_______________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended April 30, 2002
Commission File Number 0-944
POSSIS MEDICAL, INC.
9055 Evergreen Boulevard N.W.
Minneapolis, Minnesota 55433-8003
(763) 780-4555
A Minnesota Corporation IRS Employer ID No. 41-0783184
_________________________________
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___
The number of shares outstanding of the Registrant's Common Stock, $.40 par
value, as of May 31, 2002 was 17,254,584.
________________________________
POSSIS MEDICAL, INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets, April 30, 2002
and July 31, 2001.................................... 3
Consolidated Statements of Operations for the three
months and nine months ended April 30, 2002 and 2001. 4
Consolidated Statements of Cash Flows for the
nine months ended April 30, 2002 and 2001 ........... 5
Notes to Consolidated Financial Statements........... 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 9
ITEM 3. Quantitative and Qualitative Disclosures
About Market Risk.................................... 14
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K..................... 16
SIGNATURES........................................................ 17
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
POSSIS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
April 30, 2002 July 31, 2001
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................................... $16,822,024 $ 9,515,751
Trade receivables (less allowance for doubtful
accounts and returns of $588,000 and
$659,000, respectively)........................................ 5,364,297 4,268,114
Inventories....................................................... 4,260,220 4,216,629
Prepaid expenses and other assets................................. 440,790 342,995
Total current assets..................................... 26,887,331 18,343,489
PROPERTY AND EQUIPMENT, net............................................ 3,211,726 3,665,751
TOTAL ASSETS ........................................................ $30,099,057 $22,009,240
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable............................................ $ 1,178,396 $ 1,321,485
Accrued salaries, wages, and commissions.......................... 2,527,449 1,532,912
Current portion of long-term debt................................. -- 94,310
Other liabilities................................................. 1,202,615 989,556
Total current liabilities............................... 4,908,460 3,938,263
COMMITMENTS AND CONTIGENCIES
SHAREHOLDERS' EQUITY:
Common stock-authorized, 100,000,000 shares
of $0.40 par value each; issued and outstanding,
17,242,528 and 16,822,023 shares, respectively................. 6,897,011 6,728,809
Additional paid-in capital........................................ 78,118,706 75,411,387
Unearned compensation............................................. (29,400) (22,700)
Retained deficit....................................................... (59,795,720) (64,046,519)
Total shareholders'equity............................... 25,190,597 18,070,977
TOTAL LIABILITIES AND SHAREHOLDERS'EQUITY.............................. $30,099,057 $22,009,240
<FN>
See notes to consolidated financial statements.
</FN>
POSSIS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For Three Months Ended For Nine Months Ended
April 30, 2002 April 30, 2001 April 30, 2002 April 30, 2001
Product sales.............................................. $10,755,468 $7,411,418 $30,564,524 $20,936,545
Cost of sales and other expenses:
Cost of medical products.............................. 3,154,204 2,545,998 9,364,681 8,615,364
Selling, general and administrative................... 4,946,690 3,905,729 14,094,704 12,888,529
Research and development.............................. 1,023,776 1,038,298 3,045,815 3,774,013
Total cost of sales and other expenses.......... 9,124,670 7,490,025 26,505,200 25,277,906
Operating income (loss).................................... 1,630,798 (78,607) 4,059,324 (4,341,361)
Interest income............................................ 56,124 107,333 191,475 399,718
Net income (loss).......................................... $ 1,686,922 $ 28,726 $ 4,250,799 $(3,941,643)
Net income (loss) per common share:
Basic............................................... $.10 $.00 $.25 $(.24)
Diluted............................................. $.09 $.00 $.23 $(.24)
Weighted average number of common shares
outstanding:
Basic............................................... 17,175,755 16,749,538 17,016,921 16,720,968
Diluted............................................. 19,025,729 16,841,733 18,697,652 16,720,968
<FN>
See notes to consolidated financial statements.
