_______________________________________________
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 January 31, 1996
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 March 8, 1996 was 11,996,049.
________________________________
POSSIS MEDICAL, INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets, January 31, 1996
and July 31, 1995.......................................... 3
Consolidated Statements of Operations for three
months and six months ended January 31, 1996 and 1995...... 4
Consolidated Statements of Cash Flows for
six months ended January 31, 1996 and 1995 ................ 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 4. Submission of Matters to a Vote of Security-Holders........ 10
ITEM 6. Exhibits and Reports on Form 8-K........................... 11-13
SIGNATURES.......................................................... 14
POSSIS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 31, 1996 July 31, 1995
ASSETS (UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents............................................... $18,949,437 $ 5,450,057
Marketable securities................................................... 11,022,840 1,270,654
Receivables:
Trade (less allowances for doubtful accounts:
$13,337 and $27,019, respectively)............................... 170,300 14,976
Notes ............................................................... -- 123,918
Other................................................................ 106,132 204,297
Inventories:
Parts................................................................ 802,098 489,418
Work-in-progress..................................................... 593,258 427,495
Finished goods....................................................... 261,850 94,101
Prepaid expenses and other assets....................................... 206,934 191,535
Total current assets......................................... 32,112,849 8,266,451
PROPERTY:
Leasehold improvements.................................................. 176,346 175,556
Machinery and equipment................................................. 2,403,446 2,287,755
Assets-in-construction.................................................. 282,982 300,377
Total property............................................... 2,862,774 2,763,688
Less accumulated depreciation........................................ (1,477,994) (1,303,021)
Property - net............................................... 1,384,780 1,460,667
OTHER ASSETS:
Goodwill................................................................ 449,922 485,922
Notes receivable........................................................ -- 108,153
TOTAL ASSETS................................................................. $33,947,551 $10,321,193
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable.................................................. $ 334,370 $ 159,365
Accrued salaries, wages, and commissions................................ 553,934 693,402
Current portion of long-term debt....................................... 86,693 82,925
Other liabilities....................................................... 632,596 484,597
Total current liabilities................................... 1,607,593 1,420,289
DEFERRED REVENUE............................................................. 167,067 132,912
LONG-TERM DEBT............................................................... 48,646 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,
11,972,867 shares and 9,970,031 shares, respectively................. 4,789,467 3,988,013
Additional paid-in capital.............................................. 40,310,500 14,201,925
Unearned compensation .................................................. (30,421) (50,387)
Unrealized gain on investments.......................................... 66,622 --
Retained deficit........................................................ (13,039,303) (9,491,894)
Total shareholders' equity.................................. 32,096,865 8,647,657
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................................... $33,947,551 $10,321,193
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
POSSIS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For Three Months Ended For Six Months Ended
Jan. 31, 1996 Jan. 31, 1995 Jan. 31, 1996 Jan. 31, 1995
REVENUES:
Medical product sales................................. $ 222,768 $ 44,587 $ 423,663 $ 66,259
Service revenue....................................... 13,500 -- 13,500 --
Net heart valve patent payments....................... -- 800,496 -- 1,600,992
Royalty payments relating to pacemaker
` leads business................................... -- 129,879 -- 256,299
Sales agreement revenue............................... -- 250,000 -- 250,000
Total revenues................................... 236,268 1,224,962 437,163 2,173,550
COST OF SALES AND OTHER EXPENSES:
Cost of medical products.............................. 1,205,583 820,690 2,254,969 1,584,860
Selling, general and administrative................... 540,216 553,052 1,098,539 1,057,556
Research and development.............................. 646,636 818,316 1,524,388 1,556,475
Interest.............................................. 3,617 3,384 8,606 13,552
Total cost of sales and other expenses........... 2,396,052 2,195,442 4,886,502 4,212,443
Operating loss............................................. (2,159,784) (970,480) (4,449,339) (2,038,893)
Interest income....................................... 436,053 105,861 624,159 174,869
Loss from continuing operations............................ (1,723,731) (864,619) (3,825,180) (1,864,024)
Income from discontinued operations-net.................... 209,701 79,791 277,771 157,659
Net loss................................................... $(1,514,030) $(784,828) $(3,547,409) $(1,706,365)
