_______________________________________________
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, 1996
Commission File Number 0-944
POSSIS MEDICAL, INC.
9055 Springbrook Boulevard N.W.
Minneapolis, Minnesota 55433-8003
(612) 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, 1996 was 12,056,912.
________________________________
POSSIS MEDICAL, INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets, April 30, 1996
and July 31, 1995...................................... 3
Consolidated Statements of Operations for three
months and nine months ended April 30,1996 and 1995.... 4
Consolidated Statements of Cash Flows for the
nine months ended April 30, 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.................... 8-10
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K....................... 11-13
SIGNATURES..................................................... 14
POSSIS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
--ASSETS-- April 30, 1996 July 31, 1995
(unaudited)
Cash and cash equivalents............................................... $11,032,788 $ 5,450,057
Marketable securities................................................... 15,787,660 1,270,654
Receivables:
Trade (less allowances for doubtful accounts:
$60,000 and $27,019, respectively)............................... 231,782 14,976
Notes ............................................................... -- 123,918
Other................................................................ 169,890 204,297
Inventories:............................................................
Parts................................................................ 842,304 489,418
Work-in-progress..................................................... 854,455 427,495
Finished goods....................................................... 434,507 94,101
Prepaid expenses and other assets....................................... 141,296 191,535
Total current assets......................................... 29,494,682 8,266,451
PROPERTY:
Leasehold improvements.................................................. 176,346 175,556
Machinery and equipment................................................. 2,694,549 2,287,755
Assets-in-construction.................................................. 499,107 300,377
Total property............................................... 3,370,002 2,763,688
Less accumulated depreciation........................................ (1,571,502) (1,303,021)
Property - net............................................... 1,798,500 1,460,667
OTHER ASSETS:
Goodwill................................................................ 431,922 485,922
Notes receivable........................................................ -- 108,153
TOTAL ASSETS................................................................. 31,725,104 $10,321,193
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable.................................................. 374,974 $ 159,365
Accrued salaries, wages, and commissions................................ 679,752 693,402
Current portion of long-term debt....................................... 79,556 82,925
Other liabilities....................................................... 494,667 484,597
Total current liabilities................................... 1,628,949 1,420,289
DEFERRED REVENUE............................................................. 104,417 132,912
LONG-TERM DEBT............................................................... 34,826 92,955
OTHER LIABILITIES............................................................ 83,144 27,380
SHAREHOLDERS' EQUITY:
Common stock - authorized, 20,000,000 shares of $.40
par value each; issued and outstanding,
12,039,858 shares and 9,970,031 shares, respectively................. 4,815,944 3,988,013
Additional paid-in capital.............................................. 40,775,579 14,201,925
Unearned compensation .................................................. (179,736) (50,387)
Unrealized loss on investments.......................................... (195,219) --
Retained deficit........................................................ (15,342,800) (9,491,894)
Total shareholders' equity.................................. 29,873,768 8,647,657
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................................... $31,725,104 $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 Nine Months Ended
April 30,1996 April 30, 1995 April 30, 1996 April 30, 1995
REVENUES:
Medical product sales................................ $138,885 $153,976 $562,548 $220,235
Service revenue............................................ -- -- 13,500 --
Net heart valve patent payments...................... -- 181,351 -- 1,782,343
Royalty payments relating to pacemaker
` leads business.................................. -- 153,819 -- 410,118
Sales agreement revenue.................................... 200,000 500,000 200,000 750,000
Total revenues............................................. 338,885 989,146 776,048 3,162,696
COST OF SALES AND OTHER EXPENSES:
Cost of medical products............................. 1,381,891 946,367 3,636,859 2,530,117
Selling, general and administrative.................. 1,104,050 482,001 2,202,588 1,540,666
Research and development................................... 587,209 750,391 2,111,597 2,306,865
Interest................................................... 3,110 6,181 11,717 19,733
Total cost of sales and other expenses........... 3,076,260 2,184,940 7,962,761 6,397,381
Operating loss............................................. (2,737,375) (1,195,794) (7,186,713) (3,234,685)
Interest income............................................ 368,881 119,242 993,040 294,110
Loss from continuing operations............................ (2,368,494) (1,076,552) (6,193,673) (2,940,575)
Income from discontinued operations-net.................... 64,996 157,875 342,767 315,533
Net loss................................................... $(2,303,498) $(918,677) $(5,850,906) $(2,625,042)
