretion of the Board.
New Accounting Pronouncements
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued. SFAS No. 133 establishes a new model for
accounting for derivatives and hedging activities and supersedes and amends a
number of existing accounting standards. SFAS No. 133 requires that all
derivatives be recognized in the balance sheet at their fair market value, and
the corresponding derivative gains or losses be either reported in the statement
of operations or as a deferred item depending on the type of hedge relationship
that exists with respect to such derivative. The adoption of SFAS No. 133 in
fiscal 2000 had no material effect on the consolidated financial statements.
Forward-Looking Statements
Management's Discussion and Analysis of Financial Condition and Results of
Operations and certain other sections of this Form 10-K, contain certain
"forward-looking statements" as defined in the Private Securities Litigation
Reform Act of 1995. Such statements relating to future events and financial
performance, including statements relating to the Company's ability to establish
an adequate recurring revenue stream from U.S. AngioJet(R)System disposable
sales, the ability to maintain manufacturing yields at acceptable levels,
changes in the Company's marketing strategies, the ability to grow sales while
maintaining its current level of U.S. sales force, the ability to achieve
growing acceptance of the AngioJet System, the ability to control expenses in
order to become profitable, the ability to develop new products, the ability to
raise additional capital on acceptable terms, the results of clinical trials and
the ability to achieve levels of interest income and interest expense. These
statements involve risks and uncertainties, and consequently, actual results may
vary materially from those projected in the forward-looking statements. It is
not possible to foresee or identify all factors affecting the Company's future
results and investors therefore should not consider any list of such factors to
be an exhaustive statement of all risks and uncertainties. Although it is not
possible to create a comprehensive list of all factors that may cause actual
results to differ from the Company's forward-looking statements, these factors
include trends toward managed health care, health care cost containment, the
trend of consolidation in the medical device industry, difficulties and
uncertainties associated with the lengthy and costly new product development and
regulatory clearance processes, changes in government laws and regulations and
the enforcement there of that may be adverse to the Company, the development of
new products by competitors that may make our products obsolete, and economic
factors over which the Company has no control, including changes in inflation
and interest rates. These and other risk factors set forth in the risk factors
included in Exhibit 99 to the Company's registration statement on Form S-3 dated
April 17, 2000 are filed with the Securities and Exchange Commission.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk:
The Company invests its excess cash in money market mutual funds. The
market risk on such investments is minimal.
The product sales for the Company's foreign subsidiary are in U.S. Dollars
("USD"). At the end of July 2000, the amount of currency held in foreign
exchange was approximately $1,000 USD. The market risk on the Company's foreign
subsidiary operations is minimal.
At July 31, 2000, all of the Company's outstanding long-term debt carries
interest at a fixed rate. There is no material market risk relating to the
Company's long-term debt.
Item 8. Financial Statements and Supplementary Data:
INDEPENDENT AUDITORS' REPORT
To the Shareholders of Possis Medical, Inc.:
We have audited the accompanying consolidated balance sheets of Possis
Medical, Inc. and subsidiaries (the Company) as of July 31, 2000 and 1999 and
the related consolidated statements of operations, comprehensive loss, cash
flows, and changes in shareholders' equity for each of the three years in the
period ended July 31, 2000. Our audits also included the financial statement
schedule listed in the Index at Item 14. These consolidated financial statements
and financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Possis Medical, Inc. and
subsidiaries as of July 31, 2000 and 1999 and the results of their operations
and their cash flows for each of the three years in the period ended July 31,
2000, in conformity with accounting principles generally accepted in the United
States of America. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
Deloitte & Touche LLP
Minneapolis, Minnesota
September 1, 2000
POSSIS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
July 31, 2000 July 31, 1999
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 1)........................................ $ 4,053,429 $9,151,004
Markektable securities.................................................... 8,917,251 --
Receivables:
Trade (less allowance for doubtful accounts and returns
of $672,000 and $489,000, respectively)............................. 2,940,497 3,063,311
Inventories (Note 1):
Parts................................................................... 1,441,137 1,218,910
Work-in-process......................................................... 1,551,524 1,596,313
Finished goods.......................................................... 2,107,677 1,556,482
Prepaid expenses and other assets......................................... 278,491 247,907
Total current assets............................................... 21,290,006 16,833,927
PROPERTY (Notes 1 and 2):
Leasehold improvements.................................................... 1,363,902 1,274,814
Machinery and equipment................................................... 5,688,540 4,143,032
Assets in construction.................................................... 305,474 258,114
7,357,916 5,675,960
Less accumulated depreciation............................................. 3,643,976 2,887,025
Property - net....................................................... 3,713,940 2,788,935
OTHER ASSETS:
Goodwill (Note 1)......................................................... -- 197,922
TOTAL ASSETS.................................................................. $25,003,946 $19,820,784
<FN>
See notes to consolidated financial statements.
</FN>
POSSIS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(continued)
July 31, 2000 July 31, 1999
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable............................................. $ 1,916,063 $ 879,173
Accrued salaries, wages, and commissions........................... 1,603,061 1,605,680
Current portion of long-term debt (Note 2)......................... 179,949 92,490
Other liabilities.................................................. 802,989 726,940
Total current liabilities.............................................. 4,502,062 3,304,283
LONG-TERM DEBT (Notes 1 and 2)......................................... 7,279 99,728
OTHER LIABILITIES (Note 4)............................................ -- 102,000
COMMITMENTS AND CONTINGENCIES (Note 6)
SHAREHOLDERS' EQUITY (Note 4):
Common stock-authorized, 100,000,000 shares
of $0.40 par value each; issued and outstanding,
16,700,942 and 14,998,360 shares, respectively................. 6,680,377 5,999,344
Additional paid-in capital......................................... 74,581,145 60,608,623
Unearned compensation.............................................. (24,809) (141,467)
Retained deficit................................................... (60,742,108) (50,151,727)
Total shareholders' equity............................................. 20,494,605 16,314,773
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............................. $25,003,946 $19,820,784
<FN>
See notes to consolidated financial statements.
