<PAGE>
Filed Pursuant
to Rule 424(b)(1)
Reg. No. 33-62009
1,910,000 SHARES
[LOGO]
COMMON STOCK
Of the 1,910,000 shares of Common Stock offered hereby, 1,750,000 shares are
being sold by the Company and 160,000 shares are being sold by the Selling
Shareholders. See "Principal and Selling Shareholders." The Company will not
receive any of the proceeds from the sale of the Common Stock by the Selling
Shareholders. The Company's Common Stock is traded on The Nasdaq National Market
under the symbol "POSS." On October 2, 1995, the closing sale price of the
Common Stock, as reported by Nasdaq, was $15.75 per share. See "Price Range of
Common Stock."
------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE FIVE.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
DISCOUNTS AND PROCEEDS TO SELLING
PRICE TO PUBLIC COMMISSIONS (1) COMPANY (2) SHAREHOLDERS
<S> <C> <C> <C> <C>
Per Share............... $14.50 $0.87 $13.63 $13.63
Total (3)............... $27,695,000 $1,661,700 $23,852,500 $2,180,800
<FN>
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting offering expenses payable by the Company estimated at
$210,000.
(3) The Company has granted the Underwriters a 30-day option to purchase an
aggregate of up to 286,500 additional shares to cover over-allotments, if
any. If this option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions, Proceeds to Company and Proceeds to
Selling Shareholders will be $31,849,250, $1,910,955, $27,757,495 and
$2,180,800, respectively. See "Underwriting."
</TABLE>
------------------------
The shares of Common Stock are offered by the Underwriters subject to prior
sale when, as and if delivered to and accepted by them, and are subject to the
right of the Underwriters to withdraw, cancel, or modify such offer and to
reject orders in whole or in part. It is expected that delivery of shares of the
Common Stock will be made on or about October 6, 1995, in Minneapolis,
Minnesota.
<TABLE>
<S> <C>
DAIN BOSWORTH JOHN G. KINNARD AND COMPANY,
Incorporated Incorporated
</TABLE>
<PAGE>
THE DATE OF THIS PROSPECTUS IS OCTOBER 2, 1995
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements, and other
information can be inspected and copied, at prescribed rates, at the Public
Reference Section of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following regional offices of the Commission:
New York Regional Office, Seven World Trade Center, 13th Floor, New York, New
York 10048 and Chicago Regional Office, 500 West Madison, Suite 1400, Chicago,
Illinois 60661.
The Company has filed with the Commission a Registration Statement under the
Securities Act of 1933 (the "Securities Act") with respect to the Common Stock
offered hereby. This Prospectus does not contain all of the information
contained in the Registration Statement and the exhibits thereto, certain parts
of which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement, including
the exhibits filed as a part thereof, copies of which can be inspected at, or
obtained at prescribed rates from, the Public Reference Section of the
Commission at the address set forth above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated herein by reference:
(i) Annual Report on Form 10-K for the fiscal year ended July 31, 1995; and
(ii) The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A, and any amendment or
report filed for the purpose of updating such descriptions.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Shares shall be deemed to be incorporated
by reference into this Prospectus and to be a part hereof from the respective
dates of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein modifies or supersedes such statement. Any statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any or all of the documents incorporated by reference in this Prospectus (not
including certain exhibits to such documents). Written requests for such copies
should be directed to Russel E. Carlson, Possis Medical, Inc., 2905 Northwest
Boulevard, Minneapolis, Minnesota 55441-2644; telephone number: (612) 550-1010.
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMPANY'S COMMON
STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE
SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
<PAGE>
[POSSIS MEDICAL, INC. LOGO]
PROVIDING INNOVATIVE CARDIOVASCULAR TREATMENT OPTIONS
The AngioJet, Perma-Flow and Perma-Seal have not been approved by the FDA for
marketing in the United States. There can be no assurance that any of the
products will ever receive such approval or achieve commercial acceptance.
POSSIS GRAFTS -- PERMA-FLOW-REGISTERED TRADEMARK- AND
PERMA-SEAL-REGISTERED TRADEMARK-
POSSIS GRAFTS ARE SYNTHETIC VESSELS WHICH CAN BE USED BY SURGEONS TO BYPASS
BLOCKED CORONARY ARTERIES AND TO PROVIDE A POINT OF VASCULAR ACCESS IN KIDNEY
DIALYSIS PATIENTS.
THE PERMA-FLOW CORONARY BYPASS GRAFT
[The image material here shows an artistic depiction of a human heart with a
Perma-Flow Coronary Bypass Graft sutured to the vena cava and the aorta.]
Perma-Flow is a synthetic coronary graft using a unique fluid dynamic
approach to enhance its ability to stay open and provide blood flow to
bypassed coronary arteries. Worldwide, an estimated 500,000 people
require a coronary bypass each year. Perma-Flow is intended to increase
graft options for these patients and reduce the need to use a blood
vessel surgically removed from their own body.
[The image material here shows a close-up photograph of a Perma-Flow Coronary
Bypass Graft.]
THE PERMA-SEAL DIALYSIS ACCESS GRAFT
[The image material here shows a close-up photograph of a Perma-Seal Dialysis
Access Graft.]
The Perma-Seal self-sealing design is intended to help stop bleeding
following needle removal, to help prevent formation of blood clots at
needle entry sites (which can lead to graft failure), and to enhance the
possibility for early graft usage following implant.
[The image material here shows a photographic comparison of a conventional ePTFE
conduit (at top of photograph) and a Perma-Seal Dialysis Access Graft (at bottom
of photograph) following insertion of a needle.]
At right is a photographic comparison of a conventional ePTFE conduit and
Perma-Seal graft following insertion of a 16 gauge hemodialysis needle.
Note the absence of a visible opening in the Perma-Seal graft following
removal of the needle.
POSSIS ANGIOJET-TM- RAPID THROMBECTOMY SYSTEM
The AngioJet Rapid Thrombectomy System is a non-surgical system designed for
safe, rapid and effective removal of blood clots from peripheral arteries and
grafts, coronary arteries and grafts, and veins.
[The image material here shows a photograph of a laboratory technician standing
next to an AngioJet System, with a close-up photographic inset of an AngioJet
catheter.]
The AngioJet System consists of a reusable drive unit, a disposable
catheter and a disposable pump/bag assembly. Pressurized streams of
sterile saline gently wash blood clot from the blood vessel's wall, break
it up into small particles, and direct these particles toward the
catheter's tip. Inwardly directed saline jets draw the particles into the
tip where they are further broken down and propelled through the catheter
and out of the body.
THE ANGIOJET THROMBECTOMY SYSTEM
[The image material here shows an artistic depiction of an AngioJet catheter
tracking over a guidewire to treat a blood vessel blocked by thrombus.]
The illustration above shows the AngioJet catheter tracking over a
guidewire to treat a blood vessel blocked by thrombus.
PERMA-FLOW-REGISTERED TRADEMARK-, PERMA-SEAL-REGISTERED TRADEMARK- AND
ANGIOJET-TM- ARE TRADEMARKS OF THE COMPANY.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED OR INCORPORATED
BY REFERENCE IN THIS PROSPECTUS. EXCEPT AS OTHERWISE INDICATED, ALL INFORMATION
CONTAINED IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-
ALLOTMENT OPTION. SEE "GLOSSARY" ON THE INSIDE BACK COVER FOR DEFINITIONS OF
CERTAIN TERMS USED HEREIN.
THE COMPANY
Possis Medical, Inc. ("Possis" or the "Company") develops, manufactures and
markets innovative medical products that assist surgeons and interventionalists
in treating cardiovascular or vascular diseases or conditions requiring vascular
intervention. Currently, the Company's products, the AngioJet Rapid Thrombectomy
System, Perma-Flow Coronary Bypass Graft and Perma-Seal Dialysis Access Graft,
are in clinical trials in the United States and in early stages of
commercialization in Europe, Japan and Canada.
The Company's AngioJet System utilizes a disposable catheter that delivers
pressurized saline jets to remove blood clots in a rapid and minimally invasive
manner. The development of blood clots in various segments of the vascular
system is common and is one of the leading causes of morbidity and death. Possis
believes that its AngioJet System represents a new approach to the removal of
blood clots from arteries, veins and grafts, and offers certain potential
advantages over the current primary methods of treatment, thrombolytic drugs and
mechanical devices. A Phase I clinical trial involving the use of the AngioJet
System for removing blood clots from peripheral arteries and vascular grafts was
completed in March 1994. In July 1994, the United States Food and Drug
Administration ("FDA") approved commencement of a Phase II clinical trial. The
Company plans to file a 510(k) application for use of the AngioJet System in
peripheral arteries and vascular grafts in early 1996. The Company has commenced
clinical trials and anticipates filing a premarket approval ("PMA") application
in early 1997 relating to the use of the AngioJet System for removing blood
clots from coronary arteries and coronary bypass grafts.
The Perma-Flow Graft is a synthetic graft that acts as a substitute for
native blood vessels used in coronary artery bypass surgery, which is performed
to treat the impairment of blood flow to portions of the heart. The Perma-Flow
Graft is intended initially to provide an alternative to patients with
insufficient or inadequate native vessels for use in bypass surgery. The Company
believes that the Perma-Flow Graft may ultimately be used as a substitute for
native saphenous veins, thus avoiding the trauma and expense associated with the
surgical harvesting of the native vein. The Perma-Flow Graft is currently in
Phase II clinical trials in the United States, and the Company plans to file a
PMA application with the FDA in early 1997.
The Perma-Seal Graft is a synthetic conduit used as a point of vascular
access in kidney dialysis patients. Possis believes that its Perma-Seal Graft
may offer advantages over currently used synthetic grafts because of its
self-sealing characteristic. The Company believes that this characteristic will
be effective in sealing puncture sites in the grafts with minimal compression
time and bleeding as compared with other currently available graft products and,
as a result, will reduce dialysis procedure time per patient. In addition,
because of its ability to seal a needle puncture without depending on tissue
ingrowth, the Perma-Seal Graft may provide an option for patients who require
dialysis immediately after implant. The Perma-Seal Graft is currently in
clinical trials in the United States. The Company filed a 510(k) application for
marketing authorization with the FDA in August 1994 and responded to a request
for additional information from the FDA on August 31, 1995.
The Company's objective is to become a leading supplier of innovative
medical products for the treatment of cardiovascular or vascular diseases or
conditions. The Company will pursue its strategy by seeking to demonstrate the
safety and efficacy of its products, developing relationships with leading
clinicians, establishing world-class manufacturing processes and rapidly
commercializing its products. In addition, Possis intends to expand its product
portfolio by applying its existing product technology to additional
cardiovascular or vascular treatment needs, by developing new product technology
and, in some cases, by using existing product technology in non-vascular
applications.
The Company's executive offices are located at 2905 Northwest Boulevard,
Minneapolis, Minnesota 55441-2644. Its telephone number is (612) 550-1010.
3
<PAGE>
RECENT DEVELOPMENTS
The Company entered into a distribution agreement with Bard Vascular Systems
Division, C.R. Bard, Inc. ("Bard") in December 1994, which grants Bard exclusive
worldwide sales and marketing rights to the Company's Perma-Seal Graft. The
Company will manufacture Bard's requirements and sell the Perma-Seal Graft to
Bard. In addition, Bard has agreed to make additional payments to the Company
upon the achievement of certain milestones. The Company has already received a
total of $750,000 from Bard under the agreement, and will receive up to an
additional $2.0 million if the Company achieves certain additional milestones.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company......... 1,750,000 shares
Common Stock offered by the Selling
Shareholders............................... 160,000 shares
Common Stock outstanding after the
offering................................... 11,720,781 shares (1)
Use of proceeds............................. To fund clinical trials, to increase
manufacturing capacity, to expand marketing
and sales activities, to develop new products
and for working capital and general corporate
purposes.
Nasdaq National Market symbol............... POSS
<FN>
- ------------------------
(1) Does not include 863,752 shares issuable upon exercise of outstanding
options and warrants at a weighted average exercise price of $5.53 per
share as of August 31, 1995.
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 31,
-------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues from continuing operations........................................... $ 8,435 $ 6,400 $ 3,621
Gains on asset sales.......................................................... -- 1,606 --
--------- --------- ---------
Total revenues.............................................................. $ 8,435 $ 8,006 $ 3,621
Cost of sales and other expenses.............................................. 8,616 9,252 8,774
--------- --------- ---------
Income (loss) from continuing operations...................................... (181) (1,246) (5,153)
Income (loss) from discontinued operations.................................... (1,331) 523 421
--------- --------- ---------
Net income (loss)......................................................... $ (1,512) $ (723) $ (4,732)
--------- --------- ---------
--------- --------- ---------
Net income (loss) per share:
Continuing operations....................................................... $ (.02) $ (.15) $ (.53)
Discontinued operations..................................................... (.16) .06 .04
--------- --------- ---------
Net....................................................................... $ (.18) $ (.09) $ (.49)
--------- --------- ---------
--------- --------- ---------
Weighted average number of shares outstanding................................. 8,361 8,436 9,726
</TABLE>
<TABLE>
<CAPTION>
JULY 31, 1995
-------------------------
AS ADJUSTED
ACTUAL (1)
--------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities.................................... $ 6,721 $ 30,363
Working capital..................................................................... 6,846 30,489
Total assets........................................................................ 10,321 33,964
Long-term debt, excluding current maturities........................................ 93 93
Shareholders' equity................................................................ 8,648 32,290
<FN>
- ------------------------
(1) As adjusted to give effect to the sale of the 1,750,000 shares offered by
the Company and the application of the estimated net proceeds therefrom.
See "Use of Proceeds."
</TABLE>
4
<PAGE>
RISK FACTORS
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. IN
EVALUATING THE COMPANY AND ITS BUSINESS, PROSPECTIVE INVESTORS SHOULD CAREFULLY
CONSIDER THE FOLLOWING RISK FACTORS IN ADDITION TO THE OTHER INFORMATION SET
FORTH IN THIS PROSPECTUS.
SUBSTANTIAL ANTICIPATED FUTURE LOSSES
Possis is engaged primarily in conducting clinical trials and in developing
distribution and manufacturing capabilities for its products. Possis has
generated limited revenues to date from the sale of its products outside the
United States and expects to incur substantial net operating losses at least
until it achieves significant sales outside the United States and receives FDA
approval to market its products in the United States. Sales of the Company's
products in the United States cannot begin until the products have received FDA
approval, which may not occur for several years, if ever. There is no assurance
that any of the Company's products will receive the necessary FDA marketing
approvals or that the Company will generate substantial revenues or achieve
profitability in future years. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
LACK OF FDA APPROVAL FOR PRODUCTS
The Possis AngioJet System, Perma-Flow Graft and Perma-Seal Graft have not
been approved for marketing by the FDA, and the Company will be unable to
commercialize these products in the United States unless approvals are obtained,
which may not occur for several years, if ever. The process of obtaining FDA
approval is lengthy and will require continued expenditure of substantial
resources. The Company's products are currently in clinical trials in the United
States. There is no assurance that the results of these trials will support the
filing of an application for marketing authorization. Possis filed a 510(k)
application to market the Perma-Seal Graft in August 1994 and plans to file a
510(k) application to market the AngioJet System for peripheral applications in
early 1996 and to file PMA applications to market the AngioJet System for
coronary applications and the Perma-Flow Graft in early 1997. The timing of the
FDA approval process is unpredictable, and there can be no assurance that any of
the Company's applications other than the Perma-Seal Graft will be accepted for
review or that the Company will ultimately receive FDA approval for marketing
any of its products. Failure to receive necessary regulatory approvals or
clearances would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Risk Factors -- Potential
Negative Impact of Changes in or Failure to Comply with Government Regulations"
and "Business -- Government Regulation."
UNCERTAINTY OF MARKET ACCEPTANCE
The commercial success of the Possis AngioJet System, Perma-Flow Graft and
Perma-Seal Graft will require acceptance by cardiovascular and vascular surgeons
and interventionalists. Such acceptance will depend on clinical results and the
conclusion by these professionals that the products are safe, cost-effective
methods of treatment. There can be no assurance that the Company's products will
provide benefits considered adequate by providers of cardiovascular and vascular
treatments or that a sufficient number of such providers will use the Company's
products for commercial success to be achieved. Because the Company's products
are based on innovative technologies and, in some cases, represent new methods
of treatment, there may be greater reluctance to accept these products than
would occur with products utilizing established technologies or methods of
treatment. In addition, Possis has a relatively small marketing staff and
limited experience in marketing its products. Further, acceptance of the
Perma-Seal Graft is substantially dependent upon Bard's success in marketing the
product. Failure of any of the Company's products to achieve market acceptance
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Recent Developments" and "Business --
Marketing and Sales."