</FN>
POSSIS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED APRIL 30, 2002 AND 2001
(UNAUDITED)
2002 2001
OPERATING ACTIVITIES:
Net income (loss)............................................................... $ 4,250,799 $ (3,941,643)
Adjustments to reconcile net income (loss) to net
Cash provided by (used in) operating activities:
(Gain) loss on asset disposal ............................................. (3,626) 8,564
Depreciation............................................................... 1,585,477 1,398,840
Stock compensation expense................................................. 175,640 130,359
Expense reimbursement from city government................................. (83,866) (101,938)
Writedown due to impairment of assets...................................... 70,000 --
Increase in receivables.................................................... (1,096,183) (994,865)
Increase in inventories.................................................... (580,591) (106,143)
(Increase) decrease in other assets........................................ (97,795) 206,597
Decrease in trade accounts payable......................................... (143,089) (965,162)
Increase in accrued and other current liabilities.......................... 1,197,949 75,921
Net cash provided by (used in) operating activities........................ 5,274,715 (4,289,470)
INVESTING ACTIVITIES:
Additions to property and equipment............................................. (667,946) (1,185,010)
Proceeds from the disposal of assets............................................ 7,120 1,402
Proceeds from maturity of marketable securities................................ -- 20,245,000
Purchase of marketable securities............................................... -- (13,585,845)
Net cash (used in) provided by investing activities............................. (660,826) 5,475,547
FINANCING ACTIVITIES:
Proceeds from issuance of stock and exercise of options
and warrants................................................................. 2,718,906 196,843
Repayment of long-term debt..................................................... (26,522) (8,077)
Proceeds from notes payable..................................................... -- 36,504
Net cash provided by financing activities....................................... 2,692,384 225,270
INCREASE IN CASH AND CASH EQUIVALENTS .......................................... 7,306,273 1,411,347
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD................................ 9,515,751 4,053,429
CASH AND CASH EQUIVALENTS AT END OF PERIOD...................................... $16,822,024 $5,464,776
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Issuance of restricted stock.................................................... $36,000 $23,900
Accrued payroll taxes related to restricted stock............................... (12,600) 46,643
<FN>
See notes to consolidated financial statements.
</FN>
POSSIS MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by accounting
principles generally accepted in the United States of America for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. The accompanying consolidated financial statements and notes
should be read in conjunction with the audited financial statements and
accompanying notes thereto included in the Company's 2001 Annual Report.
2. INTERIM FINANCIAL STATEMENTS
Operating results for the three and nine month periods ended April 30, 2002
are not necessarily indicative of the results that may be expected for the year
ending July 31, 2002.
3. INVENTORIES
Inventories are stated at the lower of cost (on the first-in, first-out
basis) or market. Inventory balances were as follows:
April 30, July 31,
2002 2001
Finished goods $1,952,502 $1,935,590
Work-in-process 1,011,129 1,432,536
Raw materials 1,296,589 848,503
$4,260,220 $4,216,629
4. PROPERTY AND EQUIPMENT
Property is carried at cost and depreciated using the straight-line method
over the estimated useful lives of the various assets. Property and equipment
balances and corresponding lives were as follows:
April 30, July 31,
2002 2001 Life
Leasehold improvements $1,454,833 $1,454,833 10 years
Equipment 7,617,099 6,814,596 3 to 10 years
Assets in construction 110,879 255,502 N/A
9,182,811 8,524,931
Less accumulated depreciation 5,971,085 4,859,180
Property and equipment - net $3,211,726 $3,665,751
5. 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 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 by United States and outside the United States are as
follows:
Three Months Ended Nine Months Ended
April 30 April 30 April 30 April 30
2002 2001 2002 2001
United States............ $10,639,218 $7,344,698 $30,212,274 $20,626,680
Outside United States.... 116,250 66,720 352,250 309,865
Total revenues........... $10,755,468 $7,411,418 $30,564,524 $20,936,545
6. NET INCOME (LOSS) PER COMMON SHARE
Basic net income (loss) per common share is computed by dividing net income
(loss) for the period by the weighted average number of common shares
outstanding during the period. Diluted net income per share is computed using
the treasury stock method by dividing net income by the weighted average number
of common shares plus the dilutive effect of outstanding stock options, stock
warrants and shares issuable under the employee stock purchase plan. Diluted
loss per share does not include outstanding stock options, stock warrants and
shares issuable under the employee stock purchase plan in the computation since
the impact would have been anti-dilutive because of the net loss.