</FN>
POSSIS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JULY 31
2000 1999 1998
REVENUES:
Medical products sales (Note 7).............................. $20,427,704 $13,123,479 $6,117,850
COST OF SALES AND OTHER EXPENSES:
Cost of medical products .................................... 10,015,799 7,883,865 5,794,901
Selling, general and administrative.......................... 16,052,830 11,611,113 7,555,616
Research and development .................................... 5,525,431 5,743,866 5,193,787
Interest.................................................... 9,377 381,179 40,599
Total cost of sales and other expenses................... 31,603,437 25,620,023 18,584,903
Operating loss.................................................... (11,175,733) (12,496,544) (12,467,053)
Interest income................................................... 585,352 475,113 489,610
Gain on sale of investments ..................................... -- -- 8,101
Net loss ......................................................... $(10,590,381) $(12,021,431) $(11,969,342)
Weighted average number
of common shares outstanding - basic and diluted............. 15,697,135 13,355,822 12,191,477
Loss per common share - basic and diluted:
Net loss ......................................................... $(.67) $(.90) $(.98)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
YEARS ENDED JULY 31
2000 1999 1998
Net loss ......................................................... $(10,590,381) $(12,021,431) $(11,969,342)
Unrealized gain on investments.................................... -- -- 5,836
Comprehensive loss................................................ $(10,590,381) $(12,021,431) $(11,963,506)
<FN>
See notes to consolidated financial statements.
</FN>
POSSIS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JULY 31
2000 1999 1998
OPERATING ACTIVITIES:
Net loss ......................................................... $(10,590,381) $(12,021,431) $(11,969,342)
Adjustments to reconcile net loss to net
cash used in operating activities:
Gain on sale of marketable securities............................. -- -- (8,101)
Loss on disposal of assets............................................. 6,345 4,312 15,237
Depreciation........................................................... 1,195,848 1,035,105 774,027
Amortization........................................................... 72,000 204,077 84,832
Writedown due to impairment of assets............................. 338,922 -- --
Stock compensation to employees and stock options
issued to non-employees....................................... 271,534 341,462 441,694
Decrease (increase) in receivables................................ 122,814 (1,915,748) (148,112)
Increase in inventories........................................... (1,230,513) (58,002) (1,613,285)
(Increase) decrease in other current assets....................... (30,584) 65,251 (57,920)
Increase (decrease) in trade accounts payable..................... 1,036,890 (366,379) 597,052
(Decrease) increase in accrued and other current liabilities...... (10,489) 787,795 113,110
Net cash used in operating activities......................... (8,817,614) (11,923,558) (11,770,808)
INVESTING ACTIVITIES
Additions to plant and equipment.................................. (1,851,510) (693,398) (614,074)
Proceeds from sale of fixed assets................................ 13,192 16,656 2,100
Purchase of marketable securities................................. (24,122,251) -- (13,612)
Proceeds from sale/maturity of marketable securities.............. 15,205,000 -- 10,991,719
Net cash provided by (used in) investing activities........... (10,755,569) (676,742) 10,366,133
FINANCING ACTIVITIES:
Proceeds from issuance of stock and exercise
of options and warrants....................................... 14,480,598 7,926,761 142,406
Repayment of long-term debt....................................... (4,990) (14,069) (28,356)
Proceeds from notes payable and long-term debt.................... -- 21,074 12,175,000
Deferred debt issue costs......................................... -- (24,255) (891,776)
Net cash provided by financing activities..................... 14,475,608 7,909,511 11,397,274
(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS................................................... (5,097,575) (4,690,789) 9,992,599
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR............................................................. 9,151,004 13,841,793 3,849,194
CASH AND CASH EQUIVALENTS AT END OF YEAR............................... $ 4,053,429 $ 9,151,004 $13,841,793
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid.......................................................... $ 1,235 $ 1,643 $ 1,262
Issuance of restricted stock........................................... 59,000 20,250 919,106
Inventory transferred to fixed assets.................................. 23,280 32,201 16,288
Accrued payroll taxes related to restricted stock...................... 18,080 83,230 325,397
Cancellation of restricted stock....................................... 1,977 40,381 --
Conversion of subordinated debentures and accrued
interest into common stock........................................ -- 12,346,174 --
Deferred debt issue costs and original issue discount
netted against conversion of subordinated debentures.............. -- 1,371,122 --
Issuance of stock to settle litigation................................. -- 225,000 --
Warrants issued related to convertible debt............................ -- -- 600,000
<FN>
See notes to consolidated financial statements.