LACK OF SUFFICIENT CLINICAL DATA TO ESTABLISH SAFETY AND EFFICACY OF PRODUCTS
The Company's products are in clinical trials in the United States, and as
of August 28, 1995, 57 patients have been treated using the AngioJet System in
peripheral arteries, 10 patients have been
5
<PAGE>
treated using the AngioJet System in coronary arteries, 30 patients have been
implanted with the Perma-Flow Graft, and 67 patients have received Perma-Seal
Grafts. A limited number of procedures have also been performed outside the
United States. With the exception of one patient, all enrollment in these
clinical trials has occurred since May 1993. Accordingly, Possis has compiled
limited long-term data regarding the safety and efficacy of the use of its
products to treat humans. There can be no assurance that the efficacy of the
treatments provided by the Company's products will not decline over time or that
the long-term use of its products will not produce adverse side effects to
patients. In order to obtain sufficient clinical data, Possis must generate
patient enrollment and demonstrate the health and safety advantages,
cost-effectiveness and performance features of its products to the
cardiovascular and vascular surgeons and interventionalists who treat such
patients. The Company believes that any adverse data occurring in the early
stages of any of its ongoing clinical trials could adversely affect patient
enrollment in such trials. Enrollment in clinical trials is also limited by the
frequency with which eligible patients are present at the investigation sites, a
factor not within the Company's control. Slow patient enrollment or adverse data
could result in delays in obtaining sufficient data to prove the efficacy and
safety of the Company's products, which could have a material adverse effect on
the Company's business, financial condition, and results of operations.
UNCERTAINTY THAT COMPANY'S PRODUCTS WILL RESPOND TO TECHNOLOGICAL CHANGES OR
COMPETITION
The medical products market is characterized by rapidly evolving technology
and intense competition. The Company's future success will depend on its ability
to keep pace with advancing technology and competitive innovations. Many
potential competitors have significantly greater research and development
capabilities, experience in marketing and obtaining regulatory approvals and
financial and managerial resources than the Company. In some cases, these
competitors have large existing market shares. Many of the Company's potential
competitors have developed or are in the process of developing technologies that
are, or in the future may be, the basis for competitive products, some of which
may have an entirely different approach or means of accomplishing the desired
therapeutic effect than products being developed by the Company. No assurance
can be given that the Company or its products will be able to compete
successfully.
DEPENDENCE ON PATENTS, PATENT APPLICATIONS, LICENSES AND PROPRIETARY RIGHTS
The Company's success depends and will continue to depend in part on its
ability to maintain patent protection for products and processes, to preserve
its trade secrets and to operate without infringing the proprietary rights of
third parties. The validity and breadth of claims covered in medical technology
patents involve complex legal and factual questions and, therefore, may be
highly uncertain. No assurance can be given that the Company's pending
applications will result in patents being issued, or, if issued, that such
patents or the Company's current patents will provide a competitive advantage,
or that competitors of the Company will not design around any patents issued to
the Company. Possis is aware of one pending foreign patent application relating
to a water jet system for removing blood clots. Although the application was
filed after the AngioJet System patent application, no assurance can be given
that such third party will not receive a patent. Further, there can be no
assurance that the Company's non-disclosure agreements and other safeguards will
protect its proprietary information and know-how or provide adequate remedies
for the Company in the event of unauthorized use or disclosure of such
information, or that others will not be able independently to develop such
information. There has been substantial litigation regarding patent and other
intellectual property rights in the medical device industry. Litigation, which
could result in substantial cost to and diversion of effort by the Company, may
be necessary to enforce patents issued to the Company, to protect trade secrets
or know-how owned by the Company, to defend the Company against claimed
infringement of the rights of others or to determine the ownership, scope or
validity of the proprietary rights of the Company and others. An adverse
determination in any such litigation could subject the Company to significant
liabilities to third parties, could require the Company to seek licenses from
third parties and could prevent the Company from manufacturing, selling or using
its products, any of which could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business --
Patents, Patent Applications, Licenses and Proprietary Rights."
6
<PAGE>
POTENTIAL NEGATIVE IMPACT OF CHANGES IN OR FAILURE TO COMPLY WITH GOVERNMENT
REGULATIONS
The Company's research, preclinical development, clinical trials,
manufacturing, marketing and distribution of its products in the United States
and other countries are subject to extensive regulation by numerous governmental
authorities including, but not limited to, the FDA. The FDA administers the
Federal Food, Drug and Cosmetic Act (the "FDC Act"). Under the FDC Act, medical
devices must receive FDA clearance through the Section 510(k) notification
process or approval through the more lengthy PMA process before they can be sold
in the United States. The process of obtaining FDA and other required regulatory
approvals is lengthy and has required and will continue to require the
expenditure of substantial resources, and there can be no assurance that Possis
will be able to obtain the necessary approvals. Additionally, products that have
received regulatory approval for one clinical application must go through the
regulatory process if marketing clearance or approval for a different
application of the product is sought. Moreover, if marketing approvals are
obtained, the marketing, distribution and manufacture of the Company's products
would remain subject to extensive regulatory requirements administered by the
FDA and other regulatory bodies. While the Company has previously passed FDA
inspections for compliance with Good Manufacturing Practices ("GMP") relating to
the manufacture of pacemaker leads, it may be required to pass future GMP
inspections relating to the manufacture of its current products. Such
inspections are conducted approximately every two years after approval is
obtained; in special cases, passing an inspection is a condition of approval.
Failure to comply with these regulatory requirements could, among other things,
result in fines, suspensions or withdrawals of regulatory approvals, product
recalls, operating restrictions and criminal prosecution. Further, changes in
existing regulations or adoption of new regulations or policies could prevent
Possis from obtaining, or affect the timing of, future regulatory approvals or
clearances. There can be no assurance that the Company will be able to obtain
necessary regulatory approvals or clearances on a timely basis or at all, and
delays in receipt of or failure to receive such approvals or clearances, or
failure to comply with existing or future regulatory requirements, would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Government Regulation."
In addition, certain substances used in the manufacture of the Company's
products are or may be subject to environmental regulations which govern the use
of potentially hazardous materials. These regulations may prohibit the Company
from using certain substances in the manufacture of its products in the manner
in which they are currently used or at all. One of the substances currently used
in the manufacture of the Perma-Flow Graft has been removed from the market as a
result of these regulations. There can be no assurance that the Company will be
able to identify and obtain, when necessary, supplies of replacement substances
or develop alternative manufacturing processes that do not use substances in
violation of these regulations.
COMPLIANCE WITH FOREIGN REGULATORY REQUIREMENTS
As an important part of its strategy, Possis intends to pursue
commercialization of its products in international markets. The Company's
products are subject to regulations that vary from country to country. The
process of obtaining foreign regulatory approvals in certain countries can be
lengthy and require the expenditure of substantial resources. There can be no
assurance that the Company will be able to obtain necessary regulatory approvals
or clearances on a timely basis or at all, and delays in receipt of or failure
to receive such approvals or clearances, or failure to comply with existing or
future regulatory requirements, would have a material adverse effect on the
Company's business, financial condition and results of operations. See "Business
- -- Government Regulation."
UNCERTAINTY OF HEALTH CARE REFORM
The levels of revenue and profitability of medical device companies may be
affected by the continuing efforts of government and third party payors to
contain or reduce the costs of health care through various means. In the United
States there have been, and the Company expects that there will continue to be,
a number of federal and state proposals to control health care costs. These
proposals contain measures intended to control public and private spending on
health care as well as to provide universal public access to the health care
system. If enacted, these proposals may result in a
7
<PAGE>
substantial restructuring of the health care delivery system. Significant
changes in the nation's health care system are likely to have a substantial
impact over time on the manner in which the Company conducts its business and
could have a material adverse effect on the Company's business, financial
condition and results of operations.
LIMITATIONS ON THIRD-PARTY REIMBURSEMENT
The extent to which reimbursement for the cost of medical products will be
available from government health administration authorities, private health
coverage insurers and other organizations will affect the Company's ability
successfully to commercialize (assuming regulatory approvals are obtained) its
products. Significant uncertainty exists as to the pricing, availability of
distribution channels and reimbursement status of new medical products, and
there can be no assurance that adequate third party coverage will be available
for the Company to maintain price levels for its products sufficient to realize
an appropriate return on its investment in product development. In certain
foreign markets, pricing or profitability of health care products is subject to
government control.
DEPENDENCE ON SINGLE SOURCE SUPPLIERS
Possis depends on single source suppliers for certain of the raw materials
used in the manufacture of its products. In the event the Company must obtain
alternative sources for key raw materials, there can be no assurance that such
materials will be available for purchase from alternative suppliers, that
alternative suppliers will agree to supply the Company, or that the Company's
use of such suppliers would be approved by the FDA. The Company has been
notified by its suppliers for polytetraflouroethylene ("PTFE") and for polyester
fiber that they will no longer supply those products. Although the Company
purchased a supply of these materials that it believes will be adequate for
several years and is taking steps to secure new suppliers, there can be no
assurance that new sources of supply will be available when necessary. Any
interruption in supply of raw materials could have a material adverse effect on
the Company's ability to manufacture its products until a new source of supply
is located and, therefore, could have a material adverse effect on its business,
financial condition and results of operations. See "Business -- Manufacturing."
LIMITED MANUFACTURING EXPERIENCE FOR PRODUCTS
For the Company to be financially successful, it must manufacture its
products in accordance with regulatory requirements, in commercial quantities,
at appropriate quality levels and at acceptable costs. Possis has not yet been
required to produce its AngioJet System, Perma-Flow Graft or Perma-Seal Graft in
large quantities at competitive costs, and there can be no assurance that it
will be able to do so. If these products receive FDA marketing approval, there
can be no assurance that the Company will be successful in making the transition
to commercial production of these products.
DEPENDENCE ON KEY PERSONNEL
The Company is highly dependent on a limited number of key management and
technical personnel, particularly its President and Chief Executive Officer,
Robert G. Dutcher. The Company's future success will depend, in part, on its
ability to attract and retain highly qualified personnel. Possis competes for
such personnel with other companies, academic institutions, government entities
and other organizations. There can be no assurance that the Company will be
successful in hiring or retaining qualified personnel. The loss of key
personnel, or inability to hire or retain qualified personnel, could have an
adverse effect on the Company's business, financial condition and results of
operations. See "Management."
PRODUCT LIABILITY RISK; LIMITED INSURANCE COVERAGE
The Company faces an inherent business risk of exposure to product liability
claims in the event that the use of its products is alleged to have resulted in
adverse effects to a patient. Possis maintains a general liability insurance
policy that includes coverage for product liability claims. There can be no
assurance that liability claims will not be excluded from such policy, will not
exceed the coverage limits of such policy or that such insurance will continue
to be available on commercially reasonable terms or
8
<PAGE>
at all. Consequently, a product liability claim or other claim with respect to
uninsured liabilities or in excess of insured liabilities could have a material
adverse effect on the Company's business, financial condition and results of
operations.
ANTI-TAKEOVER CONSIDERATIONS
As a Minnesota corporation, the Company is subject to certain anti-takeover
provisions of the Minnesota Business Corporation Act. These provisions could
have the effect of discouraging potential takeover attempts and of delaying,
deferring, or preventing a change in control of the Company or making removal of
management more difficult. See "Description of Common Stock -- Certain
Provisions of Minnesota Business Corporation Act."
VOLATILITY OF STOCK PRICE
The market price of the Common Stock has in the past been subject to
significant fluctuations. See "Price Range of Common Stock." In the future, the
market price of the Common Stock may be significantly affected by factors such
as the announcement of new products or technological innovations by the Company
or its competitors, publicity regarding actual or potential medical results
relating to the Company's products, regulatory developments affecting health
care in both the United States and foreign countries, acquisitions in the
industry, disputes concerning patents or proprietary rights or economic and
other external factors.
DILUTION
Investors in this offering will incur substantial dilution in net tangible
book value per share from the public offering price. See "Dilution."
ABSENCE OF DIVIDENDS
No dividends are currently paid on the Common Stock, and the Company does
not anticipate paying cash dividends on the Common Stock in the foreseeable
future. See "Dividend Policy."
DILUTION
As of July 31, 1995, the net tangible book value of the Company was
approximately $8.2 million, or $.82 per share. "Net tangible book value"
represents total assets less goodwill and total liabilities. After giving effect
to the sale of the 1,750,000 shares of Common Stock offered by the Company
hereby, and the application of the estimated net proceeds therefrom, the net
tangible book value of the Company as of July 31, 1995 would have been
approximately $31.8 million or $2.71 per share. This amount represents an
immediate increase in net tangible book value of $1.89 per share to the existing
holders of Common Stock and an immediate dilution of $11.79 per share to new
investors. "Dilution" is determined by subtracting net tangible book value per
share after the offering from the price to the public set forth on the cover
page of this Prospectus, as illustrated by the following table:
<TABLE>
<S> <C> <C>
Public offering price per share..................................... $ 14.50
Net tangible book value per share as of July 31, 1995............... $ .82
Increase per share attributable to this offering.................... 1.89
Pro forma net tangible book value per share after this offering..... 2.71
---------
Dilution per share to new investors................................. $ 11.79
---------
---------
</TABLE>
DIVIDEND POLICY
The Company has not paid cash dividends on its Common Stock since 1983. The
Company currently intends to retain all earnings for use in its business and
does not anticipate paying cash dividends in the foreseeable future.
9
<PAGE>
RECENT DEVELOPMENTS
In December 1994, the Company entered into a distribution agreement with
Bard which grants Bard exclusive worldwide sales and marketing rights to the
Company's Perma-Seal Graft. The Company will manufacture Bard's requirements and
sell the Perma-Seal Graft to Bard. In addition, Bard has agreed to purchase
certain minimum quantities and to make additional payments to the Company upon
the achievement of certain milestones. The Company has already received a total
of $750,000 from Bard under the agreement, and will receive up to an additional
$2.0 million if the Company achieves certain additional milestones.
USE OF PROCEEDS
The net proceeds received by the Company from the sale of the Common Stock
offered hereby, after deducting the estimated underwriting discounts and
offering expenses, are estimated to be approximately $23.6 million ($27.5
million if the Underwriters' over-allotment option is exercised in full). The
Company will not receive any of the proceeds from the sale of Common Stock by
the Selling Shareholders.
Possis anticipates that it will use approximately $3.5 million of the net
proceeds of this offering to fund clinical trials and related activities in
support of United States regulatory approvals for its products, approximately
$5.0 million to increase the Company's manufacturing capacity, primarily to
cover excess production expenses associated with the start-up of new production
lines, approximately $4.0 million to expand marketing and sales activities,
including the development of a United States sales force for the AngioJet
System, and approximately $2.5 million to fund the development of new products.
The Company will use the balance of the net proceeds for working capital and
general corporate purposes. The amounts actually expended for each purpose may
vary significantly depending upon numerous factors, including progress of the
Company's clinical trials and actions relating to regulatory matters, and the
costs and timing of expansion of marketing, sales and manufacturing activities.
Pending such uses, the net proceeds of this offering will be invested in
interest-bearing, investment-grade securities.
10
<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on The Nasdaq National Market under the
symbol "POSS." The following table sets forth, for the periods indicated, the
high and low closing sale prices for the Common Stock as reported by Nasdaq.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
FISCAL 1993:
First quarter ended October 31, 1992............................................... $ 8.88 $ 6.63
Second quarter ended January 31, 1993.............................................. 11.63 7.25
Third quarter ended April 30, 1993................................................. 9.75 6.75
Fourth quarter ended July 31, 1993................................................. 11.75 7.25
FISCAL 1994:
First quarter ended October 31, 1993............................................... $ 12.00 $ 8.75
Second quarter ended January 31, 1994.............................................. 10.25 7.38
Third quarter ended April 30, 1994................................................. 8.75 5.75
Fourth quarter ended July 31, 1994................................................. 7.38 5.75
FISCAL 1995:
First quarter ended October 31, 1994............................................... $ 6.75 $ 5.50
Second quarter ended January 31, 1995.............................................. 8.25 5.50
Third quarter ended April 30, 1995................................................. 9.25 6.38
Fourth quarter ended July 31, 1995................................................. 14.88 9.13
</TABLE>
On October 2, 1995, the last sale price of the Common Stock as reported by
Nasdaq was $15.75 per share. As of August 28, 1995, there were 1,859
shareholders of record of the Common Stock.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of July
31, 1995, and as adjusted to give effect to the sale by the Company of the
1,750,000 shares of Common Stock offered hereby and the application of the
estimated net proceeds therefrom.
