_______________________________________________
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 October 31, 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 December 12, 1995 was 11,947,690.
________________________________
POSSIS MEDICAL, INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets, October 31, 1995
and July 31, 1995..................................... 3
Consolidated Statements of Operations for the three
months ended October 31, 1995 and 1994............... 4
Consolidated Statements of Cash Flows for the
three months ended October 31, 1995 and 1994 ....... 5
Notes to Consolidated Financial Statements.......... 6-7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 8-9
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K................... 10-12
SIGNATURES...................................................... 13
POSSIS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
October 31, 1995 July 31, 1995
ASSETS (UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents................................................ $28,522,309 $5,450,057
Marketable securities.................................................... - 1,270,654
Receivables:
Trade (less allowances for doubtful accounts:
$13,337 and $27,019, respectively)................................ 195,700 14,976
Notes ................................................................ 123,918 123,918
Other................................................................. 251,163 204,297
Inventories:
Parts................................................................. 486,107 489,418
Work-in-progress...................................................... 499,357 427,495
Finished goods........................................................ 96,806 94,101
Prepaid expenses and other assets........................................ 128,082 191,535
Total current assets.......................................... 30,303,442 8,266,451
PROPERTY:
Leasehold improvements................................................... 175,556 175,556
Machinery and equipment.................................................. 2,392,811 2,287,755
Assets-in-construction................................................... 248,299 300,377
Total property................................................ 2,816,666 2,763,688
Less accumulated depreciation......................................... (1,399,863) (1,303,021)
Property - net................................................ 1,416,803 1,460,667
OTHER ASSETS:
Goodwill................................................................. 467,922 485,922
Notes receivable......................................................... 102,174 108,153
TOTAL ASSETS.................................................................. $32,290,341 $10,321,193
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable .................................................. $ 584,585 $ 159,365
Accrued salaries, wages, and commissions................................. 517,695 693,402
Current portion of long-term debt........................................ 84,240 82,925
Other liabilities........................................................ 488,087 484,597
Total current liabilities.................................... 1,674,607 1,420,289
DEFERRED REVENUE.............................................................. 104,433 132,912
LONG-TERM DEBT................................................................ 77,577 92,955
OTHER LIABILITIES............................................................. 27,380 27,380
SHAREHOLDERS' EQUITY:
Common stock - authorized, 20,000,000 shares of $.40
par value each; issued and outstanding,
11,726,432 shares and 9,970,031 shares, respectively.................. 4,690,893 3,988,013
Additional paid-in capital............................................... 37,281,125 14,201,925
Unearned compensation ................................................... (40,404) (50,387)
Retained deficit......................................................... (11,525,270) (9,491,894)
Total shareholders' equity................................... 30,406,344 8,647,657
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................................... $32,290,341 $10,321,193
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
POSSIS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED OCTOBER 31, 1995 AND 1994
(UNAUDITED)
1995 1994
REVENUES:
Medical products....................................................... $ 200,895 $ 21,672
Net heart valve patent payments........................................ -- 800,496
Royalty payments relating to pacemaker leads business.................. -- 126,420
Total revenues............................................... 200,895 948,588
COST OF SALES AND OTHER EXPENSES:
Cost of medical products............................................... 1,049,384 764,169
Selling, general and administrative.................................... 558,322 504,506
Research and development............................................... 877,752 738,158
Interest............................................................... 4,989 10,167
Total cost of sales and other expenses....................... 2,490,447 2,017,000
Operating loss.............................................................. (2,289,552) (1,068,412)
Interest income........................................................ 188,106 69,007
Loss from continuing operations............................................. (2,101,446) (999,405)
Income from discontinued operations - Net................................... 68,070 77,868
Net loss.................................................................... $(2,033,376) $ (921,537)
Weighted average number of common shares outstanding........................ 10,461,004 9,125,281
Earnings (loss) per common share:
Continuing operations.................................................. $(.20) $(.11)
Discontinued operations ............................................... .01 .01
Net loss............................................................... $(.19) $(.10)
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
POSSIS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED OCTOBER 31, 1995 AND 1994
(UNAUDITED)
1995 1994
OPERATING ACTIVITIES:
Net loss ..................................................................... $(2,033,376) $ (921,537)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation............................................................... 96,842 76,090
Amortization of goodwill................................................... 18,000 18,000
Loss (gain) on asset disposal.............................................. (267) 3,432
Stock compensation.............................................................. 9,983 18,539
(Increase) decrease in receivables......................................... (227,590) 1,374,431
Increase in inventories.................................................... (71,256) (96,979)
Decrease in other assets................................................... 56,932 147,879
Increase in trade accounts payable......................................... 425,220 25,133
Decrease in accrued and other current liabilities.......................... (200,698) (678,821)
Net cash used in operating activities........................................... (1,926,210) (33,833)
INVESTING ACTIVITIES:
Proceeds from discontinued operations........................................... 12,500 112,500
Additions to plant and equipment................................................ (52,977) (88,749)
Proceeds from the disposal of assets............................................ 267 --
Purchase of marketable securities............................................... (4,345) (4,650,446)
Proceeds from sale/maturity of marketable securities............................ 1,275,000 982,910
Net cash provided by (used in) investing activities............................. 1,230,445 (3,643,785)
FINANCING ACTIVITIES:
Repayment of long-term debt..................................................... (14,063) (520,406)
Proceeds from issuance of stock and exercise of options......................... 23,782,080 7,229,127
Net cash provided by financing activities....................................... 23,768,017 6,708,721
INCREASE IN CASH AND CASH
EQUIVALENTS................................................................... 23,072,252 3,031,103
CASH AND CASH EQUIVALENTS AT BEGINNING
OF QUARTER................................................................... 5,450,057 1,769,348
CASH AND CASH EQUIVALENTS AT END OF
QUARTER....................................................................... $28,522,309 $4,800,451
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid................................................................... $ 4,989 $ 10,167
Inventory transferred to fixed assets........................................... 10,015 --
<FN>
See accompanying 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 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 1995 Annual Report.