</FN>
POSSIS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY
Unearned Unrealized
Common Stock Additional Stock Loss on
Number of Paid-in Compen- Invest- Retained
Shares Amount Capital sation ments Deficit Total
BALANCE AT JULY 31, 1997........... 12,121,312 $4,848,525 $41,118,611 $ -- $(5,836) $(26,160,954) $19,800,346
Employee stock purchase plan... 7,811 3,124 69,909 -- -- -- 73,033
Stock options issued to
directors and physicians
(Note 4).................... -- -- 60,455 -- -- -- 60,455
Stock options exercised........ 23,940 9,576 59,797 -- -- -- 69,373
Stock grants................... 65,559 26,224 567,485 (919,106) -- -- (325,397)
Unearned stock compensation
amortization................. -- -- -- 430,046 -- -- 430,046
Warrants issued................ -- -- 600,000 -- -- -- 600,000
Unrealized gain on
investments.................. -- -- -- -- 5,836 -- 5,836
Net loss....................... -- -- -- -- -- (11,969,342) (11,969,342)
BALANCE AT JULY 31, 1998........... 12,218,622 4,887,449 42,476,257 (489,060) -- (38,130,296) 8,744,350
Employee stock purchase plan .. 19,881 7,952 106,181 -- -- -- 114,133
Stock options issued to
directors and physicians
(Note 4).................... -- -- 54,349 -- -- -- 54,349
Stock options exercised........ 66,200 26,480 276,687 -- -- -- 303,167
Stock grants................... 2,500 1,000 11,250 (20,250) -- -- (8,000)
Unearned stock compensation
amortization................. -- -- -- 327,462 -- -- 327,462
Litigation settlement.......... 22,785 9,114 215,886 -- -- -- 225,000
Stock retired.................. (12,814) (5,126) 55,976 40,381 -- -- 91,231
Warrants exercised............. 120,000 48,000 780,000 -- -- -- 828,000
Debentures converted........... 1,733,334 693,334 10,281,718 -- -- -- 10,975,052
Private placement
stock offering.............. 827,852 331,141 6,350,319 -- -- -- 6,681,460
Net loss....................... -- -- -- -- -- (12,021,431) 12,021,431)
BALANCE AT JULY 31, 1999........... 14,998,360 5,999,344 60,608,623 (141,467) -- (50,151,727) 16,314,773
Employee stock purchase plan... 51,999 20,800 270,180 -- -- -- 290,980
Stock options issued to
directors and physicians
(Note 4).................... -- -- 97,853 -- -- -- 97,853
Stock options exercised........ 58,682 23,473 147,634 -- -- -- 171,107
Stock grants................... 5,000 2,000 37,000 (59,000) -- -- (20,000)
Unearned stock compensation
amortization................. -- -- -- 173,681 -- -- 173,681
Stock retired.................. (7,148) (2,860) 38,963 1,977 -- -- 38,080
Private placement
stock offering.............. 1,594,049 637,620 13,380,892 -- -- -- 14,018,512
Net loss....................... -- -- -- -- -- (10,590,381) (10,590,381)
BALANCE AT JULY 31, 2000........... 16,700,942 $6,680,377 $74,581,145 $(24,809) $ -- $(60,742,108) $20,494,605
<FN>
See notes to consolidated financial statements.
</FN>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business Possis Medical, Inc. is a developer, manufacturer and
marketer of medical devices, operating in one business segment. The Company was
incorporated in 1956 and has operated several businesses over the last 44 years.
In 1990 the Board of Directors decided to focus on medical products, which led
to the sale of the Technical Services Division in 1991 and the Jet Edge
industrial waterjet business in 1994. In March 1994 the Company sold its
pacemaker lead business because it anticipated that revenues from this business
would decline due to a pacemaker lead technology shift. The name of the Company
was changed to Possis Medical, Inc. in 1993. In January 1995, the Company
established a 100% owned subsidiary, Possis Medical Europe B.V., in the
Netherlands to support international product distribution. Possis Medical
received AngioJet Rheolytic Thrombectomy System U.S. marketing approval for use
in AV access hemodialysis grafts in December 1996, for use in native coronary
arteries and coronary bypass grafts in March 1999, and for use in leg arteries
in April 2000.
The Company's thrombectomy and graft products utilize new technology and
the production processes, and production equipment used to manufacture them are
unique and have been designed and constructed by Company employees. In addition,
the medical device industry is subject to the laws and oversight of the United
States Food and Drug Administration ("FDA") as well as non-U.S. regulatory
bodies in countries where the Company does business.
Basis of Consolidation The consolidated financial statements include the
accounts of Possis Medical, Inc. (the Company) and its wholly-owned
subsidiaries, Possis Holdings, Inc., JEI Liquidation, Inc. (Jet Edge) and Possis
Medical Europe B.V., after elimination of intercompany accounts and
transactions.
Use of Estimates The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Inventories Inventories are stated at the lower of cost (on the first-in,
first-out basis) or market.
Property, Depreciation, and Amortization Property is carried at cost and
depreciated using the straight-line method over the estimated useful lives of
the assets at the following annual rates:
Leasehold improvements................... 10%
Machinery and equipment................... 10-33%
Deferred Debt Issue Costs Deferred debt issue costs were being amortized on
a straight-line basis over six years, based on the term of the 5% convertible
subordinated debentures due 2004. In FY99, all of the 5% convertible
subordinated debentures were converted into the Company's common stock. All
unamoritzed deferred debt issue costs were offset against equity.
Original Issue Discount Original issue discount was being amortized on a
straight-line basis over six years, based on the term of the 5% convertible
subordinated debentures due 2004. The original amount of $600,000 was the value
associated with the detachable stock warrants issued in conjunction with the
convertible subordinated debentures. In FY99, all of the 5% convertible
subordinated debentures were converted into the Company's common stock. All
unamortized original issue discount was offset against equity.
