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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20459
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the three months ended April 30, 1995
Commission File Number 0-944
POSSIS MEDICAL, INC.
2905 Northwest Boulevard
Minneapolis, Minnesota 55441-2644
(612) 550-1010
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 June 2, 1995 was 9,957,837.
____________________________________
POSSIS MEDICAL, INC.
INDEX
PAGE
____
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheet, April 30, 1995
and July 31, 1994................................ 1
Consolidated Statements of Income (Loss) and
Retained Deficit for the three months ended April
30, 1995 and 1994, and for the nine months ended
April 30, 1995 and 1994.......................... 2
Consolidated Statements of Cash Flows for the
nine months ended April 30, 1995 and 1994........ 3
Notes to Consolidated Financial Statements....... 4
ITEM.2 Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. 5-7
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K................. 8
SIGNATURES
POSSIS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, April 30, 1995 and July 31, 1994
--ASSETS-- April 30, 1995 July 31, 1994
______________ _____________
(unaudited)
CURRENT ASSETS:
Cash and Cash equivalents............................... $ 5,194,634 $1,769,348
Marketable Securities................................... 2,307,647 --
Receivables:
Trade (less allowances for doubtful accounts:
April, $49,398; July, $120,000).................... 102,653 260,866
St. Jude Medical, Inc................................ 945,409 2,930,158
Notes................................................ 123,918 123,918
Other................................................ 343,286 385,798
Inventories:
Parts................................................ 654,707 471,943
Work in progress..................................... 222,964 482,181
Finished goods....................................... 101,200 89,500
Prepaid expenses and other assets....................... 207,196 309,629
__________ __________
Total current assets.............................. 10,203,614 6,823,341
__________ __________
PROPERTY:
Buildings and improvements.............................. 169,356 160,069
Machinery and equipment................................. 2,234,467 2,041,873
Assets in construction.................................. 286,904 83,305
__________ __________
Total............................................. 2,690,727 2,285,247
Less accumulated depreciation......................... (1,207,836) (1,017,013)
__________ _________
Property - net.................................... 1,482,891 1,268,234
__________ _________
OTHER ASSETS:
Goodwill................................................ 503,922 557,922
Long-term portion - notes receivable.................... 114,133 232,071
__________ _________
Total other assets................................ 618,055 789,993
__________ _________
TOTAL..................................................... $12,304,560 $8,881,568
========== =========
-LIABILITIES AND SHAREHOLDERS' EQUITY-
CURRENT LIABILITIES
Trade accounts payable.................................. $ 123,284 $ 115,359
Accrued liabilities:
Related parties....................................... 342,711 1,062,182
Salaries, wages, commissions.......................... 602,771 622,982
Warranty reserve...................................... -- 30,000
Current portion of long-term debt....................... 81,103 574,366
Other liabilities....................................... 249,896 411,016
_________ _________
Total current liabilities........................... 1,399,765 2,815,905
DEFERRED REVENUE.......................................... 174,645 246,828
LONG TERM DEBT............................................ 114,382 80,370
OTHER LIABILITIES......................................... 54,760 54,760
SHAREHOLDERS' EQUITY:
Common stock-authorized, 20,000,000 shares of $.40 par
value each; issued and outstanding, 9,936,811 shares
and 8,456,252 shares, respectively...................... 3,974,724 3,382,501
Additional paid-in capital.............................. 14,034,594 7,180,089
Unearned compensation................................... (63,219) (118,836)
Retained deficit........................................ (7,385,091) (4,760,049)
__________ _________
Total shareholders'equity........................... 10,561,008 5,683,705
__________ _________
TOTAL..................................................... $12,304,560 $8,881,568
========== =========
<FN>
See accompanying Notes to Consolidated Financial Statements.