2. INTERIM FINANCIAL STATEMENTS
Operating results for the three month period ended October 31, 1995 are not
necessarily indicative of the results that may be expected for the year ending
July 31, 1996.
3. RECENTLY ISSUED ACCOUNTING STANDARD
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation.
Pursuant to the new standard, companies are encouraged, but are not required, to
adopt the fair value method of accounting for employee stock- based
transactions. Companies are also permitted to continue to account for such
transactions under Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, but would be required to disclose in a note to the
financial statements pro forma net income and, if presented, earnings per share
as if the Company had applied the new method of accounting.
Disclosure provisions are required to be adopted when the recognition and
measurement provisions are adopted, but no later than fiscal years beginning
after December 15, 1995. The Company has not yet determined if it will elect to
change to the fair value method, nor has it determined the effect the new
standard will have on net income and earnings per share should it elect to make
such a change.
4. HEART VALVE PATENT REVENUE
The Company received its heart valve patent payments from St. Jude Medical, Inc.
at six- month intervals, approximately 60 days following June 30 and December
31. Management estimated and recorded the revenue monthly and adjusted the
estimate to actual upon receipt of the payment. In the third quarter of fiscal
1995, the Company recorded the final payment from St. Jude.
5. COST OF MEDICAL PRODUCTS
Cost of medical products includes manufacturing start-up expense which consists
of excess labor and material costs, higher than normal levels of scrap product
and unabsorbed manufacturing overhead expenses associated with the installation
and start-up of new manufacturing processes.
6. 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Quarters Ended October 31, 1995 and 1994.
Total revenues of $201,000 for the three months ended October 31, 1995 declined
significantly from the $949,000 reported in the comparable year-ago period. The
revenue reduction is due to the absence of heart valve and pacemaker lead
royalty payments, both of which ended in the third fiscal quarter of last year.
Current quarter medical product revenue consists primarily of AngioJet
Thrombectomy System sales to key European medical opinion leaders for clinical
use. The Company's primary revenue source in the future will be sales of its
three current products: the AngioJet Thrombectomy System, the Perma-Flow
Coronary Bypass Graft and the Perma-Seal Dialysis Access Graft. International
product sales are expected to increase as these technologically new medical
devices gain physician acceptance and as foreign markets are further developed.
The Company believes that the Perma-Seal Dialysis Access Graft and the AngioJet
System for peripheral use will likely be cleared by the United States Food and
Drug Administration (FDA) for United States marketing during calendar 1996,
which should result in added product sales revenue. There can be no assurance
that Possis Medical will obtain FDA approval on a timely basis or at all.
The Company incurred $1,049,000 of medical products costs in the three months
ended October 31, 1995, which included approximately $880,000 in manufacturing
startup expense. See Notes to Consolidated Financial Statements, Note 6 in this
Quarterly Report. The three months ended October 31, 1994 contained
approximately $725,000 in manufacturing startup expense. The trend of increasing
manufacturing startup expense is expected to continue until the Company's
product sales grow and the three products are produced in sufficient quantities
to achieve manufacturing efficiencies.
Selling, general and administrative expense increased 11% in the three months
ended October 31, 1995 over the same year-ago period. The $54,000 increase can
be primarily attributed to a timing-related increase in investor relations
spending. Selling and marketing expense is expected to increase in fiscal 1996
as international markets are further developed and a domestic sales organization
is established.