Goodwill Goodwill was being amortized on a straight-line basis over 13.5
years, based on the remaining life of patent rights related to the Perma-Flow(R)
Graft acquired in 1988. As of July 31, 2000, the value of Goodwill was
determined to be impaired, and the remaining balance of $125,922 was written off
as of July 31, 2000. Accumulated amortization at July 31, 1999 was $789,500.
Income Taxes The Company accounts for income taxes under Statement of
Financial Accounting Standard ("SFAS") No. 109, "Accounting for Income Taxes."
Certain items are accounted for income tax purposes in a different period than
for financial statement purposes.
Revenue Recognition Revenues associated with products that are already
maintained at customer locations are recognized when the Company receives a
valid purchase order from the customer. Revenues associated with products that
are not maintained at the customer locations are recognized when a valid
purchase order is received and when the products are shipped. At this time,
ownership and risk of loss is transferred to the customer.
Fair Value of Financial Instruments Marketable securities are carried at
fair value. The carrying value of all other financial instruments, except
long-term debt, approximates fair value due to the short-term nature of the
instrument. The carrying value of long-term debt approximates fair value due to
the fixed interest rates being consistent with current market rates of interest.
Loss Per Share Loss per share for 2000, 1999, and 1998 is computed by
dividing the net loss by the weighted average number of common shares
outstanding. Warrants, options, and convertible debentures representing
2,549,264, 1,882,288 and 2,511,762 shares of common stock at July 31, 2000, 1999
and 1998, respectively, have been excluded from the computations because the
effect is antidilutive.
Cash Equivalents The Company considers highly liquid investments with
original maturities of three months or less to be cash equivalents.
Marketable Securities During 2000 and 1999, the Company invested in
commercial paper with original maturities of less than six months. These
instruments are classified as held to maturity and carried at amortized cost.
Impairment of Long-Lived Assets SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
requires that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying value of an asset may not be
recoverable. An impairment loss is recognized, based on the difference between
the carrying value and the discounted cash flows of an asset, when the estimated
future undiscounted cash flows from the asset are less than the carrying value
of the asset. In fiscal 2000, the Company wrote down $213,000 of fixed assets
(included in cost of goods sold) and $125,922 of goodwill (included selling,
general and administrative expense) related to the Company's vascular graft
business. The value of these vascular assets was determined to be impaired due
to the reduction of sales by the Company's vascular graft distributor.
Derivative Instruments and Hedging Activities In June 1998, SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" was issued. SFAS
No. 133 establishes a new model for accounting for derivatives and hedging
activities and supersedes and amends a number of existing accounting standards.
SFAS No. 133 requires that all derivatives be recognized in the balance sheet at
their fair market value, and the corresponding derivative gains or losses be
either reported in the statement of operations or as a deferred item depending
on the type of hedge relationship that exists with respect to such derivative.
The adoption of SFAS No. 133 in fiscal 2000 had no material effect on the
consolidated financial statements.
2. LONG-TERM DEBT
Long-term debt at July 31, 2000 and 1999 is as follows: 2000 1999
Note payable, interest at 4.5%, interest and principal due June
1999 and June 2001, collateralized by the Company's equipment................... $ 175,000 $ 175,000
Notes payable, interest at 8.25%, principal and interest
payable monthly, final payment due October 2002, collateralized by the
Company's equipment............................................................. 12,228 17,218
187,228 192,218
Less current maturities.......................................................... (179,949) (92,490)
$ 7,279 $ 99,728
In July 1998, the Company received $12,000,000 gross proceeds from the
issuance of 5% convertible subordinated debentures due 2004 and 110,640 warrants
valued at $600,000. During the year ended July 31, 1999, all of the 5%
convertible subordinated debentures and related accrued interest totaling
$12,346,174 were converted into 1,733,334 shares of the Company's common stock
at an average conversion price of $7.12 per share. The warrants are exercisable
for common stock at $15.58 per share.
3. INCOME TAXES
At July 31, 2000, the Company had net operating loss carryforwards of
approximately $55,285,000 for federal tax purposes, which expire in 2003 through
2019, and $16,344,000 for Minnesota tax purposes, which expire in 2003 through
2014.
In addition, at July 31, 2000 the Company has approximately $2,115,000 and
$546,000 in federal and state tax credits, respectively, substantially all of
which are research and development tax credits, which expire from 2001 through
2014, and a $65,182 AMT credit which does not expire.
Deferred tax assets and liabilities as of July 31, 2000 and 1999 are
described in the table below. The Company reduced its net deferred tax assets to
zero through a valuation allowance due to the uncertainty of realizing such
assets:
2000 1999
Current assets (liabilities):
Allowance for doubtful accounts and returns......................... $ 262,000 $ 171,000
Inventory........................................................... 365,000 179,000
Employee compensation and benefits.................................. 286,000 334,000
Other ............................................................. 35,000 25,000
948,000 709,000
Valuation allowance................................................. (948,000) (709,000)
Net ............................................................. $ -- $ --
Long-term assets:
Net operating losses................................................ $19,917,000 $ 16,518,000
Amortization of patents............................................. 407,000 365,000
Tax credits......................................................... 2,674,000 2,674,000
Depreciation........................................................ 208,000 (263,000)
23,206,000 19,294,000
Valuation allowance................................................. (23,206,000) (19,294,000)
Net ............................................................. $ -- $ --
The effective income tax rate differed from the U.S. federal statutory rate
for each of the three years ended July 31, 2000, 1999 and 1998 as follows:
2000 1999 1998
Tax benefit on loss from
continuing operations computed at
statutory rate of 34%.......................... $(3,601,000) $(4,087,000) $(4,069,000)
Decrease in tax benefit due to non-recognizable
benefits of net operating loss
carry-forwards and others...................... 3,601,000 4,087,000 4,069,000
Total income tax expense
continuing operations.......................... $ -- $ -- $ --
4. COMMON STOCK
Private Placement Offerings In March 2000, in conjunction with a private
placement offering, the Company issued 1,594,049 shares of its common stock to
various investors and received $15,000,000 in gross proceeds. The Company
incurred issuance costs of $981,488. In addition, the Company issued 318,810
warrants to purchase shares of its common stock. The exercise price is $12.67
per share. These warrants expire in March 2004.