<TABLE>
<CAPTION>
JULY 31, 1995
----------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, excluding current maturities............................................. $ 93 $ 93
--------- -----------
Shareholders' equity:
Common Stock, $.40 par value; 20,000,000 shares authorized;
9,970,031 shares issued and outstanding,
11,720,031 shares issued and outstanding as adjusted (1)............................. 3,988 4,688
Additional paid-in capital............................................................. 14,202 37,144
Unearned compensation.................................................................. (50) (50)
Retained deficit....................................................................... (9,492) (9,492)
--------- -----------
Total shareholders' equity........................................................... 8,648 32,290
--------- -----------
Total capitalization............................................................... $ 8,741 $ 32,383
--------- -----------
--------- -----------
<FN>
- ------------------------
(1) Does not include 863,752 shares issuable upon exercise of outstanding
options and warrants at a weighted average exercise price of $5.53 per
share as of August 31, 1995.
</TABLE>
11
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and with the financial statements and notes thereto included
elsewhere in this Prospectus. The statements of operations data set forth below
for the years ended July 31, 1993, 1994 and 1995 and the balance sheet data set
forth below at July 31, 1994 and 1995 are derived from the financial statements
included elsewhere in this Prospectus, which have been audited by Deloitte &
Touche LLP. The statements of operations data set forth below for the years
ended July 31, 1991 and 1992 and the balance sheet data set forth below at July
31, 1991, 1992 and 1993 are derived from audited financial statements not
included herein. The following financial data reflect the Jet Edge business and
the Technical Services Division as discontinued operations (see Note 2 of Notes
to Consolidated Financial Statements).
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 31,
-----------------------------------------------------
1991 1992 1993 1994 1995
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues from continuing operations.................... $ 5,422 $ 7,160 $ 8,435 $ 6,400 $ 3,621
Gains on asset sales................................... -- -- -- 1,606 --
--------- --------- --------- --------- ---------
Total revenues....................................... 5,422 7,160 8,435 8,006 3,621
Cost of sales and other expenses:
Cost of medical products............................. 1,216 2,167 2,735 3,675 3,335
Selling, general and administrative.................. 1,490 1,551 2,125 1,706 2,118
Research and development............................. 1,796 2,836 3,613 3,747 3,298
Interest............................................. 119 135 143 124 23
--------- --------- --------- --------- ---------
Total cost of sales and other expenses............. 4,621 6,689 8,616 9,252 8,774
--------- --------- --------- --------- ---------
Income (loss) from continuing operations............... 801 471 (181) (1,246) (5,153)
Income (loss) from discontinued operations
including gain (loss) on disposal -- net.............. (434) 153 (1,331) 523 421
--------- --------- --------- --------- ---------
Net income (loss).................................. $ 367 $ 624 $ (1,512) $ (723) $ (4,732)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income (loss) per share:
Continuing operations................................ $ .10 $ .06 $ (.02) $ (.15) $ (.53)
Discontinued operations.............................. (.06) .02 (.16) .06 .04
--------- --------- --------- --------- ---------
Net................................................ $ .04 $ .08 $ (.18) $ (.09) $ (.49)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average number of
shares outstanding.................................... 8,184 8,238 8,361 8,436 9,726
<CAPTION>
JULY 31,
-----------------------------------------------------
1991 1992 1993 1994 1995
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities....... $ -- $ 948 $ 569 $ 1,769 $ 6,721
Working capital........................................ 4,690 6,103 5,183 4,007 6,846
Total assets........................................... 10,222 11,133 11,472 8,882 10,321
Long-term debt, excluding current maturities........... 1,250 1,313 1,279 80 93
Shareholders' equity................................... 6,124 6,969 5,947 5,684 8,648
</TABLE>
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company was incorporated in 1956 and went public in 1960 as Possis
Machine Corporation. Initial operations consisted of design, manufacturing and
sales of industrial equipment and a division that provided temporary technical
personnel. The Company's involvement with medical products began in 1976, when
it sold its rights to a patented bileaflet mechanical heart valve, which it had
obtained from Zinon C. Possis, the founder of the Company, to St. Jude Medical,
Inc. for annual royalty payments based on St. Jude's valve sales (the "St. Jude
Royalties"). In 1982 a subsidiary was established to focus initially on the
development of a synthetic blood vessel used to bypass blocked coronary
arteries. In the late 1980's the Company decided to leverage existing management
expertise and entered the pacemaker lead business. The strategic role of the
pacemaker lead business was to provide cash flow to fund the development of
synthetic grafts and thrombectomy systems and to give the Company access to and
name recognition within the medical device industry. In 1990 the Company made
the decision to focus on medical products and subsequently divested all
non-medical operations, beginning with its Technical Services Division in
September 1991 followed by its industrial equipment subsidiary and related land
and buildings in January 1994. See Notes 2 and 12 of Notes to Consolidated
Financial Statements. In March 1994 the Company sold its pacemaker lead business
because it anticipated that revenues from this business would decrease due to a
pacemaker lead technology shift. In connection with this sale, the Company
received $1.1 million in cash and the right to receive royalty payments over a
twelve-month period. See Note 11 of Notes to Consolidated Financial Statements.
The sale of the pacemaker lead business has enabled Possis to focus its human
and financial resources exclusively on its other products, which are currently
in clinical trials in the United States and in early stages of commercialization
in Europe, Japan and Canada.
Over the past three fiscal years, substantially all of the Company's
revenues and gross profits have been derived from the sale of pacemaker leads
and the St. Jude Royalties. The resulting cash flow together with the
approximately $7.2 million net proceeds from the Company's 1994 Common Stock
offering has been used to fund the Company's operations, including research and
development related to its products. With the sale of its pacemaker lead
business and the expiration of royalty payments from St. Jude in March 1995,
Possis 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.
RESULTS OF OPERATIONS
FISCAL YEARS ENDED JULY 31, 1993, 1994 AND 1995
Total revenues decreased 5% from $8.4 million in fiscal 1993 to $8.0 million
in fiscal 1994 and then decreased 55% to $3.6 million in fiscal 1995.
Significant factors in the revenue decreases were the March 1994 sale of the
Company's pacemaker lead business and the expiration of the St. Jude Royalties
in March 1995. Partially offsetting the revenue reductions in fiscal 1994 was a
gain of $1.6 million on the sales of the pacemaker lead business and the
Company's land and buildings associated with its discontinued operations. The
Company believes that future revenues will come primarily from the sale of its
current products.
Cost of medical products in fiscal 1994 and fiscal 1995 included
approximately $2.3 million and $3.0 million, respectively, of manufacturing
start-up expense relating primarily to new technology and manufacturing
processes. Manufacturing start-up expense includes 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. Additional manufacturing start-up expenses are expected
as the Company continues to refine its manufacturing processes and until the
Company begins to produce its products in commercial quantities. The Company
believes manufacturing cost per unit produced will decrease from fiscal 1995
levels as it gains line operating experience and as production volume grows in
response to anticipated sales increases.
13
<PAGE>
Selling, general and administrative expense decreased 20% from $2.1 million
in fiscal 1993 to $1.7 million in fiscal 1994 and then increased 24% to $2.1
million in fiscal 1995. The fiscal 1994 expense decrease versus the prior year
reflects a $600,000 decrease in administrative expenses associated with
consolidating administrative responsibilities, a real estate tax reduction and
the nonrecurrence of computer system installation expenses incurred in fiscal
1993. Partially offsetting the fiscal 1994 expense reduction was a sales and
marketing expense increase of approximately $200,000 related to the
international introduction of the Company's products. The fiscal 1995 expense
increase results primarily from growing sales and marketing expenditures for
personnel, travel, conventions and related expenses necessary to introduce the
Company's products into the international marketplace. Sales and marketing
expenses are expected to increase from fiscal 1995 levels along with anticipated
product sales increases and the establishment of a direct sales organization in
the United States, which the Company believes will begin in fiscal 1996. See
"Business -- Marketing and Sales."
Research and development expense increased 4% to $3.7 million in fiscal 1994
from $3.6 million in fiscal 1993 and then decreased 12% to $3.3 million in
fiscal 1995 versus the prior year. The fiscal 1995 decrease results from the
lack of pacemaker lead research activity following the March 1994 sale of the
pacemaker lead business. The Company's research and development expenditures are
expected to increase from fiscal 1995 levels as the Company continues its United
States clinical trials and current product development plans. See "Business --
Research and Development."
Interest expense decreased 13% to $124,000 in fiscal 1994 versus the prior
year and decreased to $24,000 in fiscal 1995. Between fiscal 1993 and fiscal
1995 the Company reduced its mortgage and note payable debt from $1.3 million at
July 31, 1993 to $176,000 at July 31, 1995. The debt reduction was accomplished
utilizing cash proceeds from the sale of assets and the Company's 1994 Common
Stock offering.
Income from the Company's discontinued operations, excluding the fiscal 1994
gain of $68,000 and fiscal 1993 estimated loss of $1.4 million on the sale of
Jet Edge, was $80,000, $455,000 and $421,000 in fiscal years 1993, 1994 and
1995, respectively. The Company will continue to recognize revenue related to
the sale of its Technical Services Division through the first quarter of fiscal
1997. See Note 2 of Notes to Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and marketable securities balance at
July 31, 1993, 1994 and 1995 was $569,000, $1.8 million and $6.7 million,
respectively. The increase in fiscal 1995 is primarily the result of the
Company's September 1994 Common Stock Offering.
During fiscal 1993, cash used in operating activities was $490,000, which
resulted primarily from the loss of $1.5 million and a decrease in receivables
and inventories of $444,000 and $426,000, respectively, offset by depreciation
of $510,000 and an increase in accrued and other current liabilities of $1.2
million. Cash used in investing activities was $344,000, which was the result of
additions to plant and equipment of $579,000 offset by proceeds from the sale of
discontinued operations of $150,000 and proceeds from the sale of fixed assets
of $85,000. Net cash provided by financing activities of $454,000 was
principally the result of proceeds from the issuance of stock and exercise of
options and warrants.
During fiscal 1994, cash used in operating activities was $1.2 million,
which resulted principally from a net loss before gains on the sale of the
pacemaker lead business and real estate of approximately $2.3 million and
decreases in accounts payable and accrued and other current liabilities of
$825,000, offset by depreciation and amortization of goodwill and stock
compensation totalling $665,000 and a decrease in accounts receivable of $1.5
million. Cash provided by investing activities was $2.9 million, including
primarily proceeds from the sale of discontinued operations of $1.1 million and
proceeds from the sale of real estate and the pacemaker lead business of $1.2
million and $1.1 million, respectively, offset by additions to plant and
equipment of $554,000. Net cash used in
14
<PAGE>
financing activities of $460,000 resulted principally from repayment of
long-term debt of $803,000 offset by proceeds from notes payable of $144,000 and
proceeds from the issuance of stock and exercise of options and warrants of
$199,000.
During fiscal 1995, cash used in operating activities was $1.9 million,
which resulted principally from the net loss of $4.7 million and a decrease in
accrued and other current liabilities of $1.1 million, offset by depreciation
and amortization of goodwill and stock compensation totalling $546,000 and a
decrease in accounts receivable of $3.2 million. Cash used in investing
activities was $1.5 million, which resulted primarily from net purchases of
marketable securities of $1.3 million and additions to plant and equipment of
$562,000, offset by proceeds from the sale of discontinued operations of
$350,000. Net cash provided by financing activities of $7.1 million resulted
principally from the September 1994 Common Stock offering of $7.2 million, the
exercise of stock options of $297,000 and proceeds from notes payable of
$116,000, offset by the repayment of long-term debt of $595,000.
In the fourth quarter of fiscal 1995, the Company received its final
payments of royalties from the heart valve patent sale and the sale of the
pacemaker lead business. In recent years, the St. Jude Royalties and the cash
generated by the pacemaker lead business have been the Company's primary
operating sources of cash.
The Company expects to receive up to an additional $2.0 million in payments
from Bard during the next 12 months pursuant to the distribution agreement
executed in December 1994. Such payments are dependent upon the Company
achieving certain milestones. See Note 13 of Notes to Consolidated Financial
Statements.
The Company anticipates reporting a loss in fiscal 1996 and believes that
current capital resources together with the proceeds of this offering will fund
planned operations for the foreseeable future.
15
<PAGE>
BUSINESS
GENERAL
Possis develops, manufactures and markets innovative medical products that
assist surgeons and interventionalists in treating cardiovascular or vascular
diseases or conditions requiring vascular intervention. Currently, the Company
has three products in clinical trials in the United States and in the early
stages of commercialization in Europe, Japan and Canada. The Possis AngioJet
System utilizes a disposable catheter that delivers pressurized saline jets to
remove blood clots in a rapid and minimally invasive manner. The Company's
Perma-Flow Graft is a synthetic graft that acts as a substitute for native blood
vessels used in coronary artery bypass surgery, and its Perma-Seal Graft is a
synthetic conduit for use as a point of vascular access in kidney dialysis
patients. The Company's products are currently being sold in Europe, Japan and
Canada on a limited basis for clinical use by key medical opinion leaders. The
Company conducts ongoing research and development activities primarily directed
at developing additional applications of existing products as well as new
products expanding on the Company's proprietary technologies and expertise.
STRATEGY
The Company's objective is to become a leading supplier of innovative
medical products for the treatment of cardiovascular or vascular diseases or
conditions. The Company's current focus is to establish its products as
preferred methods of treatment, establish world-class manufacturing processes
and distribution systems and leverage its existing technologies to develop new
products. The following are important elements of the Company's strategy:
- DEMONSTRATE THE SAFETY AND EFFICACY OF ITS PRODUCTS. The Company's
products are currently in multi-center clinical trials in the United
States designed to demonstrate their safety and efficacy. The data
obtained from these trials will be used to seek regulatory approval to
market the products and to establish the products as effective methods of
treatment. In order to obtain regulatory approvals to market its products
as rapidly as possible, the Company has dedicated significant effort and
resources to conducting clinical trials and making required regulatory
filings in the United States and internationally.
- DEVELOP RELATIONSHIPS WITH LEADING CLINICIANS. The Company seeks to
develop relationships with leading surgeons and interventionalists and to
leverage those relationships to obtain acceptance of the Company's
products within the medical community. The Company believes these
relationships help attract a higher volume of patients to the Company's
clinical studies and facilitate earlier completion of the studies
necessary to obtain FDA product approvals.
- ESTABLISH WORLD-CLASS MANUFACTURING PROCESSES. The Company seeks to build
on its expertise gained in manufacturing other medical devices to
establish world-class manufacturing for its current products. The Company
seeks to create a competitive advantage by vertically integrating certain
proprietary manufacturing processes necessary for the production of the
Company's products. For example, the Company has developed in-house
production of expanded polytetraflouroethylene ("ePTFE") necessary for the
manufacture of the Perma-Flow Graft and the electrostatic spinning
technology necessary for the manufacture of the Perma-Seal Graft.
- RAPIDLY COMMERCIALIZE ITS PRODUCTS. The Company seeks to rapidly
commercialize its products as soon as the required regulatory approvals
are obtained. The Company has entered into a worldwide exclusive
distribution agreement with Bard to distribute the Perma-Seal Graft. The
Company is currently marketing the AngioJet System internationally through
independent distributors and intends to market the AngioJet System in the
United States through a direct sales force. The Company is currently
marketing the Perma-Flow Graft internationally through independent
distributors and is evaluating additional distribution channels for this
product.
- DEVELOP NEW PRODUCTS AND APPLICATIONS. The Company seeks to apply the
proprietary technologies and expertise it has developed in vascular grafts
to develop new products such as
16
<PAGE>
endovascular stent grafts. The Company also seeks to use its existing
technologies in new applications including the use of the AngioJet System
for the treatment of deep vein thrombosis and for certain non-vascular
applications, and the use of the venturi design of the Perma-Flow Graft
for non-coronary applications.
PRODUCTS
ANGIOJET SYSTEM
BACKGROUND. The development of blood clots in various parts of the vascular
system is common and is one of the leading causes of morbidity and death. Blood
clots may be caused by various factors, including cardiovascular disease,
trauma, interventional procedures using catheters and needles or prolonged bed
rest. If a blood clot becomes large enough, it can block an artery, preventing
oxygenated blood from reaching the organ or tissue supplied by the artery. In
addition, if a blood clot breaks off it can travel through the bloodstream and
block oxygenated blood flow to other organs and tissue. Conditions caused by
blood clots include peripheral ischemia, which can lead to limb loss, vascular
access failure, pulmonary embolism, acute myocardial infarction (heart attack),
stroke and deep vein obstruction.