7. COMMON STOCK
During the nine months ended April 30, 2002, stock options and warrants for
the purchase of 356,014 shares of the Company's common stock were exercised at
prices between $3.94 and $17.50 per share.
During the nine months ended April 30, 2002, the Company issued 63,242
shares in connection with its employee stock purchase plan.
During the nine months ended April 30, 2002, the Company issued 2,124
shares of restricted stock to the outside members of the Board of Directors. In
addition, 875 shares of restricted stock were cancelled in lieu of paying the
withholding taxes.
8. IMPAIRMENT OF LONG-LIVED ASSETS
During the nine months ended April 30, 2002, the Company expensed $70,000
(included in selling, general and administrative expense) relating to the
write-down of a fixed asset to net realizable value to net realizable value. The
value of this fixed asset was determined to be impaired due to the unlikely
continued use of this fixed asset.
9. NEW ACCOUNTING PRONOUNCEMENTS
In August 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 143, "Accounting for
Asset Retirement Obligations." SFAS No. 143 requires entities to record the fair
value of a liability for an asset retirement obligation in the period in which
it is incurred. When the liability is initially recorded, the entity capitalizes
the cost by increasing the carrying amount of the related long-lived asset. Over
time, the liability is accreted to its present value each period, and the
capitalized cost is depreciated over the useful life of the related asset. Upon
settlement of the liability, an entity either settles the obligation for its
recorded amount or incurs a gain or loss upon settlement. SFAS No. 143 is
effective for the Company in fiscal 2003. The Company has not yet determined the
impact of SFAS No. 143 on its financial position and results of operations.
In September 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 replaces SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." The FASB issued SFAS No. 144 to establish a single
accounting model, based on the framework established in SFAS No. 121, as SFAS
No. 121 did not address the accounting for a segment of a business accounted for
as a discontinued operation under Accounting Principle Board Opinion No. 30,
"Reporting the Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business and Extraordinary, Unusual and Infrequent Occurring Events
and Transactions." SFAS No. 144 also resolves significant implementation issues
related to SFAS No. 121. The provisions of SFAS No. 144 are effective for the
Company in fiscal 2003, and generally, are to be applied prospectively. The
Company has not yet determined the impact of SFAS No. 144 on its financial
position and results of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
Certain statements made in Management's Discussion and Analysis of
Financial Condition and Results of Operations and certain other sections of this
Form 10-Q are "forward-looking statements" as defined in the Private Securities
Litigation Reform Act of 1995, including statements regarding the Company's
ability to increase disposable sales; its ability to obtain additional
FDA-approvals; the expected receipt of Japanese regulatory approvals; customer
responses to the Company's marketing strategies; the Company's ability to
introduce new catheter models; future revenue levels, gross margins, expenses
levels and earnings per share, future equity financing needs and the Company's
ability to develop new products. These forward-looking statements are based on
current expectations and assumptions and entail various risks and uncertainties
that could cause actual results to differ materially from those expressed in
such forward-looking statements. Certain factors that may affect whether these
anticipated results occur include clinical and market acceptance of our
products; factors affecting the health care industry such as consolidation, cost
containment and trends toward managed care; delays, unanticipated costs or other
difficulties and uncertainties associated with lengthy and costly new product
development and regulatory clearance processes; changes in governmental laws and
regulations; changes in reimbursement; the development of new products and
compounds by competitors that may compete with our products or make our products
obsolete; sudden restrictions in supply of key materials and deterioration of
general market and economic conditions. These and other risk factors that may
affect our results are included in the Company's Form 10-K for the year ended
July 31, 2001 filed with the Securities and Exchange Commission.