In May and June 1999, in conjunction with a private placement offering, the
Company issued 827,852 shares of its common stock to various investors and
received $7,000,000 in gross proceeds. The Company incurred issuance costs of
$300,000. In addition, the Company issued 124,178 warrants to purchase shares of
its common stock. The exercise price is $11.43 per share for 106,509 warrants
and $11.69 per share for 17,669 warrants. These warrants expire in May and June
2003.
Stock Options In December 1999, the Company established the 1999 Stock
Compensation Plan (the 1999 Plan) which replaced the 1992 Stock Compensation
Plan (the 1992 Plan). The 1992 Plan replaced the 1985 and 1983 plans. Although
the 1992, 1985 and 1983 plans remain in effect for options outstanding, no new
options may be granted under these plans.
The 1999 Plan authorizes awards of the following type of equity-based
compensation: incentive stock options, nonqualified stock options, stock
appreciation rights, restricted stock, deferred stock, annual grants of stock
options to directors, stock options to directors in lieu of compensation for
services rendered as directors, and other stock-based awards valued in whole or
in part by reference to stock of the Company. No incentive stock options may be
granted on or after December 16, 2009, nor shall such options remain valid
beyond ten years following the date of grant.
The total number of shares of stock reserved and available for distribution
under the 1999 Plan originally was 2,000,000 shares, a maximum of 2,000,000 of
which may be issued as incentive stock options. The total number of shares of
stock reserved and available for distribution under the 1999 Plan are being
increased annually beginning on August 1, 2000 by 2% of the number of shares of
the Company's common stock outstanding on July 31 of the prior fiscal year.
At July 31, 2000, there were 1,969,236 shares reserved for outstanding
options under all plans and 1,843,891 shares available for granting of options
under the 1999 Plan.
In fiscal 2000, 1999 and 1998, the Company granted 13,609, 11,477 and 8,874
compensatory options, respectively, to its outside directors in lieu of cash
payments for directors fees. Fiscal 2000 options were granted under the 1999
Plan. Fiscal 1999 and 1998 options were granted under the 1992 Plan. These
options vest six months after date of grant and expire not more than ten years
from date of grant.
In fiscal 2000, 1999 and 1998, the Company granted 5,000, 6,000 and 2,000
compensatory options, respectively, to various physicians in lieu of cash
payments for services. The Company's policy is to treat these options under
variable plan accounting in accordance with FASB 123 and EITF 96-18. These
options were granted under the 1992 Plan and vest ratably over a six month to a
four year period and expire not more than ten years from date of grant. The
expense associated with non-employee options were $43,000, $14,000 and $12,000
for the years ended July 31, 2000, 1999 and 1998, respectively.
A summary of changes in outstanding options for each of the three years
ended July 31, 2000 follows:
2000 1999 1998
Shares under option at
beginning of year............................ 1,621,070 1,443,571 1,212,944
Options granted................................. 586,109 460,877 302,674
Options exercised............................... (58,682) (66,200) (23,940)
Options canceled................................ (179,261) (217,178) (48,107)
Shares under option at end of year.............. 1,969,236 1,621,070 1,443,571
Shares exercisable at end of year............... 1,011,298 859,866 691,209
Exercise price of options granted............... $4.06-13.75 $3.52-15.50 $5.50-16.69
Exercise price of options exercised............. $1.00-13.13 $3.75-8.75 $1.00-5.75
Market price of options exercised............... $7.25-13.89 $7.43-14.95 $13.13-19.25
Aggregate market value of options
exercised.................................... $478,408 $603,877 $424,396
Stock option weighted average exercise prices during 2000, 1999 and 1998
are summarized below:
2000 1999 1998
Outstanding at beginning of year.......... $10.89 $12.10 $11.63
Granted ................................. 8.97 7.79 13.55
Exercised................................. 3.53 5.72 4.20
Canceled ................................. 12.56 13.98 13.79
Outstanding at end of year................ 10.43 10.89 12.10
The following table summarizes information concerning options outstanding
and exercisable options as of July 31, 2000:
Weighted
Average
Range of Remaining Weighted Weighted
Exercise Shares Contractual Life Average Shares Average
Price Outstanding in Years Exercise Price Exercisable Exercise Price
$1 - 6 143,869 5.08 $ 4.97 140,197 $ 4.94
6 - 12 1,149,878 7.53 8.43 384,250 8.39
12 - 17 521,939 6.59 14.06 367,751 14.13
17 - 21 153,550 6.16 18.12 119,100 18.12
In fiscal 1998, the Company granted 65,559 shares of restricted stock to
employees under the terms of the 1992 Plan, which vest 21,853 shares each year
in fiscal years 1999, 2000 and 2001. Approximately $325,000 was accrued to pay
the estimated withholding taxes on those shares as management believes that the
employees will elect to receive fewer shares in lieu of paying the withholding
taxes. In case of termination of the employees, unvested shares are forfeited.