CURRENT METHODS OF TREATMENT. Currently, the two primary methods of
removing blood clots are thrombolytic drugs and mechanical devices. Thrombolytic
drug treatment involves the administration of a drug designed to dissolve the
blood clot in an intensive or critical care setting. Thrombolytic drugs may
require several administrations to be effective, and then may only partially
remove the clot. In addition, thrombolytic drugs may require significant time to
take effect, which is costly in an intensive or critical care setting, and may
cause uncontrolled bleeding. Mechanical devices such as the Fogarty-type
catheter operate by inflating a balloon past the point of the blood clot and
then dragging the blood clot out of the patient's body through the artery.
Fogarty-type catheters require surgical intervention, which may result in
overnight hospital stays, are more limited in their applications and may cause
vascular trauma.
ANGIOJET SYSTEM. Possis believes that its AngioJet System represents a new
approach to the removal of blood clots from arteries, veins and grafts and
offers certain potential advantages over current methods of treatment. The
AngioJet System is a minimally invasive catheter system designed for rapidly
removing blood clots with minimal vascular trauma. The system's principal
components are a reusable drive unit, a high-pressure single use pump and a
single use small diameter (3.5 to 5F or 1.2 to 1.7 mm) catheter. In clinical
trials, the AngioJet System has demonstrated the ability to remove blood clots
within minutes without surgical intervention and without the risk of
uncontrolled bleeding.
The AngioJet System removes blood clots through the non-surgical insertion
of the catheter over a guidewire into the patient's blood vessel and then, with
the aid of fluoroscopy, directing the tip of the catheter to the site of the
blood clot. The drive unit is then activated to deliver pressurized saline
through tiny openings in the catheter's tip. These small waterjets clean the
blood clot from the vessel wall, break it into small fragments and, in order to
prevent formation of a new blood clot downstream, propel the debris down the
central lumen of the catheter and into a collection bag attached to the drive
unit, without the need for a separate suction or vacuum device. Unlike certain
other mechanical devices that are able only to create channels through blood
clots of a size similar to that of the catheter used, the AngioJet System's
waterjet technology enables it to break up large blood clots from vessels much
larger than its catheter diameter.
MARKET. Because the Possis AngioJet System is unlike any existing procedure
or device, market potential is difficult to quantify, but may be estimated by
determining the number of thrombectomy and thrombolytic procedures performed
using other therapies and devices and estimating the number of procedures that
might reasonably be replaced or supplemented by using the AngioJet System.
Based upon information provided by medical practitioners and its own
analysis, the Company believes that the AngioJet System may potentially be used
for alternative or supplemental therapy for
17
<PAGE>
the 60,000 thrombectomy procedures using lytic drugs, the 380,000 thrombectomy
procedures using mechanical devices and the 60,000 thrombolysis/revision
procedures involving dialysis access grafts estimated to be performed each year
in the United States. The Company also believes that the AngioJet System may be
used in Percutaneous Transluminal Angioplasty ("PTA") procedures that involve
the presence of clinically significant clot. The Company also believes that of
the 5.0 million patients with deep vein thrombosis, 10% would be suitable for
treatment with the AngioJet System. Additionally, the Company believes that the
approximately 600,000 patients with pulmonary embolism annually in the United
States are candidates for treatment with the AngioJet System. Further, the
Company estimates that more than 550,000 patients annually are candidates for
AngioJet treatment of failed or occluded saphenous vein grafts, unstable angina,
acute myocardial infarction and strokes.
Although the Company has not yet determined pricing for the AngioJet System,
it anticipates that the price to the hospital for the single use catheter and
pump set will be between $800 and $1,500 and for the drive unit the price will
be between $30,000 and $35,000. The Company cannot estimate the ultimate charge
for this procedure to the patient. The average mechanical thrombectomy procedure
is performed in a surgical setting with an overnight hospital stay and could
result in charges to the patient exceeding $10,000. Lytic drug therapy may cost
$500 to $5,000 for the drug plus hospital and procedure charges, resulting in a
total patient cost of as much as $10,000.
STATUS OF CLINICAL TRIALS. The Company is currently conducting clinical
trials in the United States with the AngioJet System for removing blood clots
from peripheral arteries and vascular grafts and for use in removing blood clots
from coronary arteries and coronary bypass grafts. Possis received FDA approval
to initiate clinical testing of its AngioJet System for use in removing blood
clots from peripheral arteries and vascular grafts in December 1992. The first
patient was enrolled in the trial in July 1993 and by March 31, 1994, Phase I of
the trial, consisting of 19 patients undergoing 23 treatments, was complete and
the summary report had been submitted to the FDA. In July 1994, the Company
received approval from the FDA to commence Phase II of the trial, in which
patients receive, on a one-to-one randomized basis, treatment with either the
AngioJet System or a Fogarty-type catheter already marketed for blood clot
removal. As of August 28, 1995, 92 patients had been treated in both phases of
the trial, of which 57 were treated with the AngioJet System. The Company
anticipates filing an application in early 1996 for 510(k) marketing
authorization for use in leg arteries or grafts and A-V access grafts.
In April 1995, Possis received conditional FDA approval to initiate clinical
testing of its AngioJet System for use in removing blood clots from coronary
arteries and bypass grafts. As of August 28, 1995, 10 patients had been treated
to open blocked saphenous vein bypass grafts and native coronary arteries. The
Company believes that the coronary application of the AngioJet System will be
subject to a PMA approval process and anticipates filing a PMA application in
early 1997.
PERMA-FLOW GRAFT
BACKGROUND. Coronary artery bypass graft ("CABG") surgery is performed to
treat impairment of blood flow to portions of the heart. CABG surgery involves
the addition of one or more new vessels to the heart to re-route blood around
blocked coronary arteries.
CURRENT METHODS OF TREATMENT. Autogenous grafts using the saphenous vein or
mammary artery have been successfully used in CABG procedures for a number of
years and have shown a relatively high patency rate (80% to 90% for saphenous
veins and over 90% for mammary arteries one year after surgery) with no risk of
tissue rejection. However, the harvesting of vessels for autogenous grafts
involves significant trauma and expense. In addition, not all patients requiring
CABG surgery have sufficient native vessels as a result of previous bypass
surgeries, or their vessels may be of inferior quality due to trauma or disease.
Cryopreserved saphenous veins are available, but these veins often deteriorate
due to the body's immune system.
PERMA-FLOW GRAFT. The Possis Perma-Flow Graft is a synthetic graft 5mm in
diameter for use in CABG surgery. The Perma-Flow Graft is intended initially to
provide an alternative to patients with
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insufficient or inadequate native vessels for use in bypass surgery as a result
of repeat procedures, trauma, disease or other factors. The Company believes,
however, that the Perma-Flow Graft may ultimately be used as a substitute for
native saphenous veins, thus avoiding the trauma and expense associated with the
surgical harvesting of the vein.
The Perma-Flow Graft is made of ePTFE that contains a molded silicone
venturi-shaped flow resistance element approximately 2mm in diameter. The
Perma-Flow Graft is designed to be implanted by initially suturing it to the
vena cava followed by side-to-side anastomoses (connections) of the graft to the
coronary arteries beyond the blockages and finally suturing the graft to the
aorta. The formation of this artery-to-vein shunt is designed to create a
continuous blood flow at a sufficiently high rate through the graft to reduce
the incidence of blood clot formation, the major reason for synthetic graft
failure in the past. The flow resistance element is designed to prevent
excessive shunting of blood to the vena cava and to maintain high arterial
pressure for effective coronary perfusion.
The following diagrams illustrate a double coronary artery bypass using
native saphenous veins as grafts and a double coronary artery bypass using the
Perma-Flow Graft.
THE DIAGRAM HERE SHOWS A COMPARISON OF TWO HEARTS, ONE WITH A
CONVENTIONAL BYPASS PROCEDURE USING SAPHENOUS VEIN GRAFTS AND THE OTHER
WITH A BYPASS USING A PERMA-FLOW GRAFT
MARKET. The Company believes that in 1995 approximately 540,000 CABG
procedures will be performed worldwide, of which approximately 300,000 will be
performed in the United States, and that approximately 20% of these CABG
procedures will be performed on patients who have previously undergone bypass
surgery. The Company further believes that the number of repeat procedures will
continue to increase as a percentage of procedures performed, as the number of
patients who have the procedure increases. Currently, approximately 70% of CABG
procedures are performed utilizing the saphenous vein. Based upon its interviews
with cardiovascular surgeons, including those involved in the clinical trials,
the Company believes that patients whose native vessels are not available for
use in bypass surgery comprise approximately 4% of those receiving CABG
procedures, or approximately 20,000 annually, and that approximately 80,000
patients annually are determined by the treating physician to have native
vessels inadequate to be used in bypass surgery. If initial use of the Perma-
Flow Graft is shown to be clinically acceptable, the Company believes that the
graft may be used for these patients. The Company further believes that if
long-term clinical results are acceptable to clinicians (generally greater than
50% patency five years after implant), the graft may ultimately be used as a
substitute for native saphenous veins.
Currently, no synthetic coronary graft has been approved by the FDA.
Cryopreserved saphenous veins sell to hospitals for approximately $3,500 to
$4,000 in the United States. The Company anticipates pricing for the Perma-Flow
Graft will be competitive with cryopreserved saphenous veins.
STATUS OF CLINICAL TRIALS. The Company received FDA approval to initiate
clinical testing of its Perma-Flow Graft in November 1991. The Company currently
has eight sites actively recruiting
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patients. In July 1995, the Company received approval to commence Phase II of
the study comprising 100 additional patients at up to 20 sites. As of August 28,
1995, 30 patients had been implanted with the Perma-Flow Graft. Angiographic
results within 30 days of surgery have been reported on 17 patients, which
confirmed 33 of their 34 side-to-side anastomoses to be patent. Within this
30-day interval, of the remaining 13 patients, angiographic results were not
reported for nine and four died of causes reported by the investigator to be
unrelated to the graft. In addition, angiographic follow-up was performed within
three to 12 months of implant on seven patients, which confirmed that 14 of 18
anastomoses were patent. The Company anticipates filing a PMA application for
marketing authorization in early 1997.
PERMA-SEAL GRAFT
BACKGROUND. Patients suffering from renal disease may be required to
undergo long-term kidney dialysis. The majority of these patients require
long-term vascular access to facilitate treatment. A point of access for
dialysis needles may be created by connecting an artery and a vein in the
patient's arm. However, because kidney dialysis therapy typically requires
patients to undergo blood dialysis treatment three times per week, these
connections often become unusable over time. Other methods of vascular access
for kidney dialysis such as temporary catheters are not designed for long-term
use.
CURRENT METHODS OF TREATMENT. A synthetic graft may be implanted in kidney
dialysis patients to provide the necessary vascular access. The vast majority of
these synthetic grafts are made of ePTFE. The use of synthetic grafts currently
available is often accompanied by excessive bleeding when the dialysis needle is
withdrawn, requiring a nurse to apply pressure to help stop the bleeding and
requiring the patient to remain in the treatment area until the bleeding has
been stopped. In addition, to limit the risk of graft infection following
implant, at least a two-week healing period following implantation is required
to allow for tissue ingrowth into the graft before initiating dialysis.
PERMA-SEAL GRAFT. The Possis Perma-Seal Graft is a self-sealing synthetic
graft comprised of silicone elastomers, with a winding of polyester yarn
encapsulated within its wall, and is manufactured using proprietary
electrostatic spinning technology developed by the Company. The Company believes
that its Perma-Seal Graft may offer advantages over currently used synthetic
grafts because of its self-sealing characteristic. The Company believes that
this characteristic will be effective in sealing puncture sites in the grafts
with minimal compression time and bleeding as compared with other currently
available graft products and, as a result, will reduce dialysis procedure and
administrative time per patient and the costs associated therewith. In addition,
because of its ability to seal a needle puncture without depending on tissue
ingrowth, the Perma-Seal Graft may provide an option for patients who require
dialysis immediately after implant.
MARKET. Approximately 170,000 patients in the United States undergo kidney
dialysis each year, of which approximately 140,000 receive vascular access
procedures utilizing either natural vessel grafts or synthetic access grafts.
The Company estimates that of these patients approximately 40,000 are implanted
with a synthetic graft. The Company believes that a comparable market exists
outside the United States as well.
The hospital prices of ePTFE and biological graft products manufactured by
certain other manufacturers currently range from $400 to $700 per unit,
depending on length, style, and configuration. Although final pricing of the
Company's Perma-Seal Graft will depend upon manufacturing costs, distribution
methods, and competitive pressures, the Company anticipates that pricing for the
Perma-Seal Graft will be at a premium relative to standard ePTFE graft products.
STATUS OF CLINICAL TRIALS. In July 1992, Possis received FDA approval to
initiate clinical testing of its Perma-Seal Graft. The study is randomized on a
one-to-one basis with patients receiving either a Perma-Seal Graft or a
conventional ePTFE graft. As of August 28, 1995, 138 patients at four clinical
sites had been enrolled in the study, 67 of which had received the Perma-Seal
Graft. Clinical data indicates that Perma-Seal Graft patients who have been
accessed for dialysis have compression times to stop bleeding after removing the
dialysis needles averaging two minutes compared to an average of
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nine minutes with conventional grafts. The Company filed a 510(k) application
for marketing authorization with the FDA in August 1994. In May 1995, the
Company received a request for additional information from the FDA and the
Company responded to the request on August 31, 1995. In July 1995, the Company
received approval of an investigational device exemption ("IDE") supplement to
commence clinical testing of its new thinner-walled Perma-Seal Graft.
RESEARCH AND DEVELOPMENT
The Company's product development efforts for its existing products are
focused primarily on clinical testing and obtaining necessary FDA approvals. The
Company's new product development efforts are focused primarily on developing
additional applications of the AngioJet System, including the treatment of deep
vein thrombosis and certain non-vascular tissue cutting applications, and on
utilizing its Perma-Flow Graft and Perma-Seal Graft technologies to develop
other graft products, including endovascular stent grafts. Research and
development expenses are generally incurred for product design and
qualification, manufacturing process development and validation, and clinical
trials and governmental approvals. The Company's research and development
expense is expected to increase as the Company continues its clinical trials and
current product development plans.
As of August 15, 1995, the Company employed approximately 29 full-time
employees in research and development, including six in concept research
(focusing on initial development of new products), five in engineering and
equipment design, 11 in manufacturing process design, four in manufacturing
process qualification and three in regulatory and clinical affairs. The Company
performs all of its research and development activities at its headquarters in
Minneapolis, Minnesota. The Company spent $3.6 million, $3.7 million and $3.3
million in fiscal 1993, 1994 and 1995, respectively, on medical product research
and development. Clinical trial expenses are included in total research and
development expense.
MANUFACTURING
The Company engages in various manufacturing and assembly activities at its
facility in Minneapolis, Minnesota, including fabrication and assembly of the
AngioJet System drive unit and disposable pump, assembly and manufacture of
certain critical components of AngioJet catheters and manufacture of the
Perma-Flow Graft and the Perma-Seal Graft. Certain components used in the
manufacture of the Company's products are produced using proprietary processes
and materials developed by the Company or acquired from other companies. The
Company is expanding its manufacturing capacity in anticipation of increasing
commercial sales of its products and anticipates that it has sufficient capacity
to meet its needs at least through 1996.
All components, materials and subassemblies included within the Company's
products, whether produced in-house or obtained from others, are inspected to
ensure compliance with Company specifications. All finished products are
subjected to quality assurance and performance testing procedures by Company
personnel. Many of the raw materials included within the Company's products are
obtained from single source suppliers. Although the Company believes that
additional sources of supply for these materials are available, the inability in
the future to obtain sufficient supplies of these materials could result in
delays in product introductions or shipments which could have a material adverse
effect on the Company's operating results. The Company attempts, to the extent
possible, to ensure that adequate supplies are available to meet its
manufacturing needs.
The Company continues to reduce its dependence on outside suppliers and to
create competitive barriers to entry by developing or bringing in-house certain
proprietary manufacturing processes used in the production of the Company's
products. For example, in order to reduce its dependence on outside suppliers
for ePTFE material, a key material in the manufacture of the Perma-Flow Graft,
the Company has recently begun to manufacture this material itself. In addition,
the Company has developed a proprietary electrostatic spinning technology
necessary to manufacture the Perma-Seal Graft. The Company believes that its
know-how and trade secrets used in the manufacture of its products provide a
competitive advantage to the Company.
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The Company's facility consists of approximately 28,300 square feet,
containing 20,000 square feet of manufacturing space, of which 6,400 square feet
is clean manufacturing space. The facility is designed to comply with current
GMP as specified in published FDA regulations. The FDA's most recent unannounced
inspection took place in September 1993 and related to the manufacture of
pacemaker leads, and the FDA's report noted no material deficiencies. The
Company is also in the process of complying with ISO 9001 quality assurance
certification criteria for the standardization of manufacturing documentation
and processes and servicing. The ISO 9001 quality assurance standard has been
adopted as the EN 29001 standard in the European Union ("EU"). Although the
Company anticipates obtaining ISO 9001 certifications, it cannot predict when or
whether such certifications will ultimately be obtained.