Expenses incurred for research and development in the first fiscal quarter of
1996 increased 19% over spending levels from the previous year. Clinical trial
expense accounts for most of the $140,000 increased. In fiscal 1995, the Company
had three clinical trials in process with a limited number of study patients.
Currently the Company is supporting four U.S. clinical trials. Research and
development expenses are expected to continue to grow as the pace of U.S.
clinical trial enrollment increases and as the Company develops new products
that leverage its existing technology base.
Liquidity and Capital Resources
Cash, cash equivalents, and marketable securities totaled $28,522,000 on October
31, 1995 versus $6,721,000 on July 31, 1995. The increase is attributable to a
public stock offering completed in October 1995. After expenses, the Company
recorded net proceeds of approximately $23,643,000 from the sale of 1,750,000
shares of common stock. In the first week of November, the underwriter exercised
an over-allotment option on 221,258 shares, providing an additional $3,015,000
to the Company.
The Company believes that its existing cash will be adequate to fund the
development and commercialization of its three current products. With the
elimination of royalty revenues and the related cash inflows, the Company's cash
usage rate in the first quarter ended October 31, 1995 is significantly greater
than the average for fiscal 1995. We expect these higher rates of cash outflow
to decline as international product sales increase and as U.S. FDA marketing
approvals are obtained. The Company does not expect to become profitable unless
it achieves significant sales outside the United States and its products receive
FDA marketing approval. There can be no assurance that significant sales or
marketing approvals will occur.
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 on the following pages.
Exhibit Form Date Filed Description
3.1 10-K Fiscal Year Ended Articles of Incorporation as
July 31, 1994 amended and restated to date
10.3 S-2 July 1, 1994 Real estate purchase agreement
with TC/American Monorail, Inc.,
dated January 28, 1994
10.4 10-Q Quarter ended Asset purchase agreement with
January 31, 1994 Innovex,Inc., dated March 11,1994
10.5 S-2 July 1, 1994 Lease agreement for corporate
headquarters and manufacturing
facility, dated January 4, 1991
10.6 S-2 Amendment No.1 License agreement with Imperial
August 9, 1994 Chemical Industries Plc., dated
April 15, 1991
10.7 S-2 Amendment No.1 License agreement with the
August 9, 1994 University of Liverpool, dated
May 10, 1990
10.8 S-1 June 30, 1988 Form of Indemnification Agreement
with officers and directors of
Registrant
*10.9 S-8 February 7, 1990 1983 Incentive Stock Option Plan
as amended to date
*10.10 S-1 June 30, 1988 1985 Nonqualified Stock Option
Plan as amended to date
*10.11 10-K Fiscal year ended Form of incentive stock option
July 31, 1989 agreement for officers
*10.12 10-K Fiscal year ended Form of stock option agreement for
July 31, 1989 directors
*10.13 S-8 December 30, 1992 1992 Stock Compensation Plan
*10.14 10-K Fiscal year ended Form of restricted stock agreement
July 31, 1993 for officers (1992 Plan)
*10.15 10-K Fiscal year ended Form of nonqualified stock option
July 31, 1993 agreement for officers (1992 Plan)
*10.16 10-K Fiscal year ended Form of incentive stock option
July 31, 1993 agreement for officers (1992 Plan)
*10.17 10-K Fiscal year ended Form of nonqualified stock option
July 31, 1993 agreement for 1992 directors' fees
(1992 Plan)
*10.18 10-K Fiscal year ended Form of nonqualified stock option
July 31, 1993 agreement for 1990 directors' fees
*10.19 10-K Fiscal year ended Form of nonqualified stock option
July 31, 1993 agreement for 1989 directors' fees
10.20 10-Q Quarter ended Supply & Distribution Agreement
January 31, 1995 with Bard Vascular Systems
Division, C.R.Bard, Inc.
Exhibit Form Date Filed Description
10.21 S-2 Amendment No. 1 Underwriting Agreement entered
August 9, 1994 into between the Company and John
G. Kinnard and Company,
Incorporated including Form of
Warrant to Representative dated
September 8, 1994
10.22 S-3 Amendment No. 2 Underwriting Agreement entered
September 29, 1995 into between the Company, Dain
Bosworth Incorporated and John G.
Kinnard and Company, Incorporated
dated October 2, 1995
* 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, 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: December 14, 1995 BY: /s/ Robert G. Dutcher
ROBERT G. DUTCHER
President and Chief Executive Officer
DATE: December 14, 1995 BY: /s/ Russel E. Carlson
RUSSEL E. CARLSON
Vice President of Finance and
Chief Financial Officer