Unearned compensation of $919,106 was recorded at the date of grant and is being
recognized over the vesting period.
In fiscal 1999, the Company granted 2,500 shares of restricted stock to
employees under the terms of the 1992 Plan, which vest 1,250 shares each year in
fiscal years 2000 and 2001. Approximately $8,000 was accrued to pay the
estimated withholding taxes on those shares as management believes that the
employees will elect to receive fewer shares in lieu of paying the withholding
taxes. In case of termination of the employees, unvested shares are forfeited.
Unearned compensation of $20,250 was recorded at the date of grant and is being
recognized over the vesting period.
In fiscal 2000, the Company granted 3,000 shares of restricted stock to an
employee under the terms of the 1992 Plan, which vest 1,500 shares in fiscal
years 2000 and 2001 and 2,000 shares of restricted stock to an employee under
the terms of the 1999 Plan which vest in fiscal year 2001. Approximately $20,000
was accrued to pay the estimated withholding taxes on those shares as management
believes that the employees will elect to receive fewer shares in lieu of paying
the withholding taxes. In case of termination of the employees, unvested shares
are forfeited. Unearned compensation of $59,000 was recorded at the date of
grant and is being recognized over the vesting period.
As of July 31, 2000, there were 23,375 shares of restricted stock that vest
in September 2000. The fair market value of the restricted shares was
approximately $151,000.
In fiscal 2000, 1999 and 1998, total compensation expense of $173,681,
$327,462 and $430,046, respectively, was recognized on these restricted stock
grants.
Effective August 1, 1996, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation." As permitted by SFAS 123, the Company has elected to
continue following the guidance of APB No. 25 for measurement and recognition of
stock-based transactions with employees. No compensation cost has been
recognized for stock options issued under the 1999 and 1992 Plans because the
exercise price for all options granted was at least equal to the fair value of
the common stock at the date of grant except as noted previously in this note.
If compensation cost for the Company's stock option and employee purchase plans
had been determined based on the fair value at the grant dates for grants during
2000, 1999 and 1998, consistent with the method provided in SFAS No. 123, the
Company's net loss and loss per share would have been as follows:
2000 1999 1998
Net loss:
As reported.................................... $(10,590,381) $(12,021,431) $(11,969,342)
Pro forma .................................. (13,283,866) (14,312,062) (14,122,375)
Loss per share - basic and diluted:
As reported.................................... $ (.67) $ (.90) $ (.98)
Pro forma...................................... (.85) (1.07) (1.16)
The fair value of options granted under the various option plans during
2000, 1999 and 1998 was estimated on the date of grant using the Black-Sholes
option-pricing model with the following weighted average assumptions and
results:
2000 1999 1998
Dividend yield.................................... None None None
Expected volatility............................... 85% 78% 47%
Risk-free interest rate........................... 6.0% 5.5% 6.5%
Expected life of option........................... 120 mo. 120 mo. 120 mo.
Fair value of options on grant date............... $4,362,357 $2,964,817 $2,795,547
Stock Warrants Stock purchase warrants held by unrelated parties
representing the right to purchase 26,400 shares of the Company's common stock
at $8.52 a share were outstanding as of July 31, 2000. These warrants do not
have an expiration date and must be exercised if the market value of the
Company's common stock exceeds $22.73 per share for any sixty consecutive
calendar days.
On September 15, 1994, warrants to purchase 120,000 shares of common stock
at $6.90 per share were issued to John G. Kinnard & Company in conjunction with
the Company's September 1994 public stock offering. In November 1998, these
warrants were exercised.
In July 1998, the Company issued to various investors 110,640 stock
purchase warrants in conjunction with a private placement of convertible
debentures (See Note 2). These warrants expire on July 15, 2002 and are
exercisable into common stock at $15.58 per share. As of July 31, 2000, all such
warrants were outstanding and unexercised.
In May and June 1999, the Company issued 106,509 and 17,669 warrants,
respectively, to various investors in conjunction with the Company's private
placement offering. These warrants expire in May and June 2003 and are
exercisable into common stock at $11.43 and $11.69, respectively. As of July 31,
2000, all such warrants were outstanding and unexercised.
In March 2000, the Company issued 318,810 warrants to various investors in
conjunction with the Company's private placement offering. These warrants expire
in March 2004 and are exercisable into common stock at $12.67. As of July 31,
2000, all such warrants were outstanding and unexercised.
Employee Stock Purchase Plan The Employee Stock Purchase Plan, effective
January 1, 1991, enables eligible employees, through payroll deduction, to
purchase the Company's common stock at the end of each calendar year. The
purchase price is the lower of 85% of the fair market value of the stock on the
first or last day of the calendar year. The Company issued 51,999 shares in
2000, 19,881 shares in 1999 and 7,811 shares in 1998 under this Plan.
5. 401 K PLAN
The Company has an employees' savings and profit sharing plan for all
qualified employees who have completed six months of service. Company
contributions are made at the discretion of the Board of Directors subject to
the maximum amount allowed under the Internal Revenue Code. Contributions for
the years ended July 31, 2000, 1999 and 1998 were $260,482, $208,563, and
$154,863, respectively.
6. COMMITMENTS AND CONTINGENCIES
The Company's medical products operation is conducted from a leased
facility under an operating lease which expires in 2006. Rental payments under
the lease are guaranteed by a letter of credit in the amount of $20,000 at July
31, 2000. Rental expense charged to operations was $243,008 in fiscal 2000,
$241,674 in fiscal 1999 and $241,674 in 1998.