MARKETING AND SALES
The Company expects to market its AngioJet System and graft products to
physician specialty groups, including vascular surgeons, cardiovascular and
thoracic surgeons, interventional radiologists and interventional cardiologists.
The Company will initially market the AngioJet System for peripheral arterial
and vascular graft thrombosis, targeting vascular surgeons and interventional
clinicians who perform PTA and other thrombectomy or lytic procedures. AngioJet
Systems for coronary applications will be marketed to interventional
cardiologists and cardiovascular surgeons. The primary customer for the
Perma-Flow Graft is expected to be the cardiovascular surgeon and thoracic
surgeon. The initial focus of the Company's marketing will be for use in
procedures involving patients having inadequate native vessels. The Perma-Seal
Graft will be marketed to vascular surgeons, who typically are the primary
decisionmakers with respect to the placement of vascular access grafts for
patients receiving dialysis for renal failure. The Company will also target
other clinicians influential in dialysis treatment selection, including
nephrologists, internists, and dialysis unit technicians.
Possis is currently marketing its AngioJet System and Perma-Flow Graft
outside the United States using an independent distributor network. The Company
has entered into distributorship agreements with six distributors covering
Belgium, Denmark, Germany, Greece, Italy, Luxembourg, The Netherlands, Norway,
Spain and Switzerland. The Company is also selling these products to
distributors covering Canada, France, Japan, and the United Kingdom. Generally,
the distributorship agreements are for a five-year term and provide that the
distributors, at their own expense, will investigate, negotiate and obtain
regulatory approvals for the Company's products in the specified territory.
Possis Medical Europe B.V., the Company's newly formed subsidiary in The
Netherlands, acts as a point of centralized warehousing and distribution in
Europe in order to enhance response time, efficiency and service to European
customers. All sales made to the Company's independent distributors will be
denominated in United States dollars.
The Company will begin commercial marketing of the AngioJet System and
Perma-Flow Graft in the United States following receipt of FDA marketing
authorization. The Company intends to market and distribute the AngioJet System
in the United States through a direct sales force and is evaluating distribution
channels for the Perma-Flow Graft.
The Company entered into a distribution agreement with Bard pursuant to
which the Company granted to Bard the exclusive worldwide right to market, sell
and distribute the Company's Perma-Seal Graft. Under the agreement, Bard agreed
to purchase the Perma-Seal Graft from the Company at certain transfer prices, to
purchase certain minimum quantities and to make certain milestone payments to
the Company relating to the commercialization of the product.
Promotional activities by the Company are designed primarily to enlist the
support of key medical opinion leaders in the United States and abroad. The
Company believes that sales to key opinion leaders in European countries will be
especially important to encourage broader acceptance of its products and will
give the Company experience in marketing its products prior to their
introduction in the United States. Other promotional activities may include
publishing analytical papers, making scientific symposium presentations and
conducting comparative clinical trials demonstrating the uses and effectiveness
of the Company's products.
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PATENTS, PATENT APPLICATIONS, LICENSES AND PROPRIETARY RIGHTS
The Company's success depends and will continue to depend in part on its
ability to maintain patent protection for products and processes, to preserve
its trade secrets and to operate without infringing the proprietary rights of
third parties. The Company's policy is to attempt to protect its technology by,
among other things, filing patent applications for technology that it considers
important to the development of its business. The Company currently holds five
United States patents and 18 foreign patents related to the Perma-Flow Graft and
has one patent application pending in the United States and one patent
application pending in a foreign jurisdiction. The Company also holds one United
States patent relating to the AngioJet System and a second United States patent
has been allowed which the Company expects to be issued in the near future. In
addition, the Company has 11 United States and 15 foreign patent applications
pending relating to the AngioJet System. In connection with the Perma-Seal
Graft, one United States patent is pending, one of the claims included in which
has been allowed, and four foreign patent applications are pending. The validity
and breadth of claims covered in medical technology patents involve complex
legal and factual questions and, therefore, may be highly uncertain. No
assurance can be given that the Company's pending applications will result in
patents being issued or, if issued, that such patents, or the Company's existing
patents, will provide a competitive advantage, or that competitors of the
Company will not design around any patents issued to the Company. The Company is
aware of one pending foreign patent application relating to a water jet system
for removing blood clots. Although the application was filed after the AngioJet
System patent application, no assurance can be given that such third party will
not receive a patent.
The Company has acquired rights through licensing agreements to patents
relating to processes used in the manufacture of the Perma-Seal Graft. Under
these agreements, Possis is required to pay certain annual fees and royalties
based on net sales of products using the technology covered by these patents.
The Company requires its employees having access to proprietary information
to execute non-disclosure agreements upon commencement of employment with the
Company. These agreements generally provide that all confidential information
developed or made known to the individual by the Company during the course of
the individual's employment with the Company is to be kept confidential and not
disclosed to third parties.
There can be no assurance that the Company's non-disclosure agreements and
other safeguards will protect its proprietary information and know-how or
provide adequate remedies for the Company in the event of unauthorized use or
disclosure of such information, or that others will not be able to independently
develop such information. There has been substantial litigation regarding patent
and other intellectual property rights in the medical device industry.
Litigation, which could result in substantial cost to and diversion of effort by
the Company, may be necessary to enforce patents issued to the Company, to
protect trade secrets or know-how owned by the Company, to defend the Company
against claimed infringement of the rights of others or to determine the
ownership, scope or validity of the proprietary rights of the Company and
others. An adverse determination in any such litigation could subject the
Company to significant liabilities to third parties, could require the Company
to seek licenses from third parties and could prevent the Company from
manufacturing, selling or using its products, any of which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
COMPETITION
The Company's products will compete with a number of different products and
methods of treatment for the conditions they address. The Company believes that
its AngioJet System will face intense competition from a variety of treatments
for the ablation and removal of blood clots, including thrombolytic drug
therapies, surgical intervention, balloon embolectomy, mechanical and laser
thrombectomy devices, ultrasound ablators, and other thrombectomy devices based
on waterjet systems that are currently being developed by other companies. It is
the Company's understanding that Cordis Corporation currently has a
waterjet-based thrombectomy system in early stage sales in Europe.
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The Company is not currently aware of any synthetic graft that will compete
with the Perma-Flow Graft and believes it is the first developer to obtain FDA
approval for clinical trials with a synthetic coronary bypass graft. The
Company's Perma-Seal Graft will compete with, among others, ePTFE grafts
manufactured by W.L. Gore and Associates and IMPRA, Inc., which currently have a
combined market share estimated by the Company to be in excess of 90%.
The medical products market is characterized by rapidly evolving technology
and intense competition. The future success of the Company will depend on its
ability to keep pace with advancing technology and competitive innovations. Many
potential competitors have significantly greater research and development
capabilities, experience in obtaining regulatory approvals and marketing, and
financial and managerial resources than the Company. Many potential competitors
have developed or are in the process of developing technologies that are, or in
the future may be, the basis for competitive products, some of which may employ
an entirely different approach or means of accomplishing the desired therapeutic
effect than products being developed by the Company.
GOVERNMENT REGULATION
Government regulation in the United States and other countries is a
significant factor in the development and marketing of the Company's products
and in the Company's ongoing manufacturing and research and development
activities. The Company and its products are regulated by the FDA under a number
of statutes, including the FDC Act.
Under the FDC Act, medical devices are classified into one of three classes
(i.e., Class I, II or III) on the basis of the controls deemed necessary to
reasonably ensure their safety and effectiveness. Class I devices are subject to
the least extensive controls, as the safety and effectiveness reasonably can be
assured through general controls (e.g., labeling, premarket notification and
adherence to GMP). For Class II devices, safety and effectiveness can be assured
through the use of special controls (e.g., performance standards, post market
surveillance, patient registries and FDA guidelines). Class III devices (i.e.,
life-sustaining or life-supporting implantable devices, or new devices which
have been found not to be substantially equivalent to legally marketed devices)
require the highest level of control, generally requiring premarket approval by
the FDA to ensure their safety and effectiveness.
If a manufacturer or distributor of medical devices can establish that a
proposed device is "substantially equivalent" to a legally marketed Class I or
Class II medical device or to a Class III medical device for which the FDA has
not required a PMA application, the manufacturer or distributor may seek FDA
marketing clearance for the device by filing a 510(k) notification. Following
submission of the 510(k) notification, the manufacturer or distributor may not
place the device into commercial distribution in the United States until an
order has been issued by the FDA. The FDA's target for issuing such orders is
within 90 days of submission, but the process can take significantly longer. The
order may declare the FDA's determination that the device is "substantially
equivalent" to another legally marketed device and allow the proposed device to
be marketed in the United States. The FDA may, however, determine that the
proposed device is not substantially equivalent or may require further
information, such as additional test data, before making a determination
regarding substantial equivalence. Any adverse determination or request for
additional information could delay market introduction and have a materially
adverse effect on the Company's continued operations.
If a manufacturer or distributor of medical devices cannot establish that a
proposed device is substantially equivalent to another device via the 510(k)
process, the manufacturer or distributor must seek PMA approval of the proposed
device. A PMA application must be submitted, supported by extensive data,
including preclinical and clinical trial data to prove the safety and efficacy
of the device. Generally, a company is required to obtain an IDE before it
commences clinical testing in the United States in support of such PMA. The FDA
monitors and oversees the use and distribution of such "research use only" and
"investigational use only" products. Although by statute the FDA has 180 days to
review a PMA application once it has been accepted for filing, during which time
an advisory committee may also evaluate the application and provide
recommendations to the FDA, PMA reviews often extend over a significantly
protracted time period, usually 12 to 24 months or longer
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from filing. Accordingly, there can be no assurance that FDA review of any PMA
application submitted by the Company will not encounter prolonged delays or that
the data collected and submitted by the Company in its PMA will support
approval.
Labeling and promotional activities are subject to scrutiny by the FDA and,
in certain instances, by the Federal Trade Commission. The FDA also imposes
post-marketing controls on the Company and its products, and registration,
listing, medical device reporting, post-market surveillance, device tracking and
other requirements on medical devices. Failure to meet these pervasive FDA
requirements or adverse FDA determinations regarding the Company's clinical and
preclinical trials could subject the Company and/or its employees to injunction,
prosecution, civil fines, seizure or recall of products, prohibition of sales or
suspension or withdrawal of any previously granted approvals.
The FDC Act regulates the Company's quality control and manufacturing
procedures by requiring the Company and its contract manufacturers to
demonstrate compliance with current GMP as specified in published FDA
regulations. The FDA monitors compliance with GMP by requiring manufacturers to
register with the FDA, which subjects them to periodic unannounced FDA
inspections of manufacturing facilities. If violations of applicable regulations
are noted during FDA inspections of the Company's manufacturing facilities or
the facilities of its contract manufacturers, the continued marketing of the
Company's products may be adversely affected. Such regulations are subject to
change and depend heavily on administrative interpretations. There can be no
assurance that future changes in regulations or interpretations made by the FDA
or other regulatory bodies, with possible retroactive effect, will not adversely
affect the Company.
The Company has complied with GMP requirements in the past and believes it
will be able to comply with all applicable regulations regarding the manufacture
and sale of medical devices.
Sales of medical devices outside of the United States are subject to United
States export requirements and foreign regulatory requirements. Export sales of
investigational devices that are subject to PMA requirements and have not
received FDA marketing clearance or approval generally are subject to FDA export
permit requirements under Section 801(e) of the FDC Act. In order to obtain such
a permit, the Company must provide the FDA with documentation from the medical
device regulatory authority of the country in which the purchaser is located,
stating that the sale of the device is not a violation of that country's medical
device laws. The Company has received permits to export its AngioJet System,
Perma-Flow Graft and Perma-Seal Graft to the Netherlands and Switzerland and
will use this authorization to transship to additional countries, an activity
that the FDA does not regulate. The Company may also seek additional approvals
to export its products directly into other countries. Legal restrictions on the
sale of imported medical devices vary from country to country. The time required
to obtain approval by a foreign country may be longer or shorter than that
required for FDA approval, and the requirements may differ. For countries in the
EU, in January 1995, CE Mark certification procedures became available for
medical devices, the successful completion of which would allow certified
devices to be placed on the market in all EU countries. After June 1998, medical
devices may not be sold in EU countries unless they display the CE Mark. There
can be no assurance that Possis will be able to obtain regulatory approvals or
clearances for its products in foreign countries.
EMPLOYEES
As of August 15, 1995, the Company had 104 full-time employees, one
part-time employee and four contract employees. Of these full-time employees, 29
are in research and development (including regulatory and clinical), 39 are in
manufacturing and production, 16 are in quality assurance, four are in
facilities/maintenance, and 16 are in management or administrative positions.
None of the Company's employees is covered by a collective bargaining agreement,
and management considers its relations with its employees to be good.
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FACILITIES
The Company leases approximately 28,300 square feet of office and
manufacturing space (including 6,400 square feet of clean manufacturing space)
at 2905 Northwest Boulevard, Minneapolis, Minnesota 55441-2644. The Company is
currently negotiating an extension of this lease which expires in August 1996.
See Note 8 of Notes to Consolidated Financial Statements.
MANAGEMENT
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------- --- -------------------------------------------------------
<S> <C> <C>
Robert G. Dutcher 50 Chief Executive Officer, President and Director
Russel E. Carlson 49 Vice President, Finance and Chief Financial
Officer
William J. Drasler 46 Vice President, Research and Development
Robert J. Scott 50 Vice President, Manufacturing Operations
James D. Gustafson 39 Vice President, Quality Assurance and
Regulatory/Clinical Affairs
Joseph J. Afryl, Jr. 47 Vice President, Sales and Marketing
Irving R. Colacci 42 Vice President, Legal Affairs and Human
Resources, General Counsel and Secretary
Donald C. Wegmiller 57 Chairman of the Board
Joe A. Walters 75 Director
Dean Belbas 63 Director
Seymour J. Mansfield 50 Director
Demetre M. Nicoloff, M.D. 62 Director
Ann M. Possis 35 Director
</TABLE>
ROBERT G. DUTCHER served as Executive Vice President of the Company from
June 1992 until October 1993 and has served as President, Chief Executive
Officer and a director of the Company since October 1993 and as President and
Chief Operating Officer of Possis Holdings, Inc. (a subsidiary formerly known as
Possis Medical, Inc.) since 1987. Prior to joining the Company, Mr. Dutcher had
served in several positions (most recently as Director of Research and
Development) at Medtronic, Inc. since 1972. Mr. Dutcher received a master's
degree in biomedical engineering from the University of Minnesota.
RUSSEL E. CARLSON joined the Company in September 1991 and has served as
Vice President and Chief Financial Officer of the Company since June 1992. Prior
to joining the Company, Mr. Carlson had been Chief Financial Officer of
SpectraScience, Inc. (formerly GV Medical, Inc.), a Minneapolis, Minnesota
medical device company, since September 1989 and had served in several financial
management positions with The Pillsbury Company, a food manufacturer and
processor, since 1972.
WILLIAM J. DRASLER has served as Vice President of the Company since
December 1993 and as Vice President of Research and Development and Director of
New Product Development of Possis Holdings, Inc. since 1986. Prior to joining
the Company, Mr. Drasler had served as an engineering and program manager at
SciMed Life Systems, Inc. since 1983. Mr. Drasler received a Ph.D. in biomedical
engineering and a M.S. in chemical engineering from the University of Minnesota.
ROBERT J. SCOTT has served as Vice President of the Company since December
1993 and as Vice President of Manufacturing Operations of Possis Holdings, Inc.
since 1988 and was Director of Manufacturing Operations for Possis Holdings,
Inc. from 1984 through 1988. Prior to joining the
26
<PAGE>
Company, Mr. Scott had served as a consultant to various medical and nonmedical
manufacturing companies and as Manufacturing Manager for Aequitron Medical, Inc.
and Resistance Technology Incorporated and in various positions for Daig
Corporation and Medtronic, Inc.
JAMES D. GUSTAFSON has served as a Vice President of the Company since
January 1, 1994 and has been Director of Quality Assurance and
Regulatory/Clinical Affairs for Possis Holdings, Inc. since June 1993. Prior to
joining the Company, Mr. Gustafson had served as a Manager of Clinical and
Regulatory Affairs and of Clinical Programs at St. Jude Medical, Inc., a medical
device manufacturer, since June 1989, and as a Senior Clinical Scientist at
Shiley, Inc., Irvine, California, since March 1985. Mr. Gustafson received a
master's degree in management from University of Redlands and a master's degree
in biology from the University of California at Irvine.