-1-
POSSIS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND RETAINED DEFICIT
FOR THE THREE AND NINE MONTHS ENDED APRIL 30, 1995 AND 1994
(unaudited)
FOR THREE MONTHS ENDED FOR NINE MONTHS ENDED
_____________________________ ______________________________
April 30, 1995 April 30, 1994 April 30, 1995 April 30, 1994
______________ ______________ ______________ ______________
REVENUES:
Medical product sales..................................... $ 153,976 $ 697,413 $ 220,235 $ 3,039,530
Net heart valve patents................................... 181,351 688,500 1,782,343 2,025,911
Royalties relating to lead business....................... 153,819 79,500 410,118 79,500
Sales agreement revenue................................... 500,000 -- 750,000 --
Gain on sale of lead business............................. -- 647,816 -- 647,816
Gain on sale of real estate............................... -- 957,573 -- 957,573
Other income.............................................. 119,866 23,144 295,844 55,770
_________ _________ _________ _________
Total................................................. 1,109,012 3,093,946 3,458,540 6,806,100
COST OF SALES AND OTHER EXPENSES:
Cost of medical products.................................. 946,991 891,239 2,531,851 2,957,049
Selling, general and administrative expense............... 482,001 408,768 1,540,666 1,248,798
Research and development.................................. 750,391 1,053,408 2,306,865 3,060,251
Interest expense.......................................... 6,181 27,486 19,733 106,757
_________ _________ _________ _________
Total cost of sales & other expenses.................. 2,185,564 2,380,901 6,399,115 7,372,855
Income (loss) from continuing operations before income taxes. (1,076,552) 713,045 (2,940,575) (566,755)
Provision for income taxes................................... -- 8,098 -- 8,098
_________ _________ _________ _________
Income (loss) from continuing operations..................... (1,076,552) 704,947 (2,940,575) (574,853)
Discontinued operations:
Gain (loss) on disposal (net of taxes)..................... -- (46,224) -- 33,238
Income from operations (net of taxes)...................... 157,875 56,568 315,533 240,748
_________ _________ _________ _________
Income from discontinued operations (net of taxes)........... 157,875 10,344 315,533 273,986
_________ _________ _________ _________
Net income (loss)............................................ $ (918,677) $ 715,291 $(2,625,042) $ (300,867)
Retained deficit at beginning of period...................... (6,466,414) (5,053,469) (4,760,049) (4,037,311)
_________ _________ _________ _________
Retained deficit at end of period............................ $(7,385,091) $(4,338,178) $(7,385,091) $(4,338,178)
_________ _________ _________ _________
Average number of common shares outstanding.................. 9,924,573 8,438,933 9,648,751 8,429,386
Net income (loss) per common share:
Continuing operations...................................... $(.11) $.08 $(.30) $(.07)
Discontinued operations.................................... .02 -- .03 .03
____ ____ ____ ____
Net income (loss).......................................... $(.09) $.08 $(.27) $(.04)
==== ==== ==== ====
<FN>
See accompanying Notes to Consolidated Financial Statements.
-2-
POSSIS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED APRIL 30, 1995 AND 1994
(unaudited)
1995 1994
____ ____
OPERATING ACTIVITIES:
Net loss................................................ $(2,625,042) $ (300,867)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities
Gain on sale of discontinued operations.............. -- (33,238)
Gain on sale of lead business........................ -- (647,816)
Gain on sale of real estate.......................... -- (957,573)
Depreciation......................................... 265,839 307,846
Amortization of goodwill............................. 54,000 54,000
Loss on asset disposal............................... 5,631 --
Stock compensation................................... 55,617 203,279
Decrease in receivables.............................. 1,985,796 1,500,775
Decrease in inventories.............................. 64,753 168,966
(Increase) decrease in other assets.................. 82,871 (2,206)
Increase (decrease) in trade accounts payable........ 7,925 (502,544)
Decrease in accrued and other current liabilities.... (958,135) (919,213)
Other................................................ -- (104,998)
_________ _________
Net cash used in operating activities................... (1,060,745) (1,233,589)
_________ _________
INVESTING ACTIVITIES:
Proceeds from discontinued operations................... 337,179 2,496,702
Additions to plant and equipment........................ (488,857) (495,714)
Proceeds from the sale of fixed assets.................. 2,728 --
Proceeds upon disposal of real estate................... -- 1,200,000
Proceeds upon sale of lead business..................... -- 1,100,000
Purchase of marketable securities....................... (9,553,113) --
Proceeds from sale/maturity of marketable securities.... 7,245,467 --
_________ _________
New cash provided by (used in)
investing activities.................................. (2,456,596) 4,300,988
_________ _________
FINANCING ACTIVITIES:
Repayment of long-term debt............................. (574,925) (783,179)
Proceeds from issuance of stock and exercise of options. 7,401,879 177,738
Proceeds upon issuance of long-term debt................ 115,673 143,928
_________ __________
Net cash provided by (used in) financing activities..... 6,942,627 (461,513)
_________ __________
INCREASE IN CASH AND CASH EQUIVALENTS................... 3,425,286 2,605,886
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD........ 1,769,348 568,834
_________ __________
CASH AND CASH EQUIVALENTS AT END OF PERIOD.............. $ 5,194,634 $ 3,174,720
========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid........................................... 19,733 106,756
Inventory transferred to fixed assets................... 40,570 --
<FN>
See Accompanying Notes to Consolidated Financial Statements.