The lease is noncancelable before April 2001, after which it can be
canceled with notice and payment of a termination fee.
The Company is leasing a sales office under an operating lease which
expires in 2002. The future annual rentals on this operating lease are
approximately $14,000 per year through 2002.
Future minimum payments under the non-cancelable operating leases at July
31, 2000 were:
Year Ended
July 31 Amount
2001 $256,000
2002 256,000
2003 242,000
2004 242,000
2005 242,000
2006 and thereafter 242,000
Total minimum lease payments $1,480,000
7. SEGMENT AND GEOGRAPHIC INFORMATION AND CONCENTRATION OF CREDIT RISK
The Company's operations are in one business segment, the design,
manufacture and distribution of cardiovascular and vascular medical devices.
Possis Medical, Inc. evaluates revenue performance based on the worldwide
revenues of each major product line and profitability based on an
enterprise-wide basis due to shared infrastructures to make operating and
strategic decisions.
Total revenues from sales in the United States and outside the United
States for each of the three years ended July 31, 2000, 1999 and 1998 are as
follows:
2000 1999 1998
United States.............. $20,034,934 $12,632,300 $5,766,817
Outside the United States.. 392,770 491,179 351,033
Total revenues............. $20,427,704 $13,123,479 $6,117,850
In 2000, 1999 and 1998 there were no individual customers with sales
exceeding 10% of total revenues.
8. PRODUCT SUPPLY AND DISTRIBUTION AGREEMENTS
In December 1998, the Company entered into an exclusive worldwide supply
and distribution agreement for its Perma-Seal Dialysis Access Graft. The first
shipment under this agreement was made in January 1999. In September 2000, the
distributor was in non-compliance with the terms of the distribution agreement
and the Company is currently reviewing its options.
Item 9. Changes in and disagreements with Accountants on Accounting and
Financial Disclosure:
During fiscal 1999 and 2000, there were no changes in or disagreements with
the Company's independent certified public accountants on accounting procedures
or accounting and financial disclosures.
PART III
Item 10. Directors and Executive Officers of the Registrant:
Information under the heading "Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance" in the Proxy Statement is
incorporated herein by reference. The information regarding executive officers
is included in Part I of this report under the caption "Executive Officers of
the Registrant."
Item 11. Executive Compensation:
Information regarding compensation of directors and officers for the fiscal
year ended July 31, 2000 is in the Proxy Statement and is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management:
The security ownership of certain beneficial owners and management is in
the Proxy Statement under the heading "Common Stock Ownership" and is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions:
Information regarding related party transactions is contained in "Certain
Relationships and Related Transactions" in the Proxy Statement and is
incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K:
(a) 1. Financial Statements
The following financial statements of the Company, accompanied by an
Independent Auditors' Report, are contained in Part II, Item 8:
Consolidated Balance Sheets, July 31, 2000 and 1999
Consolidated Statements of Operations for each of the three years in the
period ended July 31, 2000
Consolidated Statements of Comprehensive Loss for each of the three years
in the period ended July 31, 2000.
Consolidated Statements of Cash Flows for each of the three years in the
period ended July 31, 2000.
Consolidated Statements of Changes in Shareholders' Equity for each of the
three years in the period ended July 31, 2000.
Notes to Consolidated Financial Statements
2. Schedules
The following financial statement schedules are submitted herewith:
SCHEDULE II - Valuation Accounts
Other schedules are omitted because they are not required or are not
applicable or because the required information is included in the financial
statements listed above.
3. Exhibits
Certain of the following exhibits are incorporated by reference from prior
filings. The form with which each exhibit was filed and the date of filing are
indicated on the following three pages.
Exhibit Form Date Filed Description
3.1 10-K Fiscal year ended Articles of incorporation as amended
July 31, 1994 and restated to date
3.2 10-K Fiscal year ended Bylaws as amended and restated
July 31, 1999 to date
4.1 8-A December 13, 1996 Rights agreement, dated December 12,
1996, between the Company and
Norwest Bank Minnesota N.A., as
rights agent
4.2 8-K July 24, 1998 Form of Redeemable Warrant to
purchasers of the Convertible
Debt dated July 15, 1998
4.3 10-K November 23, 1966 Debenture Agreement with St. Paul
Fire and Marine Company and
Western Life Insurance Company
and form of debenture rates and
warrants
4.4 8-K May 12, 1999 Private placement Purchase Agreement
dated May 11, 1999 between the Company
and the investors listed therein
4.5 8-K May 12, 1999 Registration Rights Agreement between
the Company and the investors in the
Purchase Agreement dated May 11, 1999
4.6 8-K May 12, 1999 Form of Warrant to investors of the
Purchase Agreement dated May 11, 1999
4.7 8-K March 14, 2000 Private placement Purchase Agreement
dated March 6, 2000 between the Company
and the investors listed therein.
4.8 8-K March 14, 2000 Registration Rights Agreement between the
Company and the investors in the Purchase
Agreement dated March 6, 2000.