JOSEPH J. AFRYL, JR. has served as Vice President of the Company since April
1994. Prior to joining the Company, Mr. Afryl served as Vice President of Sales
and Marketing for Bio-Vascular, Inc. from July 1992 to March 1994, as Director
of Sales for Angeion Corporation from September 1991 through July 1992, and as
Director of Marketing at St. Jude Medical, Inc. from May 1987 to September 1991.
Each of these companies is a manufacturer of medical devices.
IRVING R. COLACCI has served as Secretary and Corporate Counsel of the
Company since July 1988 and as Vice President and General Counsel since December
1993. Prior to joining the Company, Mr. Colacci had been an attorney at Dorsey &
Whitney P.L.L.P.
DONALD C. WEGMILLER has served as a director since 1987 and became Chairman
in October 1993. Since April 1993, Mr. Wegmiller has served as President and
Chief Executive Officer of Management Compensation Group/Health Care, a
consulting firm specializing in compensation and benefits for health care
executives and physicians. From May 1987 until April 1993, Mr. Wegmiller was
President and CEO of Health One Corporation, Minneapolis, Minnesota. He
currently serves as a director of Minnesota Power & Light Company, HBO & Co.,
Medical Graphics Corporation, LifeRate Systems Inc. and InPhyNet Medical
Management Co. From 1986 to 1988, Mr. Wegmiller served as Chairman of the Board
of the American Hospital Association. From 1972 to 1976, Mr. Wegmiller served as
a White House staff assistant to Presidents Nixon and Ford.
JOE A. WALTERS has served as a director since 1960. Mr. Walters is a partner
in the law firm of O'Connor & Hannan, Minneapolis, Minnesota, which has
performed legal services for the Company from time to time.
DEAN BELBAS has served as a director since 1985. Mr. Belbas currently serves
as Senior Vice President, Investor Relations of General Mills, Inc., a
Minneapolis, Minnesota, food manufacturer and processor. For more than five
years prior to his appointment to such position in January 1993, Mr. Belbas had
served as Vice President and Director of Corporate Communications for General
Mills, Inc.
SEYMOUR J. MANSFIELD has served as a director since 1987. Mr. Mansfield is
currently a shareholder in the law firm of Mansfield & Tanick, P.A.,
Minneapolis, Minnesota, and performs legal services for the Company from time to
time. From 1982 until the formation of Mansfield & Tanick, P.A., he was an
attorney with the law firm of S. J. Mansfield & Associates, Minneapolis,
Minnesota.
DEMETRE M. NICOLOFF, M.D. has served as a director since 1991. Dr. Nicoloff
has been a cardiac surgeon with and Vice President of Cardiac Surgical
Associates P.A. in Minneapolis, Minnesota, since 1982 and serves as a director
of Micromedics, Inc. and Optical Sensors for Medicine.
ANN M. POSSIS was appointed as a director in December 1993. Ms. Possis is
currently the Director of Development for the Voyageur Outward Bound School, a
position she has held since April 1995. From 1992 to April 1995, she was a
Development Associate for Planned Parenthood of Minnesota. From April 1983
through October 1991, Ms. Possis held a variety of sales and marketing positions
with West Publishing Company. Ms. Possis is the daughter of Z.C. Possis, the
Company's former Chairman and Chief Executive Officer.
27
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth, as of August 1, 1995, and as adjusted to
reflect the sale of the shares of Common Stock in this offering, certain
information with respect to the beneficial ownership of the Company's Common
Stock by (i) each person known by the Company to be the beneficial owner of 5%
or more of the outstanding shares of Common Stock, (ii) each director of the
Company, (iii) each of the Company's current shareholders who is expected to
sell shares in this offering (the "Selling Shareholders"), and (iv) by all
directors and executive officers as a group. Unless otherwise indicated, the
person or entity listed in the table is the beneficial owner of the shares and
has sole voting and investment power with respect to the shares indicated.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES SHARES BENEFICIALLY
OWNED PRIOR TO OFFERING BEING OWNED AFTER OFFERING
------------------------ OFFERED ------------------------
NAME NUMBER PERCENT FOR SALE NUMBER PERCENT
- ------------------------------------------ ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
The Possis Marital Trust (1).............. 454,653 4.6% 125,000 329,653 2.8%
Demetre M. Nicoloff, M.D. (2)............. 470,610 4.7 20,000 450,610 3.8
Seymour J. Mansfield (3).................. 165,212 1.7 10,000 155,212 1.3
Robert G. Dutcher (4)..................... 131,746 1.3 -- 131,746 1.1
Ann M. Possis (5)......................... 97,250 * 5,000 92,250 *
Joe A. Walters (4)........................ 55,283 * -- 55,283 *
Dean Belbas (4)........................... 48,753 * -- 48,753 *
Donald C. Wegmiller (4)................... 39,927 * -- 39,927 *
All directors and officers as a
group (13 persons)(2)(3)(5)(6)........... 1,235,779 11.8 35,000 1,200,779 11.5
<FN>
- ------------------------
* Less than 1%.
(1) Includes 364,003 shares held directly by the Possis Marital Trust (the
"Trust"), 70,400 shares held by Mary Possis, a co-trustee of the Trust, and
20,250 shares issuable upon exercise of currently exercisable options
granted to Z.C. Possis, former chairman and chief executive officer of the
Company. Does not include 92,000 shares beneficially held by Ann M. Possis,
who is a co-trustee of the Trust and a director of the Company. The shares
of Common Stock to be sold by the Selling Shareholder in this offering are
held by the Trust. The address of the Trust is 601 Second Avenue South,
P.O. Box A55, Minneapolis, Minnesota 55480.
(2) Includes 143,000 shares held for the benefit of Dr. Nicoloff's children and
9,075 shares issuable upon exercise of currently exercisable options. Dr.
Nicoloff's address is 920 East 28th Street, Minneapolis, Minnesota 55407.
(3) Includes 11,000 shares held by Mr. Mansfield's minor children and 35,260
shares issuable upon exercise of currently exercisable options. Mr.
Mansfield's address is 1560 International Center, 900 Second Avenue South,
Minneapolis, Minnesota 55402.
(4) Includes the following shares issuable upon exercise of currently
exercisable options: 105,250 for Mr. Dutcher, 27,306 for Mr. Walters,
39,353 for Mr. Belbas and 39,927 for Mr. Wegmiller.
(5) Includes 4,500 shares held of record by Ms. Possis' spouse and 750 shares
issuable upon exercise of currently exercisable options. Does not include
shares held by the Possis Trust, of which Ms. Possis is a co-trustee, or by
Mary Possis, mother of Ann Possis. Ms. Possis' address is 2790 Dean
Parkway, Minneapolis, Minnesota 55416.
(6) Includes 459,797 shares issuable upon exercise of currently exercisable
options.
</TABLE>
28
<PAGE>
DESCRIPTION OF COMMON STOCK
The description contained herein of the Common Stock is qualified in its
entirety by reference to the Company's Articles of Incorporation, as restated
and amended to date, and the Minnesota Business Corporation Act.
COMMON STOCK
The Company's authorized capital stock consists of 20,000,000 common shares,
$.40 par value, of which 9,970,781 were issued and outstanding as of the date of
this Prospectus.
The holders of shares of Common Stock are entitled to one vote per share on
all matters subject to shareholder action. The holders of shares of Common Stock
are entitled to receive such dividends, if any, as may be declared by the Board
of Directors out of funds legally available therefor. See "Dividend Policy."
Upon any liquidation or dissolution of the Company, the holders of Common
Stock are entitled to share, pro rata, in any distribution of the Company's
assets to shareholders. No preemptive, conversion, redemption, or sinking fund
rights are applicable to the Common Stock. All of the outstanding shares of
Common Stock are, and all shares of Common Stock to be outstanding upon
completion of this offering will be, fully paid and nonassessable.
CERTAIN PROVISIONS OF MINNESOTA BUSINESS CORPORATION ACT
Section 302A.671 of the Minnesota Business Corporation Act (the "Minnesota
Act") applies, with certain exceptions, to any acquisition of voting stock of
the Company from a person other than the Company, and other than in connection
with certain mergers and exchanges to which the Company is a party, that results
in the beneficial ownership by the acquiring party of 20% or more of the
Company's voting stock then outstanding. Under Section 302A.671 any such
acquisition must be approved by a majority vote of the shareholders of the
Company. In general, in the absence of such approval, shares exceeding the
threshold are denied voting rights and may be redeemed by the Company at their
then fair market value within 30 days after the acquiring person fails to give a
timely information statement to the Company or after the date the shareholders
vote not to grant voting rights to the acquiring person's shares.
Section 302A.673 of the Minnesota Act generally prohibits any business
combination by the Company, or any subsidiary of the Company, with any
shareholder that purchases 10% or more of the Company's voting shares (an
"interested shareholder") within four years following such interested
shareholder's share acquisition date, unless the business combination is
approved by a committee of all of the disinterested members of the Board of
Directors of the Company before the interested shareholder's share acquisition
date.
Under certain circumstances, these statutory provisions could delay or
prevent a change in control of the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is Norwest
Bank Minnesota, N.A.
29
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), for whom Dain Bosworth
Incorporated and John G. Kinnard and Company, Incorporated are acting as the
representatives (the "Representatives"), have severally agreed to purchase an
aggregate of 1,910,000 shares of Common Stock from the Company and the Selling
Shareholders at the Price to Public set forth on the cover page of this
Prospectus, less underwriting discounts and commissions in the amounts set forth
opposite their respective names below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ------------------------------------------------------------------------------------------- -----------
<S> <C>
Dain Bosworth Incorporated................................................................. 640,000
John G. Kinnard and Company, Incorporated.................................................. 640,000
Bear, Stearns & Co. Inc.................................................................... 40,000
Alex. Brown & Sons Incorporated............................................................ 40,000
Hambrecht & Quist LLC...................................................................... 40,000
Lehman Brothers Inc........................................................................ 40,000
UBS Securities Inc......................................................................... 40,000
Rauscher Pierce Refsnes, Inc............................................................... 40,000
Robert W. Baird & Co. Incorporated......................................................... 30,000
Cowen & Company............................................................................ 30,000
Furman Selz Incorporated................................................................... 30,000
Gerard Klauer Mattison & Co. LLC........................................................... 30,000
Hanifen, Imhoff Inc........................................................................ 30,000
Janney Montgomery Scott Inc................................................................ 30,000
McDonald & Company Securities, Inc......................................................... 30,000
Piper Jaffray Inc. ........................................................................ 30,000
Principal Financial Securities, Inc........................................................ 30,000
Raymond James & Associates, Inc. .......................................................... 30,000
Vector Securities International, Inc....................................................... 30,000
Wedbush Morgan Securities.................................................................. 30,000
Wessels, Arnold & Henderson................................................................ 30,000
-----------
Total.................................................................................. 1,910,000
-----------
-----------
</TABLE>
The Underwriting Agreement provides that the Underwriters' obligations are
subject to conditions precedent and that the Underwriters are committed to
purchase all shares of Common Stock offered hereby (other than those covered by
the over-allotment option described below) if the Underwriters purchase any
shares. The Representatives have advised the Company and the Selling
Shareholders that the several Underwriters may offer the shares of Common Stock
directly to the public at the price to public set forth on the cover page of
this Prospectus and to certain dealers at the price to public less a concession
not exceeding $0.50 per share. The Underwriters may allow, and such dealers may
reallow, a concession not exceeding $0.10 per share to other dealers. After the
shares of Common Stock are released for sale to the public, the Representatives
may change the initial price to public and other selling terms.
The Company has granted to the Underwriters an option, exercisable for 30
days after the date of this Prospectus, to purchase up to an aggregate of
286,500 additional shares of the Common Stock, at the same price per share as
the initial shares. The Underwriters may purchase these shares solely to cover
over-allotments, if any, in connection with the sale of Common Stock offered
hereby. If the Underwriters exercise the over-allotment option, the Underwriters
will be obligated, subject to certain conditions, to purchase additional shares
in approximately the same proportion as those in the above table.
The Underwriting Agreement provides that the Company, the Selling
Shareholders and the Underwriters will indemnify each other against certain
liabilities, including liabilities under the Act.
30
<PAGE>
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.
The Company and all of its current officers, directors and the Selling
Shareholders have agreed not to offer, sell or otherwise dispose of any shares
of Common Stock for a period of 90 days after the date of this Prospectus
without the prior written consent of the Representatives.
John G. Kinnard and Company, Incorporated served as the representative of
the several underwriters in the Company's public offering of an aggregate of
1,552,500 shares of Common Stock in September 1994 for which it received
customary compensation, including the receipt of warrants to purchase 120,000
shares of Common Stock.
In connection with this offering, certain Underwriters and selling group
members who are qualified registered market makers on The Nasdaq National Market
may engage in passive market making transactions in the Common Stock of the
Company on The Nasdaq National Market in accordance with Rule 10b-6A under the
Exchange Act during the two business day period before commencement of offers or
sales of the Common Stock. The passive market making transactions must comply
with applicable volume and price limits and be identified as such. In general, a
passive market maker may display its bid at a price not in excess of the highest
independent bid for the Common Stock; if all independent bids are lowered below
the passive market maker's bid, however, such bid must then be lowered when
certain purchase limits are exceeded.
The foregoing is a brief summary of the provisions of the Underwriting
Agreement and does not purport to be a complete statement of its terms and
conditions. The Underwriting Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby is being passed
upon for the Company by Dorsey & Whitney P.L.L.P., Minneapolis, Minnesota.
Certain legal matters are being passed upon for the Underwriters by Popham,
Haik, Schnobrich & Kaufman, Ltd., Minneapolis, Minnesota.