-3-
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 generally accepted accounting principles 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 generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. The
accompanying consolidated financial statements and notes should be read
in conjunction with the audited financial statements and notes thereto
included in the Company's 1994 Annual Report.
2. INTERIM FINANCIAL STATEMENTS
Operating results for the three and nine month periods ended April 30, 1995
are not necessarily indicative of the results that may be expected for the
year ending July 31, 1995.
3. MARKETABLE SECURITIES
Effective August 1, 1994 the Company adopted Financial Accounting
Standard No. 115, Accounting for Certain Investments in Debt and Equity
Securities. All Company securities as of April 30, 1995 are classified
as available-for-sale.
Company operating cash investment objectives are principal security and
a reasonable return. Fiscal 1995 investments include U.S. Treasury
securities, existing or former federal agency securities and high quality
commercial paper, all with maturities of less than a year.
4. HEART VALVE PATENT REVENUE
The Company receives its heart valve patent payments from St. Jude Medical,
Inc. at six-month intervals, approximately 60 days following June 30 and
December 31. Management estimates and records the revenue monthly and
adjusts the estimate to actual upon receipt of the actual payment. In
the third quarter of fiscal 1995, the Company recorded a $215,000 revenue
reduction to its previous estimate for the six month period ended
December 31, 1994.
Also during the third quarter of fiscal 1995, Possis Medical recorded the
final royalties revenues from the heart valve patent sale and the sale of
the pacemaker leads business.
5. EARNINGS (LOSS) PER SHARE
The Company's outstanding stock options and stock warrants were not
included in the computation of earnings per share since the impact would
have been anti-dilutive because of the net loss.
-4-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Total revenues for the three and nine month periods ended April 30, 1995, are
64% and 49%, respectively, below those reported in the comparable periods last
year. Medical product sales for the 1994 three and nine month periods included
approximately $489,000 and $2,333,000 in pacemaker leads sales, a business sold
by the Company in March 1994. Early stage international sales of the Company's
three key products: the AngioJet Rapid Thrombectomy System, the Perma-Flow
Coronary Graft, and the Perma-Seal Dialysis Access Graft for the three and
nine month periods ended April 30, 1995 were $154,000 and $218,000,
respectively, which were 413% and 73% above the same 1994 periods. The
Company expects international sales of its key products will build gradually
with physician use and acceptance, and believes sales will grow significantly
upon receipt of U.S. Food and Drug Administration ("FDA") marketing clearance.
There can be no assurance that the Company will be able to obtain FDA
marketing clearance on a timely basis or at all. In March 1995 the Company
recorded its final revenues from both the sale of its heart valve patents to
St. Jude Medical, Inc. and the sale of its pacemaker leads business to Innovex,
Inc. In addition, the 1995 third quarter included a $215,000 negative heart
valve patent revenue estimate adjustment. Included in 1994 third quarter
revenues is a $647,816 gain from the sale of the pacemaker leads business and
a $957,573 gain from the sale of Company real estate. Other income shows
significant growth in 1995 primarily as a result of interest income generated
by the investment of the $7,200,000 net proceeds of the stock offering completed
in October 1994.
The cost of medical products for the three and nine months periods ended April
30, 1995, include approximately $850,000 and $2,300,000, respectively, of
production scale-up and start-up expense compared to $650,000 and $1,650,000,
incurred in the same periods last year. All three key products incorporate
unique technology, production equipment and processes. These expenses are
expected to decrease as the volume produced increases and as the Company gains
operating experience.
Selling, general and administrative expense in 1995 increased by $73,000 and
$292,000 for the three and nine month periods, respectively, ended April 30,
1995. The increase is due primarily to additional sales and marketing expenses
for personnel, travel, and associated expenses necessary to introduce the
Company's products into the international market. Possis Medical anticipates
that sales and marketing costs will continue to grow with international sales
and the establishment of a direct sales organization in the United States.
Research and development spending decreased by $303,017 and $753,386 for the
three and nine month periods ended April 30, 1995, respectively. The decline
in expense can be attributed to the discontinuance of pacemaker leads research
activity following the sale of the pacemaker leads business. The Company
expects research and development expenses to increase from current levels as
the pace of its current U.S. clinical trials increases and as additional
products currently in development begin clinical trials.