Critical Accounting Policies
The consolidated financial statements include accounts of the Company and
all wholly-owned subsidiaries. The preparation of financial statements in
conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions in certain circumstances
that affect amounts reported in the accompanying consolidated financial
statements and related footnotes. In preparing these financial statements,
management has made its best estimates and judgments of certain amounts included
in the financial statements, giving due consideration to materiality. The
Company does not believe there is a great likelihood that materially different
amounts would be reported related to the accounting policies described below.
However, application of these accounting policies involves the exercise of
judgment and use of assumptions as to future uncertainties and, as a result,
actual results could differ from these estimates.
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. At this time, ownership and risk of loss is transferred to the
customer. Revenues associated with products that are not maintained at the
customer locations are recognized when a valid purchase order is received and
the products are received at the customer's location. At this time, title and
risk of loss is transferred to the customer. Provisions for returns are recorded
in the same period the related revenues are recognized.
Allowance for Returns
Accounts receivable are reduced by an allowance for items that may be
returned in the future. The estimated allowance for returns is based upon
historical experience, information received from our customers and on various
other assumptions that are believed to be reasonable under the circumstances.
Management, on a quarterly basis, evaluates the adequacy of the reserve for
returns.
Allowance for Doubtful Accounts
Accounts receivable are reduced by an allowance for amounts that may become
uncollectable in the future. Substantially all of the Company's receivables are
due from health care facilities located in the United States. The estimated
allowance for doubtful accounts is based upon the age of the outstanding
receivables and the payment history and credit worthiness of each customer.
Management, on a quarterly basis, evaluates the adequacy of the reserve for
doubtful accounts.
Inventories
Inventories are valued at the lower of cost or market. On a quarterly
basis, management assesses the inventory quantities on hand to estimated future
usage and sales and, if necessary, writes down the value of inventory deemed
obsolete or excess to market.
Warranty Reserve
The Company provides a one year limited warranty on its AngioJet System
drive unit and an unlimited warranty on AngioJet System disposable products. The
warranty reserve is based upon historical experience of claims relating to the
Company's products and the cost to replace disposable products and to repair
drive units under warranty. Management, on a quarterly basis, evaluates the
adequacy of the warranty reserve.
Results of Operations
Three and Nine Month Periods Ended April 30, 2002 and 2001
Total product sales for the three months ended April 30, 2002 increased
$3,344,000, or 45%, to $10,755,000 compared to $7,411,000 for the comparable
period in fiscal 2001. Total product sales for the nine months ended April 30,
2002 increased $9,628,000, or 46%, to $30,565,000 compared to $20,937,000 for
the comparable period in fiscal 2001. The Company recorded a net profit for the
quarter ended April 30, 2002 of $1,687,000, or $.09 per diluted share, compared
to a net income of $29,000, or $.00 per diluted share, in the comparable quarter
in 2001. For the nine months ended April 30, 2002, the Company recorded a net
profit of $4,251,000 or $.23 per diluted share, compared to a net loss of
$3,942,000, or $.24 per diluted share, in the same period in 2001.
Revenue - AngioJet System
U.S. AngioJet System revenue for the three months ended April 30, 2002
increased 45% to $10,639,000 from $7,345,000 for the same period in 2001. U.S.
AngioJet System revenue for the nine months ended April 30, 2002 increased 46%
to $30,212,000 from $20,627,000 in 2001. The Company markets the AngioJet(R)
Rheolytic(TM) Thrombectomy System (AngioJet System) worldwide. The AngioJet
System consists of a drive unit (capital equipment), which powers a disposable
pump and a family of disposable catheters, each aimed at a specific indication.