4.9 8-K March 14, 2000 Form of Warrant to investors of the
Purchase Agreement dated March 6, 2000
10.1 S-2 Amendment No.1 License agreement with Imperial
August 9, 1994 Chemical Industries Plc., dated
April 15, 1991
Exhibit Form Date Filed Description
10.2 S-2 Amendment No.1 License agreement with the
August 9, 1994 University of Liverpool, dated
May 10, 1990
10.3 S-1 June 30, 1988 Form of indemnification agreement
with officers and directors of
Registrant
* 10.4 S-8 February 7, 1990 1983 Incentive Stock Option Plan as
amended to date
* 10.5 S-1 June 30, 1988 1985 Nonqualified Stock Option
Plan as amended to date
* 10.6 10-K Fiscal year ended Form of incentive stock option
July 31, 1989 agreement for officers
* 10.7 10-K Fiscal year ended Form of stock option agreement for
July 31, 1989 directors
* 10.8 S-8 June 16, 1998 1992 Stock Compensation Plan
* 10.9 10-K Fiscal year ended Form of restricted stock agreement
July 31, 1993 for officers (1992 Plan)
* 10.10 10-K Fiscal year ended Form of nonqualified stock option
July 31, 1993 agreement for officers (1992 Plan)
* 10.11 10-K Fiscal year ended Form of incentive stock option
July 31, 1993 agreement for officers (1992 Plan)
* 10.12 10-K Fiscal year ended Form of nonqualified stock option
July 31, 1993 agreement for 1992 directors' fees
(1992 Plan)
* 10.13 10-K Fiscal year ended Form of nonqualified stock option
July 31, 1993 agreement for 1990 directors' fees
* 10.14 10-K Fiscal year ended Form of nonqualified stock option
July 31, 1993 agreement for 1989 directors' fees
10.15 10-Q Quarter ended Supply & distribution agreement
January 31, 1995 with Bard Vascular Systems
Division, C.R.Bard, Inc.
10.16 10-Q Quarter ended Lease agreement for corporate
January 31, 1996 headquarters and manufacturing
facility dated December 15, 1995.
Exhibit Form Date Filed Description
10.17 8-K March 28, 1996 Supply and distribution agreement
with Edwards CVS Division, Baxter
Healthcare Corporation
10.18 10-K Fiscal Year ended Addendum to Distributor Agreement
July 31, 1998 with Edwards CVS Division, Baxter
Healthcare Corporation dated
May 1, 1998
* 10.19 10-K Fiscal Year ended Change in Control Termination
July 31, 1999 Pay Plan
* 10.20 10-K Fiscal year ended 1999 Stock Compensation Plan
July 31, 1999
21 10-K Fiscal year ended Subsidiaries of registrant
July 31, 1995
23 10-K Fiscal year ended Consent of independent certified
July 31, 2000 public accountants
27 Financial data schedule
99 S-3 April 17, 2000 Investment risk factors
* Indicates management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
Possis Medical, Inc. filed no reports on Form 8-K during the quarter ended
July 31, 2000.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
POSSIS MEDICAL, INC.
by: /s/ Eapen Chacko
Eapen Chacko
Vice President of Finance and
Chief Financial Officer
Dated: October 12, 2001
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Signature Title Date
/s/ Donald C. Wegmiller Chairman of the Board October 12, 2001
Donald C. Wegmiller
/s/ Robert G. Dutcher Director, President and October 12, 2001
Robert G. Dutcher Chief Executive Officer
/s/ Eapen Chacko Vice President of Finance October 12, 2001
Eapen Chacko Chief Financial Officer
/s/ Dean Belbas Director October 12, 2001
Dean Belbas
/s/ Seymour J. Mansfield Director October 12, 2001
Seymour J. Mansfield
/s/ Whitney A. McFarlin Director October 12, 2001
Whitney A. McFarlin
/s/ William C. Mattison, Jr. Director October 12, 2001
William C. Mattison, Jr.
/s/ Rodney A. Young Director October 12, 2001
Rodney A. Young
SCHEDULE II
POSSIS MEDICAL, INC.
VALUATION ACCOUNTS
YEARS ENDED JULY 31, 2000, 1999 AND 1998
Column A Column B Column C Column D Column E
Additions
Balance at Charged to
Beginning Costs and Deductions Balance at
Description of Year Expenses Write-offs End of Year
Allowance for doubtful accounts and returns - deducted from trade receivables in
the balance sheet:
Year ended July 31, 2000 $ 489,000 $ 502,000 $ 319,000 $ 672,000
Year ended July 31, 1999 150,000 584,000 245,000 489,000
Year ended July 31, 1998 80,000 140,000 70,000 150,000
Valuation allowance on deferred tax asset:
Year ended July 31, 2000 $20,003,000 $4,151,000 $ -- $24,154,200
Year ended July 31, 1999 14,915,000 5,088,000 -- 20,003,000
Year ended July 31, 1998 10,695,000 4,220,000 -- 14,915,000
POSSIS MEDICAL, INC.
FORM 10-K - ITEM 14(a)3
EXHIBIT INDEX
Exhibit
Number Description
23 Consent of independent certified public accountants
27 Financial data schedule
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Post-Effective Amendment
No. 1 to Registration Statement No. 33-5467 on Form S-8, Post-Effective
Amendment No. 1 to Registration Statement No. 33-33416 on Form S-8, Registration
Statement No. 33-39987 on Form S-8, Registration Statement No. 33-56728 on Form
S-8, and Registration Statement No. 333-57289 on Form S-8, Registration
Statement No. 333-39726 on Form S-8, Registration Statement No. 333-33746 on
Form S-3, and Registration Statement No. 333-80291 on Form S-3 of our report
dated September 1, 2000, appearing in the Annual Report on Form 10-K Amendement
No. 2 of Possis Medical, Inc. for the year ended July 31, 2000.
DELOITTE & TOUCHE, LLP
Minneapolis, MN
October 22, 2001