-5-
Income from discontinued operations for the three and nine month periods
ended April 30, 1995, increased by $148,000 and $42,000, respectively,
from the comparable periods last year. This increase is due partially to
$80,000 in expense reductions recognized during the 1995 three-month period
for the reversal of bad debt and warranty accruals related to the Jet Edge
business which was sold in January 1994. In addition, income recognized
from the sale of the Company's Technical Services Division increased
$30,000 and $69,000, respectively, compared to the same periods last year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and marketable securities balance of
$7,502,281 in April 30, 1995 increased significantly from the balance of
$1,769,348 at July 31, 1994.
Cash used in operating activities for the nine-month periods ended April
30, 1995 and 1994, were $1,061,000 and $1,234,000, respectively. The 1995
cash usage resulted primarily from the net loss of $2,625,000 which was
partially offset by the receipt of St. Jude royalty payments. The net cash
used in operating activities for the nine-month period ending April 30,
1994 can be attributed to the operating loss, after adjusting for the gains
on the real estate sale and sale of the leads business.
Investing activity consumed $2,457,000 in the nine-month period ended April
30, 1995. This usage is due primarily to the net purchase of short-term
marketable securities. During the nine-month period ended April 30, 1994,
$4,301,000 was provided by investing activities. In 1994 the Company
received $3,031,000 for the sale of various assets including the Jet Edge,
Inc. business, corporate real estate and the pacemaker leads business.
During the nine-month period ended April 30, 1995, approximately $6,943,000
was provided by financing activities. The October 1994 issuance of
1,402,500 shares of common stock in a public offering generated net proceeds
of approximately $7,200,000. In September 1994 the Company prepaid, at no
penalty, the remaining $500,000 balance on a $1,000,000 mortgage note due
in May 1995. In the first nine months of 1994, the Company reduced its
long-term debt by $783,000.
In the fourth quarter of fiscal 1995, the Company expects to receive its
final payments of royalties from the heart valve patent sale and the sale
of the leads business. In recent years, the heart valve royalty payments
and the cash generated by the leads business have been the Company's
primary source of funds. These cash streams will need to be replaced by
funds generated from the sale of the Company's three key products.
The Company expects to receive up to an additional $2,000,000 in payments
from C.R. Bard, Inc. during the next 12 months, pursuant to the Perma-Seal
Graft Supply and Distribution Agreement executed in December 1994. In May,
the Company held a meeting of its Perma-Seal Dialysis Access Graft U.S.
clinical study investigators and received a written response from the FDA
to its 510(k) application filed in August 1994. As a result, the Company
plans to continue the U.S. clinical study and will seek FDA permission to
introduce an already developed, and thinner-walled product into the study.
Possis Medical now expects to begin international sales of the Perma-Seal
-6-
Dialysis Access Graft in the first half of fiscal 1996 and anticipates FDA
marketing clearance and U.S. commercialization to begin in the second half
of fiscal 1996. Sales of the Company's products are expected to grow
significantly with increased acceptance in the international markets, as
well as in the domestic market upon marketing clearance from the FDA.
There can be no assurance the Company's products will gain market
acceptance or receive marketing clearance from the FDA.
Cash usage is likely to increase over the next several quarters. Increased
expenses associated with production scale-up, U.S. clinical trials for all
three key products, and selling and marketing are necessary in order to
accelerate product sales. In addition, the Company will continue to invest
in capital assets to allow for production growth.
The Company anticipates reporting a significant loss for fiscal 1995 and a
smaller loss in fiscal 1996. Possis anticipates that current capital
resources will allow operations to continue as planned for the next 12 to
15 months. By that time, it is probable that the Company will need to
raise additional funds through a debt or equity financing or in conjunction
with strategic alliances with third parties. There can be no assurances
that adequate funds will be available when needed or on acceptable terms.
If required funding is not raised, the Company may be forced to
substantially alter its planned operations.
-7-
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27. Financial Data Schedule
(b) Reports on Form 8-K
There are no reports on Form 8-K filed during the three
months ended April 30, 1995.
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 12, 1995 BY: /s/ Robert G. Dutcher
__________________________________
ROBERT G. DUTCHER
President and Chief Executive Officer
DATE: June 12, 1995 BY: /s/ Russel E. Carlson
__________________________________
RUSSEL E. CARLSON
Vice President of Finance
Chief Financial and Accounting Officer