The main factors in the revenue increase were increased sales resulting from the
Company commencing U.S. marketing of the AngioJet System with an additional
labeling claim for the XMI(TM)135 (XMI) catheter for the removal of blood clots
in leg (peripheral) arteries in March 2001 and for coronary use in December 2001
and the increased acceptance of the Company's Xpeedior(R) catheters by
physicians. The Xpeedior catheters are the first catheters marketed by the
Company based upon its proprietary Cross-Stream(R) 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 has been able to deal more effectively with
"mural thrombus," the older, more organized material that adheres to vessel
walls and can complicate patient results.
In April 2002, the Company released to the U.S. market the new 5 French
XVG(TM) catheter for use in removing blood clots from peripheral arteries
greater than or equal to 3mm in diameter. The 140cm XVG catheter becomes the
highest power, long catheter in the Possis product line, which includes the
LF-140 and the XMI135. The XVG incorporates the proprietary Cross-Stream
technology platform, and it is optimized for vessels 3-8mm in diameter. The
combination of longer length, Cross-Stream technology, higher clot removal rate,
improved pushability and trackability should make this a versatile catheter for
dealing with larger vessels, more distal vessels, and older, more problematic
clot burdens.
As of April 30, 2002, the Company had a total of 823 domestic drive units
in the field, compared to 615 drive units at April 30, 2001, and 771 units as of
January 31, 2002. During the three month period ended April 30, 2002, the
Company's worldwide catheter sales increased approximately 33% to approximately
8,400 catheters versus approximately 6,300 catheters in the same prior year
period. During the nine month period ended April 30, 2002, the Company's
worldwide catheter sales increased approximately 35% to approximately 24,000
catheters versus approximately 17,800 catheters in the same prior year period.
The average catheter utilization rate per installed domestic drive unit was 10.2
in the second quarter of fiscal 2002, compared to a rate of 10.4 in the same
prior year period, and compared to a rate of 10.6 in the second quarter of
fiscal 2002. The Company sold 40 and 127 drive units worldwide during the three
and nine months ended April 30, 2002 compared to 38 and 123 drive units,
respectively, in the same periods in the prior year.
The Company employs a variety of flexible drive unit acquisition programs
including outright purchase and various evaluation programs. The purchasing
cycle for the AngioJet System drive unit varies depending on the customer's
budget cycle. The Company has signed contracts with six purchasing groups in
order to accelerate orders and increase market penetration. These purchasing
groups evaluate and screen new medical technologies on behalf of their members,
and once they recommend a technology, such as the AngioJet System, they
negotiate pre-determined discounts on behalf of their members. The benefit for
the Company is access to the recommended vendor list, along with marketing
support provided by the purchasing group. The purchasing groups receive a
marketing fee on their member purchases from the Company. These discounts and
marketing fees have been offset by the increase in sales to the member hospitals
of the purchasing group. There has been no material negative effect on the
Company's margins due to these discounts and marketing fees. The discounts
reduce gross revenue on the income statement, while marketing fees are included
in selling, general and administrative expense on the income statement.
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.
Foreign sales of the AngioJet System for the three and nine month periods
ended April 30, 2002 were $116,000 and $352,000, respectively. This compared to
foreign sales of the AngioJet System of $67,000 and $310,000, respectively, for
the same periods the previous year. The limited foreign sales are due to cost
constraints in overseas markets that result in lower margins. Due to the lower
margins, the Company is not actively seeking to expand its distribution network
in Europe. 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 (MHW). The Company is actively
responding to MHW regulatory issues and expects Japanese approval for coronary
use of the AngioJet System in calendar year 2002. Once Japanese regulatory
approval is received, the Company must apply for and secure adequate third-party
reimbursement for AngioJet use. The Company expects this to be a six to twelve
month process.
The Company believes that the treatment of blood clots in coronary vessels,
peripheral vessels, dialysis access grafts and neuro vessels are significant
worldwide marketing opportunities for the AngioJet System.