EXPERTS
The consolidated financial statements of the Company as of July 31, 1994 and
1995 and for each of the three years in the period ended July 31, 1995, included
and incorporated by reference in this Prospectus, have been audited by Deloitte
& Touche LLP, independent auditors, as stated in their reports which are
included and incorporated by reference herein, and have been so included and
incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
31
<PAGE>
POSSIS MEDICAL, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Independent Auditors' Report............................................................................... F-2
Consolidated Balance Sheets as of July 31, 1994 and 1995................................................... F-3
Consolidated Statements of Operations for the years ended July 31, 1993, 1994 and 1995..................... F-4
Consolidated Statements of Shareholders' Equity for the years ended July 31, 1993, 1994 and 1995........... F-5
Consolidated Statements of Cash Flows for the years ended July 31, 1993, 1994 and 1995..................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Possis Medical, Inc. (formerly
Possis Corporation):
We have audited the accompanying consolidated balance sheets of Possis
Medical, Inc. and its subsidiaries (the Company) as of July 31, 1994 and 1995
and the related consolidated statements of operations, cash flows, and changes
in shareholders' equity for each of the three years in the period ended July 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Possis Medical, Inc. and its
subsidiaries as of July 31, 1994 and 1995 and the results of its operations and
its cash flows for each of the three years in the period ended July 31, 1995 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
August 28, 1995
F-2
<PAGE>
POSSIS MEDICAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JULY 31,
---------------------------
1994 1995
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Notes 1 and 8)............... $ 1,769,348 $ 5,450,057
Marketable securities (Note 1).......................... -- 1,270,654
Receivables:
Trade (less allowance for doubtful accounts:
$30,000 and $10,000, respectively).................. 45,706 14,976
St. Jude Medical, Inc. (Note 6)....................... 2,930,158 --
Jet Edge (less allowance for doubtful accounts
$90,000 and $17,019) (Note 2)....................... 215,160 --
Notes receivable (Note 2)............................. 123,918 123,918
Other................................................. 385,798 204,297
Inventories: (Note 1)
Parts................................................. 471,943 489,418
Work-in-progress...................................... 482,181 427,495
Finished goods........................................ 89,500 94,101
Prepaid expenses and other assets....................... 309,629 191,535
------------ ------------
Total current assets................................ 6,823,341 8,266,451
------------ ------------
PROPERTY (Notes 1, 2 and 3):
Leasehold improvements.................................. 160,069 175,556
Machinery and equipment................................. 2,041,873 2,287,755
Assets in construction.................................. 83,305 300,377
------------ ------------
2,285,247 2,763,688
Less accumulated depreciation........................... (1,017,013) (1,303,021)
------------ ------------
Property -- net....................................... 1,268,234 1,460,667
------------ ------------
OTHER ASSETS:
Goodwill (Note 1)....................................... 557,922 485,922
Notes receivable (Note 2)............................... 232,071 108,153
------------ ------------
$ 8,881,568 $ 10,321,193
------------ ------------
------------ ------------
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C> <C>
CURRENT LIABILITIES:
Trade accounts payable.................................. $ 115,359 $ 159,365
Accrued liabilities:
Related parties (Note 6).............................. 1,062,182 --
Salaries, wages and commissions....................... 622,982 693,402
Warranty reserve...................................... 30,000 --
Current portion of long-term debt (Note 3).............. 574,366 82,925
Other liabilities (Note 3).............................. 411,016 484,597
------------ ------------
Total current liabilities........................... 2,815,905 1,420,289
------------ ------------
DEFERRED REVENUE (Note 2)................................. 246,828 132,912
LONG-TERM DEBT (Note 3)................................... 80,370 92,955
OTHER LIABILITIES......................................... 54,760 27,380
COMMITMENTS AND CONTINGENCIES (Note 8).................... -- --
SHAREHOLDERS' EQUITY (Note 5):
Common stock -- authorized, 20,000,000 shares of $.40
par value each; issued and outstanding, 8,456,252 and
9,970,031, respectively................................ 3,382,501 3,988,013
Additional paid-in capital.............................. 7,180,089 14,201,925
Unearned compensation................................... (118,836) (50,387)
Retained deficit........................................ (4,760,049) (9,491,894)
------------ ------------
Total shareholders' equity.......................... 5,683,705 8,647,657
------------ ------------
$ 8,881,568 $ 10,321,193
------------ ------------
------------ ------------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
POSSIS MEDICAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
----------------------------------------------
1993 1994 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Revenues
Medical products (Notes 9 and 10)............................... $ 5,169,100 $ 3,140,335 $ 229,984
Net heart valve patent payments (Note 6)........................ 3,172,602 2,998,091 1,817,388
Royalty payments relating to pacemaker lead
business (Note 11)............................................. -- 176,292 410,118
Sales agreement revenue (Note 13)............................... -- -- 750,000
Gain on sale of pacemaker lead business (Note 11)............... -- 647,816 --
Gain on sale of real estate (Note 12)........................... -- 957,573 --
Other, primarily interest....................................... 92,971 85,397 413,628
-------------- -------------- --------------
Total revenues.............................................. 8,434,673 8,005,504 3,621,118
-------------- -------------- --------------
Cost of sales and other expenses
Cost of medical products........................................ 2,734,644 3,675,461 3,334,589
Selling, general and administrative............................. 2,124,767 1,706,420 2,118,183
Research and development (Note 9)............................... 3,613,050 3,745,762 3,297,524
Interest........................................................ 142,992 124,104 23,568
-------------- -------------- --------------
Total cost of sales and other expenses...................... 8,615,453 9,251,747 8,773,864
-------------- -------------- --------------
Loss from continuing operations................................... (180,780) (1,246,243) (5,152,746)
Income (loss) from discontinued operations, including gain (loss)
on disposal -- net (Note 2)...................................... (1,330,884) 523,504 420,901
-------------- -------------- --------------
Net loss.......................................................... $ (1,511,664) $ (722,739) $ (4,731,845)
-------------- -------------- --------------
-------------- -------------- --------------
Weighted average number of common shares outstanding.............. 8,361,347 8,435,818 9,726,105
-------------- -------------- --------------
-------------- -------------- --------------
Earnings (loss) per common share
Continuing operations........................................... $ (.02) $ (.15) $ (.53)
Discontinued operations......................................... (.16) .06 .04
-------------- -------------- --------------
Net............................................................... $ (.18) $ (.09) $ (.49)
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
POSSIS MEDICAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------------- PAID-IN UNEARNED RETAINED
SHARES AMOUNT CAPITAL COMPENSATION DEFICIT
--------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, JULY 31, 1992............................ 8,256,297 $3,302,519 $6,191,707 $ -- $(2,525,646)
Employee stock purchase plan.................... 14,996 5,998 113,520 -- --
Stock options issued to directors (Note 5)...... -- -- 26,747 -- --
Stock options and warrants exercised............ 105,793 42,317 323,264 -- --
Stock grants and amortization (Note 5).......... 42,717 17,087 257,182 (295,668) --
Net loss........................................ -- -- -- -- (1,511,664)
--------- ---------- ---------- ----------- -----------
BALANCE, JULY 31, 1993............................ 8,419,803 3,367,921 6,912,420 (295,668) (4,037,310)
Employee stock purchase plan.................... 16,019 6,408 95,714 -- --
Stock options issued to directors (Note 5)...... -- -- 62,100 -- --
Stock options exercised......................... 20,430 8,172 109,855 -- --
Unearned stock compensation amortization........ -- -- -- 176,832 --
Net loss........................................ -- -- -- -- (722,739)
--------- ---------- ---------- ----------- -----------
BALANCE, JULY 31, 1994............................ 8,456,252 3,382,501 7,180,089 (118,836) (4,760,049)
Employee stock purchase plan.................... 10,932 4,373 65,319 -- --
Stock options issued to directors (Note 5)...... -- -- 44,849 -- --
Stock options exercised......................... 147,000 58,800 640,021 -- --
Stock retired................................... (58,281) (23,312) (378,229) -- --
Stock bonus..................................... 11,628 4,651 59,303 -- --
Stock offering.................................. 1,402,500 561,000 6,590,573 -- --
Unearned stock
compensation amortization..................... -- -- -- 68,449 --
Net loss........................................ -- -- -- -- (4,731,845)
--------- ---------- ---------- ----------- -----------
BALANCE, JULY 31, 1995............................ 9,970,031 $3,988,013 $14,201,925 $ (50,387) $(9,491,894)
--------- ---------- ---------- ----------- -----------
--------- ---------- ---------- ----------- -----------
<CAPTION>
TOTAL
--------------------
<S> <C>
BALANCE, JULY 31, 1992............................ $ 6,968,580
Employee stock purchase plan.................... 119,518
Stock options issued to directors (Note 5)...... 26,747
Stock options and warrants exercised............ 365,581
Stock grants and amortization (Note 5).......... (21,399)
Net loss........................................ (1,511,664)
--------------------
BALANCE, JULY 31, 1993............................ 5,947,363
Employee stock purchase plan.................... 102,122
Stock options issued to directors (Note 5)...... 62,100
Stock options exercised......................... 118,027
Unearned stock compensation amortization........ 176,832
Net loss........................................ (722,739)
--------------------
BALANCE, JULY 31, 1994............................ 5,683,705
Employee stock purchase plan.................... 69,692
Stock options issued to directors (Note 5)...... 44,849
Stock options exercised......................... 698,821
Stock retired................................... (401,541)
Stock bonus..................................... 63,954
Stock offering.................................. 7,151,573
Unearned stock
compensation amortization..................... 68,449
Net loss........................................ (4,731,845)
--------------------
BALANCE, JULY 31, 1995............................ $ 8,647,657
--------------------
--------------------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
POSSIS MEDICAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDING JULY 31,
-----------------------------------------------
1993 1994 1995
-------------- -------------- ---------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss........................................................... $ (1,511,664) $ (722,739) $ (4,731,845)
Adjustments to reconcile net loss to net cash used in operating
activities:
Gain on sale of discontinued operations.......................... -- (68,123) --
(Gain) loss on disposal of assets................................ (43,936) 245 5,631
Gain on sale of lead business.................................... -- (647,816) --
Gain on sale of real estate...................................... -- (957,573) --
Depreciation..................................................... 509,891 353,584 361,024
Amortization of goodwill......................................... 72,000 72,000 72,000
Stock compensation............................................... 165,206 238,930 113,298
(Increase) decrease in receivables............................... (443,618) 1,537,092 3,157,870
(Increase) decrease in inventories............................... (426,270) (18,722) 32,610
(Increase) decrease in other current assets...................... (16,023) (159,734) 56,493
Increase (decrease) in trade accounts payable.................... 226,483 (457,786) 44,006
Increase (decrease) in accrued and other current liabilities..... 1,150,138 (367,340) (1,059,792)
Other............................................................ (172,121) -- --
-------------- -------------- ---------------
Net cash used in operating activities.......................... (489,914) (1,197,982) (1,948,705)
-------------- -------------- ---------------
INVESTING ACTIVITIES:
Proceeds from sale of discontinued operations...................... 150,000 1,111,792 349,679
Additions to plant and equipment................................... (578,576) (553,506) (561,817)
Proceeds from sale of fixed assets................................. 85,000 430 2,728
Proceeds upon disposal of real estate.............................. -- 1,200,000 --
Proceeds upon sale of lead business................................ -- 1,100,000 --
Purchase of marketable securities.................................. -- -- (11,431,373)
Proceeds from sale/maturity of marketable securities............... -- -- 10,160,719
-------------- -------------- ---------------
Net cash provided by (used in) investing activities............ (343,576) 2,858,716 (1,480,064)
-------------- -------------- ---------------
FINANCING ACTIVITIES:
Proceeds from notes payable........................................ -- 143,928 115,673
Repayment of long-term debt........................................ (31,091) (803,136) (594,530)
Proceeds from issuance of stock and exercise of options and
warrants.......................................................... 485,099 198,988 7,588,335
-------------- -------------- ---------------
Net cash provided by (used in) financing activities............ 454,008 (460,220) 7,109,478
-------------- -------------- ---------------
Increase (decrease) in cash and cash equivalents............... (379,482) 1,200,514 3,680,709
CASH AND CASH EQUIVALENTS at beginning of period..................... 948,316 568,834 1,769,348
-------------- -------------- ---------------
CASH AND CASH EQUIVALENTS at end of period........................... $ 568,834 $ 1,769,348 $ 5,450,057
-------------- -------------- ---------------
-------------- -------------- ---------------
Supplemental cash flow disclosure:
Cash paid for interest............................................. $ 131,408 $ 130,313 $ 23,568
Inventory transferred to fixed assets.............................. -- 21,298 30,473
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
POSSIS MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Possis Medical, Inc. (the Company, formerly Possis Corporation) and its
wholly-owned subsidiaries, Possis Holdings, Inc; JEI Liquidation, Inc. (Jet
Edge) (Note 2) and Possis Medical Europe B.V., after elimination of intercompany
accounts and transactions.
Possis Medical, Inc. is a developer, manufacturer and marketer of medical
devices. The Company was incorporated in 1956 and has operated several
businesses over the last 39 years. In 1990 the Board of Directors decided to
focus on medical products, which led to the sale of the Technical Services
Division in 1991 and the Jet Edge industrial waterjet business in 1994. In March
1994 the Company sold its pacemaker lead business because it anticipated that
revenues from this business would decline due to a pacemaker lead technology
shift. The name of the Company was changed to Possis Medical, Inc. in 1993. In
January 1995, the Company established a 100% owned subsidiary (Possis Medical
Europe B.V.) in The Netherlands to support international product distribution.
INVENTORIES
Inventories are stated at the lower of cost (on the first-in, first-out
basis) or market.
PROPERTY, DEPRECIATION AND AMORTIZATION
Property is carried at cost and depreciated using the straight-line method
over estimated useful lives of the assets at the following annual rates:
<TABLE>
<S> <C>
Building........................................... 3-10%
Machinery and equipment............................ 10-25%
</TABLE>
GOODWILL
Goodwill is being amortized on a straight-line basis over 13 1/2 years,
based on the remaining life of patent rights related to the
Perma-Flow-Registered Trademark- Graft acquired in 1988. Accumulated
amortization at July 31, 1994 and 1995 was $429,500 and $501,500, respectively.
INCOME TAXES
The Company accounts for income taxes under the Statement of Financial
Accounting Standard ("SFAS") No. 109 "Accounting for Income Taxes." Certain
items are accounted for tax purposes in a different period than for financial
statement purposes.
REVENUE RECOGNITION
Revenue associated with medical products sales is recognized when products
are shipped. Heart valve patent revenue and royalty payments related to the
pacemaker lead business sale were accrued based on estimated sales of the
companies making the royalty payments.
EARNINGS (LOSS) PER SHARE
The Company's outstanding stock options and stock warrants are not
considered in the computation of earnings per share because the impact would be
antidilutive because of the net loss. The difference between primary and fully
diluted earnings per share was not significant in any period.
CASH EQUIVALENTS
The Company considers highly liquid investments with original maturities of
three months or less to be cash equivalents.
F-7
<PAGE>
POSSIS MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
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 July 31, 1995 are classified as available-for-sale and
carried at fair value. There was no material difference between amortized cost
and fair value for the marketable securities at adoption or at July 31, 1995.
2. DISCONTINUED OPERATIONS
WATERJET EQUIPMENT
In April 1993, the Company decided to discontinue its waterjet equipment
business (Jet Edge). A reserve of $850,000 for the estimated loss on disposal of
Jet Edge was established at July 31, 1993. The business was sold on January 28,
1994 to TC/American Monorail, Inc. Under the terms of the sale, the Company
received $963,000 for certain inventory and fixed assets. The sale resulted in a
book gain of approximately $68,000. The Company retained all liabilities and the
right to all proceeds from the collection of the accounts receivable.
No assets or liabilities of the waterjet business remain as of July 31,
1995. A summary of the assets and liabilities at July 31, 1994 is as follows:
<TABLE>
<S> <C>
Receivables, net......................................... $ 215,160
Accrued liabilities...................................... 30,000
---------
Net...................................................... $ 185,160
---------
---------
</TABLE>
TECHNICAL SERVICES
On September 29, 1991, the Company sold its Technical Services Division to
Advance Technical Services, Inc. (ATS) which is 51% owned by a former officer of
the Company. Under the terms of the sale, the Company received approximately
$550,000 in cash and a note of $250,000 for the net assets of the business and
realized a gain of $66,517. In addition, the Company will receive a percentage
of ATS's annual revenues in excess of a specified amount for a five-year period,
up to a maximum of $2,000,000. These amounts are recognized as income when
received or when collection is reasonably assured. As part of the sale, the
Company also received $200,000 in cash and a note of $500,000 for an agreement
not to compete for a five-year period; income from this agreement is recognized
ratably over the period of the agreement.
Notes receivable related to the Technical Services Division at July 31, 1994
and 1995 are as follows:
<TABLE>
<CAPTION>
1994 1995
------------ ------------
<S> <C> <C>
9% note receivable, due in 20 quarterly installments of principal
and interest through October 1, 1996............................. $ 112,500 $ 62,500
Note receivable, no interest, principal due in five equal annual
installments on October 1, 1992 through October 1, 1996.......... 300,000 200,000
Discount on noninterest bearing note (amortized over the term of
the note)........................................................ (56,511) (30,429)
------------ ------------
355,989 232,071
Less current portion.............................................. (123,918) (123,918)
------------ ------------
$ 232,071 $ 108,153
------------ ------------
------------ ------------
</TABLE>
F-8
<PAGE>
POSSIS MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. DISCONTINUED OPERATIONS (CONTINUED):
OPERATING RESULTS FROM DISCONTINUED OPERATIONS
Operating results of the waterjet equipment business and Technical Services
Division were as follows for the years ended July 31, 1993, 1994 and 1995:
<TABLE>
<CAPTION>
1993 1994 1995
-------------- ------------- -----------
<S> <C> <C> <C>
Sales................................................................. $ 5,525,106 $ 3,400,170 $ --
-------------- ------------- -----------
-------------- ------------- -----------
Income (loss) from operations......................................... $ (221,923) $ 142,259 $ 87,306
Amortization of not-to-compete agreement.............................. 113,916 113,916 113,916
Percentage of ATS's revenues.......................................... 188,279 199,206 219,679
-------------- ------------- -----------
Income before income taxes............................................ 80,272 455,381 420,901
Gain or estimated (loss) on disposal, including, for Jet Edge,
provision for estimated losses from measurement date to date of
disposal............................................................. (1,411,156) 68,123 --
-------------- ------------- -----------
Net income (loss)..................................................... $ (1,330,884) $ 523,504 $ 420,901
-------------- ------------- -----------
-------------- ------------- -----------
</TABLE>
3. OTHER CURRENT LIABILITIES AND LONG-TERM DEBT
Other current liabilities at July 31, 1994 and 1995 are as follows:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Animal trial expense................................................ $ 209,818 $ 19,344
Clinical trial expense.............................................. 4,000 243,202
Legal fees.......................................................... 42,748 96,900
Other............................................................... 154,450 125,151
----------- -----------
$ 411,016 $ 484,597
----------- -----------
----------- -----------
</TABLE>
Long-term debt at July 31, 1994 and 1995 is as follows:
<TABLE>
<CAPTION>
1994 1995
------------ -----------
<S> <C> <C>
11% mortgage payable, paid in September 1994....................... $ 500,000 $ --
9.75% note payable, paid in April 1995............................. 28,740 --
8.25% note payable, principal and interest payable monthly, final
payment due in February 1997, collateralized by the Company's
equipment......................................................... 125,996 80,370
9.90% note payable, principal and interest payable monthly, final
payment due in November 1997, collateralized by the Company's
equipment......................................................... -- 60,258
9.75% note payable, principal and interest payable monthly, final
payment due in November 1998, collateralized by the Company's
equipment......................................................... -- 17,880
10.15% note payable, principal and interest payable monthly, final
payment due in December 1998, collateralized by the Company's
equipment......................................................... -- 17,372
------------ -----------
654,736 175,880
Less current maturities............................................ (574,366) (82,925)
------------ -----------
$ 80,370 $ 92,955
------------ -----------
------------ -----------
</TABLE>
Maturities of debt for the periods ending July 31, 1996, 1997, 1998 and 1999
are $82,925, $67,686, $20,756 and $4,513, respectively.