Weighted average number of common
shares outstanding.................................... 11,948,984 9,896,400 11,200,973 9,510,841
Earnings (loss) per common share:
Continuing operations................................ $(.15) $(.09) $(.35) $(.20)
Discontinued operations ............................. .02 .01 .03 .02
Net loss................................................... $(.13) $(.08) $(.32) $(.18)
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
POSSIS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For Six Months Ended
Jan 31, 1996 Jan 31, 1995
OPERATING ACTIVITIES:
Net loss ....................................................................... $(3,547,409) $(1,706,365)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation............................................................... 195,101 175,401
Amortization of goodwill................................................... 36,000 36,000
Loss on asset disposal .................................................... 808 5,631
Stock compensation........................................................ 61,616 37,078
(Increase) decrease in receivables......................................... (410,182) 129,059
Increase in inventories.................................................... (646,192) (28,730)
(Increase) decrease in other assets........................................ (19,744) 68,185
Increase in trade accounts payable......................................... 175,005 58,441
Increase (decrease) in accrued and other current liabilities............... 42,685 (240,513)
Net cash used in operating activities........................................... (4,112,312) (1,465,813)
INVESTING ACTIVITIES:
Proceeds from discontinued operations........................................... 589,441 312,179
Additions to plant and equipment................................................ (121,913) (318,945)
Proceeds from the disposal of assets............................................ 1,892 2,728
Purchase of marketable securities............................................... (10,960,564) (4,831,029)
Proceeds from sale/maturity of marketable securities............................ 1,275,000 2,734,365
Net cash used in investing activities........................................... (9,216,144) (2,100,702)
FINANCING ACTIVITIES:
Repayment of long-term debt..................................................... (40,541) (545,242)
Proceeds from notes payable..................................................... -- 115,673
Proceeds from issuance of stock and exercise of options......................... 26,868,377 7,286,754
Net cash provided by financing activities....................................... 26,827,836 6,857,185
INCREASE IN CASH AND CASH EQUIVALENTS........................................... 13,499,380 3,290,670
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD..................................................................... 5,450,057 1,769,348
CASH AND CASH EQUIVALENTS AT END OF
PERIOD ............................................................ $18,949,437 $5,060,018
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid................................................................... $ 8,606 $ 13,552
Inventory transferred to fixed assets........................................... 19,983 --
<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 and six month periods ended January 31,
1996 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
Three and Six Month Periods Ended January 31, 1996 and 1995
Total revenues for the three and six month periods ended January 31, 1996
were $989,000 and $1,736,000, respectively, below the same periods in the
previous fiscal year. These same periods in fiscal 1995 included $930,000 and
$1,857,000, respectively, in heart valve patent payments and pacemaker leads
business royalties, both of which ended in the third quarter of last year. The
increase in product sales of $178,000 and $357,000 in the three and six month
periods, respectively, are primarily due to sales of the AngioJet Thrombectomy
System 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 very unique products gain physician acceptance and
as foreign markets are developed. A 510(k) request for U.S. marketing clearance
of the AngioJet System for peripheral use is expected to be submitted to the
United States Food and Drug Administration (FDA) in March. The Company believes
that the AngioJet System for peripheral use will be cleared by the 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 approvals on a timely basis or at all.
Cost of medical products increased 47% and 42% in the three and six month
periods, respectively, over the same periods in the previous year. An increase
in manufacturing startup expense explains approximately $275,000 and $450,000,
respectively, of the increase. See Notes to Consolidated Financial Statements,
Note 5 in this Quarterly Report. The remaining increase results from increased
sales. The Company does not anticipate a reduction in manufacturing startup
expense until product sales grow allowing the Company to produce in sufficient
quantities to achieve manufacturing efficiencies.
Selling, general and administrative expense decreased by $13,000 in the
three month period while increasing by $41,000 in the six month period compared
to the same year-ago periods. Selling and marketing expenses are expected to
increase over the next six months and beyond as international markets are
further developed and as a domestic sales organization is established in
anticipation of the receipt of clearance to market the AngioJet System for
peripheral use in the United States.
Research and development expense in the three and six month periods ending
January 31, 1996, decreased by 21% and 2%, respectively, over the previous year.