Weighted average number of common
shares outstanding................................... 12,002,419 9,924,573 11,463,264 9,648,751
Earnings (loss) per common share:
Continuing operations................................ $(.20) $(.11) $(.54) $(.30)
Discontinued operations ............................. .01 .02 .03 .03
Net loss................................................... $(.19) $(.09) $(.51) $(.27)
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
POSSIS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For Nine Months Ended
Apr 30, 1996 Apr 30, 1995
OPERATING ACTIVITIES:
Net loss ....................................................................... $(5,850,906) $(2,625,042)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation............................................................... 288,609 265,839
Amortization of goodwill................................................... 54,000 54,000
Loss on asset disposal .................................................... 808 5,631
Stock compensation.............................................................. 379,086 55,617
(Increase) decrease in receivables.............................................. (535,420) 1,985,796
(Increase) decrease in inventories.............................................. (1,120,253) 64,753
Decrease in other assets........................................................ 45,892 82,871
Increase in trade accounts payable.............................................. 215,609 7,925
Increase (decrease) in accrued and other current liabilities.................... 23,687 (958,135)
Net cash used in operating activities...................................... (6,498,888) (1,060,745)
INVESTING ACTIVITIES:
Proceeds from discontinued operations........................................... 589,441 337,179
Additions to plant and equipment................................................ (629,142) (488,857)
Proceeds from the disposal of assets............................................ 1,892 2,728
Purchase of marketable securities............................................... (15,987,224) (9,553,113)
Proceeds from sale/maturity of marketable securities............................ 1,275,000 7,245,467
Net cash used in investing activities........................................... (14,750,033) (2,456,596)
FINANCING ACTIVITIES:
Repayment of long-term debt..................................................... (61,498) (574,925)
Proceeds from notes payable..................................................... -- 115,673
Proceeds from issuance of stock and exercise of options......................... 26,893,150 7,401,879
Net cash provided by financing activities....................................... 26,831,652 6,942,627
INCREASE IN CASH AND CASH EQUIVALENTS........................................... 5,582,731 3,425,286
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD..................................................................... 5,450,057 1,769,348
CASH AND CASH EQUIVALENTS AT END OF
PERIOD ....................................................................... $11,032,788 $5,194,634
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid................................................................... $ 11,717 $ 19,733
Inventory transferred to fixed assets........................................... 19,983 40,570
<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 nine month periods ended April 30, 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 Nine Month Periods Ended April 30, 1996 and 1995
Total revenues for the three and nine month periods ended April 30, 1996
were $437,000 and $2,174,000, respectively, below the same year-earlier periods.
These same fiscal 1995 periods included $335,000 and $2,192,000, respectively,
in heart valve patent payments and pacemaker leads business royalties, both of
which ended in the third quarter of last year. The $200,000 of current quarter
sales agreement revenue was received from Baxter Healthcare Corporation upon
signing a worldwide, three-year supply and distribution agreement for the
Perma-Flow Coronary Bypass Graft. In the agreement, which requires Baxter to
make two additional $200,000 payments over the next two years, the Company will
manufacture the grafts and Baxter will distribute them. The $750,000 of sales
agreement revenue received in the nine months ended April 30, 1995 was received
from C.R. Bard in conjunction with a supply and distribution agreement for the
Company's Perma-Seal Dialysis Access Graft signed in December 1994. Medical
products sales in the three months ended April 30, 1996 of $139,000 are below
those reported in the same year-earlier period and also those reported in the
last three months ended January 31, 1996. Nearly all the Company's product sales
for the current and last fiscal year are AngioJet Rapid Thrombectomy System
sales to influential medical opinion leaders in Europe, Japan and Canada. All
three of the Company's products represent new technology, new methods of
treatment and the use of these products by influential practitioners is the
initial step necessary for a wide-scale marketing program. The Company believes
it is obtaining the necessary product usage, and medical product sales outside
of the United States are expected to generally increase each quarter over the
prior three months, although at a slower rate than earlier expected.
In the United States, all the Company's products are undergoing Food and
Drug Administration (FDA) clinical evaluation. A 510(k) was filed in March with
the FDA requesting United States marketing clearance for the AngioJet System for
use in peripheral applications. The Company expects that the AngioJet System for
peripheral use will be cleared by the FDA for United States marketing in the
second half of calendar 1996. This initial United States clearance is expected
to lead to added product sales revenue for the Company.