Revenue - Vascular Grafts
Vascular graft sales were $0 and $75,000 for the nine months ended April
30, 2002 and 2001, respectively. All of the vascular graft sales were
Perma-Seal(R) Dialysis Access Grafts. No additional sales of Perma-Seal Dialysis
Access Grafts are expected. Currently, the Company has put all graft activities
on hold as it concentrates its efforts on the development on new AngioJet System
applications. All assets relating to the vascular graft business have been
written off in prior periods.
Cost of Medical Products
Cost of medical products increased $608,000 to $3,154,000 in the three
month period ended April 30, 2002 over the same period in the previous year, and
increased $749,000 to $9,365,000 for the nine month period ended April 30, 2002
over the same period in the previous year. These increases are primarily due to
the significant growth in the U.S. AngioJet System product sales. Gross margins
improved by $2,736,000 to $7,601,000, or 71% as a percentage of product sales,
for the three months ended April 30, 2002, over the same period in the previous
year. Gross margins improved $8,879,000 to $21,200,000, or 69% as a percentage
of product sales, for the nine month period ended April 30, 2002 over the same
period in the previous year. This compares to gross margins as a percentage of
product sales of 66% and 59% for each of the three and nine month periods ended
April 30, 2001. The improvement in gross margins was primarily driven by higher
volumes of XMI and Xpeedior catheters that have a lower per unit cost compared
to the catheters they replaced and an improvement in the coronary product
catheter mix in the three and nine months ended April 30, 2002 as compared to
same periods in the previous fiscal year. The Company believes that gross
margins as a percentage of product sales will be in the high sixties to low
seventies as a percent to sales for the remainder of fiscal 2002.
Selling, General and Administrative Expense
Selling, general and administrative expense increased $1,041,000 to
$4,947,000 for the three months ended April 30, 2002 and increased $1,206,000 to
$14,095,000 for the nine months ended April 30, 2002, compared to the same
periods in previous year. The primary factors in the expense increase for the
three months ended April 30, 2002 were the increase in the sales force of
$216,000, commissions of $153,000, marketing studies of $131,000 and higher
corporate incentives of $138,000. The primary factors for the expense increase
for the nine months ended April 30, 2002 were an increase in corporate
incentives of $722,000, higher commissions of $373,000 and marketing fees to
group purchasing organizations due to increased AngioJet System product sales of
$192,000. The reduction in costs related to the work force reduction in January
2001 and a reduction in health insurance premiums partially offset these expense
increases. The Company expects selling, general and administrative expense to
increase for the remainder of fiscal 2002 due to the anticipated growth in U.S.
AngioJet System revenue.
Research and Development Expense
Research and development expense decreased $15,000, or 1%, to $1,024,000,
in the three months ended April 30, 2002, when compared to the same period in
the prior year. Research and development expense decreased $728,000, or 19%, to
$3,046,000 in the three months ended April 30, 2002. These decreases were
primarily due to the shifting of priorities between various development
projects, slower than anticipated TIME 1 clinical trial patient enrollment, and
the reimbursement of costs from the National Institutes of Health (NIH) grant.
The Company believes that research and development expense for AngioJet System
applications will increase for the remainder of fiscal 2002 as the Company
completes the development of its current products and invests in the development
of new AngioJet System thrombectomy applications and related products including
its distal protection device.
In October 1999, the Company received full FDA approval for its
Investigational Device Exemption (IDE) application for the TIME 1 clinical trial
of the AngioJet System in the treatment of 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 could
access the middle cerebral artery where most ischemic strokes occur, and that
the device can effectively remove a clot from this territory. The review
suggested changes to the protocol 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. In May 2001, the FDA approved the re-start of patient
enrollment in the TIME 1 clinical trial. TIME 1 clinical trial will enroll up to
30 patients at up to eight centers in the U.S. to determine safety of the device
for this indication. Nine patients have been enrolled to date under the
re-opened trial. The next planned review clinical results will take place when a
total of 10 patients have been enrolled under the re-opened trial.