Expense for the current quarter declined $172,000 primarily due to completion of
the Company's development programs to self-manufacture Perma-Flow Graft material
and to develop a thin wall Perma-Seal Dialysis Access Graft. Research and
development expense is expected to increase in the future as the pace of
clinical trials enrollment grows and as the Company invests in the development
of new products that leverage its existing technology base.
Interest income has grown significantly in the most recent three and six
month periods because more money has been invested as a result of the Company's
October 1995 stock offering that raised a net $27 million.
Income from discontinued operations - net has increased $130,000 in the
most recent three months compared to the same year-ago period due to an
acceleration of the payment of the remaining money owed the Company from the
previous sale of its Technical Services Division.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents, and marketable securities totaled $29,972,000 on
January 31, 1996 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 November, the underwriter
exercised an over-allotment option on 221,258 shares, providing an additional
$3,015,000 to the Company.
With the elimination of royalty revenues and the related cash inflows, the
Company's cash usage in the first six months of fiscal 1996 is significantly
greater than for the same period in fiscal 1995. Possis expects its cash usage
for the next several quarters will increase to $800,000 to $1,000,000 per month
and thereafter will decline as international product sales increase and as U.S.
FDA marketing approvals are obtained resulting in the commencement of U.S.
sales. The Company believes that its existing cash reserves will be adequate to
fund the development and commercialization of its three current products.
FORWARD-LOOKING STATEMENTS
This 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 the submission of
applications to the FDA, expense levels and future capital requirements, are
forward-looking statements that involve risks and uncertainties, including the
Company's ability to meet its timetable for FDA submissions, the review time at
the FDA which is out of the Company's control, changes in the Company's
marketing strategies, changes in manufacturing methods, the levels of sales of
the Company's products that can be achieved, and other risks detailed from time
to time in the Company's various Securities and Exchange Commission filings.
Part II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
(a) The 1995 Annual Meeting of Shareholders of Possis Medical, Inc. was
held on December 6, 1995.
(b) By the following vote, management's nominees were elected as Directors
of the Corporation for one year or until their successors are elected and
qualified:
WITHHOLD
FOR AUTHORITY
Dodald C. Wegmiller 10,469,604 76,186
Joe A. Walters 10,467,664 78,126
Dean Belbas 10,485,280 60,510
Seymour J. Mansfield 10,468,231 77,559
Demetre M. Nicoloff, MD 10,486,044 59,746
Robert G. Dutcher 10,484,852 60,938
Ann M. Possis 10,458,617 87,173
(c) By a vote of 10,475,657 in the affirmative, 41,097 in the negative and
29,036 abstaining, ratified the appointment of Deloitte & Touche LLP as the
Company's certified public accountants.
(d) By a vote of 8,481,112 in the affirmative, 1,689,255 in the negative,
143,347 abstaining and 232,076 being counted as broker non-votes, the proposed
amendment to the Company's 1992 Stock Compensation Plan was ratified. The
amendment increased the shares added to the Plan annually from 1% to 2% of the
total number of shares outstanding and increased the maximum number of shares
which may be issued as Incentive Stock Options from 350,000 to 1,000,000.
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
3.2 S-2 Amendment No.1 Bylaws as amended and restated
August 9, 1994 to date
4.1 10-K Fiscal Year Ended Norwest Equipment Finance, Inc.
July 31, 1994 loan agreement, dated January 12, 1994
10.1 S-1 June 30, 1988 Agreement with St. Jude Medical, Inc.,
dated August 2, 1983
10.2 8-K February 14, 1994 Asset purchase agreement with
TC/American Monorail, Inc.,
dated January 28, 1994
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 head-
quarters 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.
10.21 S-2 Amendment No. 1 Underwriting Agreement entered into
August 9, 1994 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
10.23 10-Q Lease agreement for Corporate
headquarters and manufacturing
facility dated December 15, 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
January 31, 1996.
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: March 13, 1996 BY: /S/ Robert G. Dutcher
ROBERT G. DUTCHER
President and Chief Executive Officer
DATE: March 13, 1996 BY: /s/ Russel E. Carlson
RUSSEL E. CARLSON
Vice President of Finance
Chief Financial and Accounting Officer