Cost of medical products increased 46% and 44% in the three and nine month
periods, respectively, over the same year-earlier periods. The Company continues
to incur manufacturing start-up expenses associated with designing, building and
installing new manufacturing equipment and processes and manufacturing
increasing quantities of product. Additionally, significant costs are being
incurred as Possis Medical validates these manufacturing processes in
preparation for GMP inspection and ISO 9001 and CE-Mark certifications.
Currently, quantities produced compared to production capacity available are
small and cost efficiencies and improved margins are expected with growth in
product sales and the resulting increased production demand.
Selling, general and administrative expense increased $620,000 in the three
months ended April 30, 1996, compared to the year-earlier period. Of the total
quarterly increase, $312,000 was a noncash charge for discounted stock options
issued to the Company's independent distributors as compensation for canceling
their rights to distribute the Perma-Flow Coronary Bypass Graft. An additional
$100,000 of the increase was added marketing and sales travel and support costs
associated with commercializing the Company's products.
Research and development expense in the three and nine month periods ended
April 30, 1996, decreased by 22% and 8%, respectively, compared to the prior
year. The reduction in the current three month period of $163,000 results
partially from the completion of the Company's development program to
self-manufacture Perma-Flow Graft material. In addition, spending on the
AngioJet System for coronary applications also declined as that product moved
from product development and process design work in fiscal 1995 to a Phase 1
United States clinical study in fiscal 1996. Research and development expense is
expected to increase in the future as the pace of United States clinical study
enrollment increases and as the Company invests in the development of new
products that leverage its existing technology base.
Interest income has increased significantly in the most recent three and
nine months compared to the fiscal 1995 periods. More money has been invested as
a result of the Company's October 1995 public stock offering that raised a net
$27 million for Possis.
Liquidity and Capital Resources
Cash, cash equivalents and marketable securities totaled $26,820,000 on
April 30, 1996 versus $6,721,000 on July 31, 1995. The increase results from a
public stock offering completed in October 1995. Including the exercise of the
underwriter over-allotment option, the Company recorded net proceeds of
$26,658,000 from the sale of 1,971,000 shares of common stock.
As expected, net cash usage in the three months ended April 30, 1996 was
approximately $3,150,000. With the ending of heart valve patent payments, the
termination of the royalty payments relating to the sale of the pacemaker leads
business and higher levels of expense, the Company's cash usage rate is up
considerably in the most recent three and nine month periods compared to the
same periods in fiscal 1995. Possis expects continued investments will be needed
to generate increasing sales outside the United States and plans to hire a
United States direct sales force in the second half of calendar 1996 to begin
selling the AngioJet System for use in peripheral applications.
The Company believes its net cash usage for the next several quarters will
be $800,000 to $1,100,000 per month and thereafter will decline as international
product sales increase and as the Company commences sale of the AngioJet System
in the United States. The Company believes that its existing cash reserves will
be adequate to complete 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.
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 amended
July 31, 1994 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
Exhibit Form Date Filed Description
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
Exhibit Form Date Filed Description
10.20 10-Q Quarter ended Supply and 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 Quarter ended Lease agreement for Corporate
January 31, 1996 headquarters and manufacturing
facility dated December 15, 1995.
10.24 8-K March 28, 1996 Supply and distribution agreement
with Edwards CVS Division,
Baxter Healthcare Corporation.
* Indicates management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
During the quarter ended April 30, 1996, a report on Form 8-K dated March
15, 1996, reporting under item 5, the execution of a distribution agreement with
Edwards CVS Division, Baxter Heatlthcare Corporation.
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 10, 1996 BY: /s/ Robert G. Dutcher
ROBERT G. DUTCHER
President and Chief Executive Officer
DATE: June 10, 1996 BY: /s/ Russel E. Carlson
RUSSEL E. CARLSON
Vice President of Finance
Chief Financial and Accounting Officer
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 10, 1996 BY:__________________________________
ROBERT G. DUTCHER
President and Chief Executive Officer
DATE: June 10, 1996 BY:__________________________________
RUSSEL E. CARLSON
Vice President of Finance
Chief Financial and Accounting Officer