F-9
<PAGE>
POSSIS MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES
At July 31, 1995, the Company has net operating loss carryforwards of
approximately $8,180,000 for financial reporting purposes; $6,354,000 for
federal tax purposes, which expire in 2002 through 2010; and $2,713,000 for
Minnesota tax purposes, which expire in 2002 through 2010.
In addition, at July 31, 1995 the Company has approximately $1,394,000 in
federal tax credits, substantially all of which is a research and development
tax credit which expire from 1999 through 2010, and $65,182 in AMT credit which
does not expire.
Deferred tax assets and liabilities as of July 31 are described in the table
below. The Company has not recorded any net deferred tax assets due to the
uncertainty of realizing such assets:
<TABLE>
<CAPTION>
1994 1995
-------------- --------------
<S> <C> <C>
Current assets (liabilities):
Allowance for doubtful accounts............................... $ 48,000 $ 10,000
Inventory..................................................... 340,000 294,000
Accrued vacation.............................................. 50,000 45,000
Heart valve patent payments................................... (750,000) --
Other......................................................... 48,000 31,000
-------------- --------------
(264,000) 380,000
Less valuation allowance...................................... -- (380,000)
-------------- --------------
Net........................................................... $ (264,000) $ --
-------------- --------------
-------------- --------------
Long-term assets:
Net operating losses.......................................... $ 1,680,000 $ 2,912,000
Amortization of patents....................................... 117,000 122,000
Depreciation.................................................. (4,000) 4,000
-------------- --------------
1,793,000 3,038,000
Less valuation allowance...................................... (1,529,000) (3,038,000)
-------------- --------------
Net........................................................... $ 264,000 $ --
-------------- --------------
-------------- --------------
</TABLE>
The effective income tax rate differed from the U.S. federal statutory rate
for each of the three years ended July 31, as follows:
<TABLE>
<CAPTION>
1993 1994 1995
---------- ------------ --------------
<S> <C> <C> <C>
Tax benefit on loss from continuing operations computed at
statutory rate of 34%....................................... $ (61,465) $ (423,640) $ (1,751,934)
Increases in tax due to nonrecognizable benefits of net
operating loss carryforwards................................ 61,465 423,640 1,751,934
---------- ------------ --------------
Total income tax expense -- continuing operations.......... $ -- $ -- $ --
---------- ------------ --------------
---------- ------------ --------------
</TABLE>
5. COMMON STOCK
STOCK OPTIONS
Certain officers, directors, key employees and certain other individuals may
purchase common stock of the Company under stock option plans.
In 1992, the Company established the 1992 Stock Compensation Plan (the "1992
Plan"), which replaced the 1983 and 1985 plans. Although the 1983 and 1985 plans
remain in effect for options outstanding, no new options may be granted under
these plans.
F-10
<PAGE>
POSSIS MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. COMMON STOCK (CONTINUED):
The 1992 Plan authorizes awards of the following types of equity-based
compensation: Incentive Stock Options, Nonqualified Stock Options, Stock
Appreciation Rights, Restricted Stock, Deferred Stock, Annual Grants of Stock
Options to Directors, Stock Options to Directors in Lieu of Compensation for
Services rendered as Directors, and Other Stock-Based Awards valued in whole or
in part by reference to stock of the Company. No Incentive Stock Options may be
granted on or after August 1, 2002, nor shall such options remain valid beyond
ten years following the date of grant.
The total number of shares of stock reserved and available for distribution
under the 1992 Plan was 600,000 shares, a maximum of 350,000 of which may be
issued as Incentive Stock Options. The total number of shares reserved and
available for distribution under the plan shall be increased annually on January
2 by 1% of the number of shares of the Company's common stock outstanding at
July 31 of each prior fiscal year. At July 31, 1995, there were 788,194 shares
reserved and 447,791 shares available for granting under the 1992 Plan.
In 1983, the Company established an Incentive Stock Option Plan. A maximum
of 545,000 shares were authorized under the plan at an option price of at least
100% of the fair market value at date of grant. The options become exercisable
at date of grant, except for those options granted after March 17, 1985, which
vest ratably over a three or four-year period. All options expire ten years from
date of grant.
In 1985, the Company established a Nonqualified Stock Option Plan under
which a maximum of 200,000 shares were authorized to be granted at a price of at
least 100% of the fair market value at date of grant. The options vest ratably
over a three or four year period and expire not more than ten years from date of
grant.
In 1991, the Company granted 12,750 noncompensatory options to Z. C. Possis,
former Chief Executive Officer of the Company. These options are fully vested
and expire not more than ten years from date of grant. At July 31, 1995, none of
these options had been exercised.
In fiscal 1993, 1994 and 1995, the Company granted 5,219, 16,560 and 11,574
compensatory options, respectively, to its outside directors in lieu of cash
payments for directors fees. These options were granted under the 1992 Plan.
A summary of changes in outstanding options for the three years ended July
31, 1995 follows:
<TABLE>
<CAPTION>
1993 1994 1995
--------------- -------------- ---------------
<S> <C> <C> <C>
Shares under option at beginning of year............. 610,909 751,835 870,478
Options granted -- 1992 plan......................... 149,219 163,560 33,374
Options exercised.................................... (5,793) (23,417) (147,000)
Options canceled..................................... (2,500) (21,500) (38,750)
--------------- -------------- ---------------
Shares under option at end of year................. 751,835 870,478 718,102
--------------- -------------- ---------------
--------------- -------------- ---------------
Shares exercisable at end of year.................. 470,710 546,603 490,341
--------------- -------------- ---------------
--------------- -------------- ---------------
Exercise price of options granted.................... $ 5.125-10.25 $ 3.75-7.50 $ 3.875-7.75
Exercise price of options exercised.................. $ 2.75-4.87 $ 2.75-8.625 $ 2.625-11.38
Market price of options exercised.................... $ 7.00-10.00 $ 5.71-10.25 $ 6.25-13.625
Aggregate market value of options exercised.......... $ 48,022 $ 153,587 $ 1,180,469
</TABLE>
In 1993, the Company granted 37,000 shares of restricted stock to employees
under the terms of the 1992 Plan, which vest 7,400 shares each on December 2,
1993 and June 3, 1994 through 1997. Approximately $128,000 was accrued to pay
the estimated withholding taxes on those shares as management believes that the
employees will elect to receive fewer shares in lieu of paying the
F-11
<PAGE>
POSSIS MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. COMMON STOCK (CONTINUED):
withholding taxes. In case of termination of the employees, with the exception
of those shares that vested December 2, 1993, unvested shares are forfeited.
Unearned compensation of $342,250 was recorded at the date of grant and will be
recognized over the vesting period. In addition, the Company issued 5,717 shares
of deferred stock under the 1992 Plan which were fully vested at July 31, 1993.
In fiscal 1993, 1994 and 1995, total compensation expense of $138,459, $176,832
and $68,449, respectively, was recognized on these shares.
STOCK WARRANTS
Stock purchase warrants held by unrelated parties representing the right to
purchase an aggregate of 26,400 shares of the Company's common stock at $8.52 a
share were outstanding at July 31, 1995. These warrants do not have an
expiration date and must be exercised if the market value of the Company's
common stock exceeds $22.73 per share for a specified period.
Warrants to purchase 100,000 shares of Common Stock issued in conjunction
with the Company's mortgage and note payable (Note 3) were exercised by the
lender on September 24, 1992. Proceeds received totaled approximately $343,000.
On September 15, 1994, warrants to purchase 120,000 shares of common stock
at $6.90 per share were issued to John G. Kinnard and Company, Incorporated in
conjunction with the Company's September 1994 public offering. As of July 31,
1995 all warrants were outstanding.
EMPLOYEE STOCK PURCHASE PLAN
The Employee Stock Purchase Plan, effective January 1, 1991, enables
eligible employees, through payroll deduction, to purchase the Company's common
stock at the end of each calendar year. The purchase price is the lower of 85%
of the fair market value of the stock on the first or last day of the calendar
year. The Company issued 14,996 shares in 1993, 16,019 shares in 1994 and 10,932
shares in 1995 under this Plan.
6. RELATED-PARTY TRANSACTIONS
The Company and St. Jude Medical, Inc. (St. Jude), an unrelated corporation,
entered into an agreement under which the Company transferred to St. Jude its
entire right, title and interest in the patents relating to a prosthetic heart
valve developed by Z. C. Possis, former Chief Executive Officer of the Company,
on his own time and without consideration. Under the terms of the agreement, St.
Jude remitted royalty payments to the Company for sales through March 14, 1995
equal to 2% of St. Jude's total net sales of heart valves in excess of
$4,052,000 per year. The Company paid 25% of such payments to a group of
individuals including a shareholder of the Company, three relatives of Z. C.
Possis and four unrelated persons, and 11.25% (7.5% through February 1992) to Z.
C. Possis or his estate.
7. 401 K PLAN
The Company has an employees' savings and profit sharing plan for all
qualified employees who have completed one year of service. Company
contributions are made at the discretion of the Board of Directors subject to
the maximum amount allowed under the Internal Revenue Code. Contributions for
the years ended July 31, 1993, 1994 and 1995 were $109,934, $98,417 and $77,907,
respectively.
8. LEASE COMMITMENTS
The Company's medical products operation is conducted from a leased facility
under an operating lease which expires in 1996. Rental payments under the lease
are guaranteed by a letter of credit in the amount of $68,000 at July 31, 1995,
which requires a compensating balance of $68,000. Rental
F-12
<PAGE>
POSSIS MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. LEASE COMMITMENTS (CONTINUED):
expense charged against earnings was $325,000 in 1993, $340,000 in 1994 and
$378,000 in 1995. The future minimum annual rentals on this noncancelable
operating lease at July 31, 1995 are $409,000 and $35,000 in fiscal 1996 and
1997, respectively, including estimated additional operating costs.
9. RESEARCH AND DEVELOPMENT
The Company has had agreements for joint funding of certain research and
development costs related to the Company's products and projects. In connection
therewith, the Company recorded medical products revenue of approximately
$181,000 and $576,000 in 1993 and 1994, respectively, in exchange for the rights
to the use of certain technology and products.
10. SALES TO MAJOR CUSTOMERS
The Company's continuing operations are in one segment, the design and
production of cardiovascular-related devices for use in health care. In 1993,
sales to one customer amounted to 83% of medical product revenues and in 1994
sales to two customers amounted to 70% and 14% of medical product revenues. In
1995, sales to two customers amounted to 62% and 15% of medical product
revenues.
11. SALE OF PACEMAKER LEAD BUSINESS
On March 18, 1994, the Company sold the assets of the pacemaker lead product
line to Innovex, Inc. The Company received $1,100,000 in cash in exchange for
$451,786 in inventories and fixed assets, recording a gain of $647,816. In
addition, the Company received a 75% royalty on gross sales of pacemaker leads
and related services. The pacemaker lead business was a product line and
component of the medical products segment. Since other components of this
segment (research and development activities and initial production of new
products) are continuing, the sale of the pacemaker lead business has not been
reported as a discontinued operation.
12. SALE OF REAL ESTATE
In March 1994, the Company closed on the sale of its land, buildings and
leasehold improvements associated with the Jet Edge business to TC/American
Monorail, Inc. The property sold for $1,200,000 and the Company recorded a gain
on the sale of $957,573. All Company operations are now conducted at the leased
facility in Plymouth, Minnesota.
13. PRODUCT SUPPLY AND DISTRIBUTION AGREEMENT
On December 30, 1994, the Company executed a Supply and Distribution
Agreement with Bard Vascular Systems Division, C.R. Bard, Inc. ("Bard"). The
Agreement grants to Bard exclusive worldwide sales and marketing rights to the
Possis Perma-Seal Dialysis Access graft for an initial 10-year term, renewable
for the life of applicable patents. Through July 31, 1995, the Company has
received $750,000 under this agreement, and may receive up to an additional
$2,000,000 upon acheivement of additional milestones.
14. SUBSEQUENT EVENTS
The Company filed a registration statement with the Securities Exchange
Commission on August 22, 1995 for the offering of 1,910,000 shares of its Common
Stock, of which 1,750,000 shares are being sold by the Company. The net proceeds
will be used to fund clinical trials, to increase manufacturing capacity, to
expand marketing and sales activities, to develop new products and for working
capital and general corporate purposes.
F-13
<PAGE>
GLOSSARY
<TABLE>
<S> <C>
AUTOGENOUS GRAFT...... a graft using a patient's own vessels or organs.
A-V ACCESS............ arterial to venous access.
CORONARY PERFUSION.... the passage of fluid through the arteries of the heart.
CRYOPRESERVED......... preserved by freezing at a very low temperature.
ENDOVASCULAR GRAFT.... a graft designed to be implanted within an existing blood vessel.
FLUOROSCOPY........... examination by means of a device using radiation.
ISCHEMIA.............. deficiency of blood in a conduit due to functional constriction or
actual obstruction.
LYTIC THERAPY......... the use of thrombolytic drugs as a treatment for the removal of
blood clot ("thrombolysis").
MORBIDITY............. diseased condition or state.
MYOCARDIAL
INFARCTION-ACUTE..... gross tissue death of the heart muscle as a result of interruption
of the blood supply to the area.
NEPHROLOGIST.......... an expert in the scientific study of the kidney and the treatment of
kidney disease.
PATENCY; PATENT....... the condition of being wide open, i.e. free flowing blood through a
conduit.
PERCUTANEOUS
TRANSLUMINAL
ANGIOPLASTY (PTA).... dilation of a blood vessel by means of a balloon catheter inserted
through the skin and into the blood vessel, where the balloon is
used to flatten plaque against the wall of the blood vessel.
PRE-CLINICAL
DEVELOPMENT.......... early stage of medical device development preceding clinical trials;
often includes animal model testing.
PULMONARY EMBOLISM.... the sudden closure of the pulmonary artery or one of its branches by
a clot or foreign material.
RENAL FAILURE......... the inability of the kidneys to clean the blood under normal
conditions, or the inability to retain electrolytes under normal
intake.
SAPHENOUS............. pertaining to either of the two large superficial veins of the leg.
STENT................. a device used to provide support for tubular structures, such as
arteries and veins.
THROMBECTOMY.......... removal of a clot in a blood vessel.
UNSTABLE ANGINA....... serious, unpredictable spasmodic, choking or suffocative pain
associated with coronary distress.
VASCULAR ACCESS
FAILURE.............. inability of A-V access graft to allow the flow of blood to the
dialysis machine.
</TABLE>
<PAGE>
- ---------------------------------------------
---------------------------------------------
- ---------------------------------------------
---------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
INFORMATION OR MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE SELLING SHAREHOLDER OR THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Available Information............................. 1
Incorporation of Certain Documents by Reference... 1
Prospectus Summary................................ 3
Risk Factors...................................... 5
Dilution.......................................... 9
Dividend Policy................................... 9
Recent Developments............................... 10
Use of Proceeds................................... 10
Price Range of Common Stock....................... 11
Capitalization.................................... 11
Selected Consolidated Financial Data.............. 12
Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. 13
Business.......................................... 16
Management........................................ 26
Principal and Selling Shareholders................ 28
Description of Common Stock....................... 29
Underwriting...................................... 30
Legal Matters..................................... 31
Experts........................................... 31
Index to Consolidated Financial Statements........ F-1
Glossary .................................. Inside Back Cover
</TABLE>
1,910,000 SHARES
[LOGO]
COMMON STOCK
--------------
PROSPECTUS
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DAIN BOSWORTH
Incorporated
JOHN G. KINNARD AND COMPANY,
Incorporated
OCTOBER 2, 1995
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<PAGE>
AMY E. LANGE
(612) 340-6323
October 3, 1995
Securities and Exchange Commission
Filing Desk
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Possis Medical, Inc.
File No. 33-62009
Final Prospectus
Ladies and Gentlemen:
On behalf of Possis Medical, Inc., transmitted herewith for filing via
EDGAR pursuant to Rules 424(b)(1) and 430A is the final Prospectus dated
October 2, 1995.
If you have any questions or comments regarding this filing, please
telephone the undersigned at (612) 340-6323 or David Lubben of this office at
(612) 340-2904.
Very truly yours,
Amy E. Lange
AEL:kln/jas
cc: Ms. Anita Karu