Interest Income
Interest income decreased $51,000 to $56,000 in the three months ended
April 30, 2002, and decreased $208,000 to $191,000 in the nine months ended
April 30, 2002 compared to the same periods in the prior year. These decreases
are due to the declining market interest rates. The Company expects interest
income on a quarterly basis to increase slightly during the remainder of fiscal
2002 as cash is generated from operations.
Liquidity and Capital Resources
The Company's cash and cash equivalents totaled approximately $16.8 million
at April 30, 2002 versus $9.5 million at July 31, 2001.
The $7,306,000 net increase in cash and cash equivalents in the most recent
nine-month period was primarily due to the net cash provided by operating
activities of $5,275,000. Net cash provided by operating activities was
primarily due to the net income of $4,251,000, depreciation of $1,585,000, stock
compensation expense of $176,000 and an increase in accrued expenses and other
current liabilities of $1,198,000. This net cash provided by operating
activities was partially offset by an increase in trade receivables of
$1,096,000, an increase in inventory of $581,000, a decrease in other assets of
$98,000 and a decrease in accounts payable of $143,000. The increase in accrued
liabilities was due to the timing of the payments of accrued liabilities and the
increase in accrued corporate incentives. Trade receivables increased due to the
increase in revenue for the three month period ending April 30, 2002 as compared
to revenue for the last three months of fiscal 2001. Inventory increased due to
the increase in demand for the AngioJet System. The increase in other assets was
due to the increase in prepaid insurance. The decrease in accounts payable was
due to the timing of the payment of accounts payables. Cash used in investing
activities of $661,000 was for the purchase of property and equipment. Net cash
provided by financing activities was $2,692,000, which resulted from the cash
received in connection with the exercise of stock options and warrants of
$2,719,000, offset by the repayment of debt of $27,000.
The Company expects that fiscal 2002 product sales of the AngioJet System,
primarily in the United States, will be in the middle of the previously
estimated range of $39 million to $44 million. Gross margin for fiscal 2002 is
expected to be in the high sixties to low seventies as a percent-of-sales. The
Company expects selling, general and administrative expenses to increase in
fiscal 2002 due to anticipated growth in product sales. Research and development
expenditures are expected to increase during the fourth quarter of fiscal 2002
versus the third quarter of fiscal 2002. For the full fiscal 2002 year, the
research and development expenditures are expected to be less than the fiscal
2001 level as the Company completes development of projects and invests in
development of new AngioJet System thrombectomy applications and related
products. The Company expects its diluted earnings per share for the full year
to be in the previously estimated range of $0.31-$0.34 per diluted share for the
full year. Possis Medical expects its business to be cash flow positive for the
balance of the fiscal year, and the Company anticipates no additional equity
financing to support these growths plans. The trends to support the Company's
expected positive cash flow for the remainder for fiscal 2002 are the continued
growth of the Company's product sales and the continued management of the
Company's expenses. The Company's primary source of cash is from its product
sales. Collections of the trade receivables resulting from the product sales are
reviewed monthly to ensure that the customers are paying in a timely manner. The
Company's use of cash is for payment of normal trade accounts payable, capital
equipment purchases, employee compensation and other normal business expenses,
all on terms that are customary in the industry. The Company is current with its
vendors.
ITEM 3. 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 April 2002, 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.
The Company does not have any debt or off balance sheet liabilities.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 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 below.
Exhibit Form Date Filed Description
3.1 10-K Fiscal year ended Articles of incorporation as
July 31, 1994 amended and restated to date.
3.2 10-K Fiscal Year ended Bylaws as amended and
July 31, 1999 restated to date.
(b) Reports on Form 8-K
Possis Medical, Inc. filed no reports on Form 8-K during the quarter ended
April 30, 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
POSSIS MEDICAL, INC.
DATE: June 13, 2002 BY: /s/ Robert G. Dutcher
ROBERT G. DUTCHER
Chairman, President and Chief Executive Officer
DATE: June 13, 2002 BY: /s/ Eapen Chacko
EAPEN CHACKO
Vice President of Finance and Chief Financial Officer