_______________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended April 30, 1997
Commission File Number 0-944
POSSIS MEDICAL, INC.
9055 Evergreen Boulevard N.W.
Minneapolis, Minnesota 55433-8003
(612) 780-4555
A Minnesota Corporation IRS Employer ID No. 41-0783184
_________________________________
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No___ The number of shares
outstanding of the Registrant's Common Stock, $.40 par value, as of June 2, 1997
was 12,126,890.
________________________________
<PAGE>
POSSIS MEDICAL, INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets, April 30, 1997
and July 31, 1996....................................... 3
Consolidated Statements of Operations for three
months and nine months ended April 30, 1997 and 1996.... 4
Consolidated Statements of Cash Flows for the
nine months ended April 30, 1997 and 1996 .............. 5
Notes to Consolidated Financial Statements.............. 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 7-9
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K........................ 10
SIGNATURES........................................................... 11
<PAGE>
<TABLE>
POSSIS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
ASSETS April 30, 1997 July 31, 1996
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.............................................. $ 6,910,881 $ 7,688,507
Marketable securities.................................................. 10,893,068 15,838,543
Receivables:
Trade (less allowances for doubtful accounts of $65,000 and
$60,000, respectively) ............................................. 853,214 389,983
Other............................................................... 156,331 218,154
Inventories:
Parts............................................................... 811,632 755,081
Work-in-progress.................................................... 884,943 898,721
Finished goods...................................................... 1,047,879 466,985
Prepaid expenses and other assets...................................... 277,222 207,156
Total current assets 21,835,170 26,463,130
PROPERTY:
Leasehold improvements................................................. 1,157,948 1,090,935
Machinery and equipment................................................ 3,079,946 2,782,287
Assets-in-construction................................................. 187,349 92,743
4,425,243 3,965,965
Less accumulated depreciation....................................... (1,809,661) (1,482,233)
Property - net.............................................. 2,615,582 2,483,732
OTHER ASSETS:
Goodwill............................................................... 359,922 413,922
TOTAL ASSETS................................................................ $24,810,674 $29,360,784
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable.................................................. 448,953 317,905
Accrued salaries, wages, and commissions................................ 714,168 725,988
Current portion of long-term debt....................................... 19,917 73,386
Clinical trial accrual.................................................. 627,772 378,638
Other liabilities....................................................... 395,432 187,675
Total current liabilities.................................. 2,206,242 1,683,592
DEFERRED REVENUE............................................................ -- 41,768
LONG-TERM DEBT.............................................................. 29,234 38,569
SHAREHOLDERS' EQUITY:
Common stock - authorized 100,000,000 and 20,000,000 shares,
respectively, of $.40 par value each; issued and outstanding,
12,126,890 shares and 12,052,644 shares, respectively............... 4,850,756 4,821,058
Additional paid-in capital............................................. 41,067,044 40,688,535
Unearned compensation ................................................. (9,739) (102,690)
Unrealized loss on investments......................................... (73,885) (145,276)
Retained deficit....................................................... (23,258,978) (17,664,772)
Total shareholders' equity................................. 22,575,198 27,596,855
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................................. $24,810,674 $29,360,784
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
POSSIS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For Three Months Ended For Nine Months Ended
April 30,1997 April 30, 1996 April 30, 1997 April 30, 1996
<S> <C> <C> <C> <C>
REVENUES:
Medical product sales................................ $ 1,075,229 $ 138,885 $ 1,628,319 $ 576,048
Sales agreement and other............................ 247,330 200,000 1,997,330 200,000
Total revenue................................ 1,322,559 338,885 3,625,649 776,048
COST OF SALES AND OTHER EXPENSES:
Cost of medical products............................. 1,230,375 1,381,891 3,605,514 3,636,859
Selling, general and administrative.................. 1,298,160 1,104,050 2,990,395 2,202,588
Research and development................................... 1,380,018 587,209 3,515,954 2,111,597
Interest expense........................................... 1,028 3,110 4,790 11,717
Total cost of sales and other expenses....... 3,909,581 3,076,260 10,116,653 7,962,761
Operating loss............................................. (2,587,022) (2,737,375) (6,491,004) (7,186,713)
Interest income............................................ 253,051 368,881 778,150 993,040
Gain on sale of marketable securities...................... -- -- 7,109 --
Loss from continuing operations............................ (2,333,971) (2,368,494) (5,705,745) (6,193,673)
Income from discontinued operations-net.................... -- 64,996 111,539 342,767
Net loss................................................... $(2,333,971) $(2,303,498) $(5,594,206) $(5,850,906)
Weighted average number of common
shares outstanding................................... 12,126,397 12,002,419 12,091,076 11,463,264
Earnings (loss) per common share:
Continuing operations................................ $ (.19) $ (.20) $ (.47) $ (.54)
Discontinued operations ............................. -- .01 .01 .03
Net loss............................................. $ (.19) $ (.19) $ (.46) $ (.51)
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
POSSIS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
For Nine Months Ended
April 30, 1997 April 30, 1996
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss ....................................................................... $(5,594,206) $(5,850,906)
Adjustments to reconcile net loss to net
cash used in operating activities:
Gain on sale of marketable securities...................................... (7,109) --
(Gain) loss on asset disposal ............................................. (1,526) 808
Depreciation............................................................... 355,149 288,609
Amortization of goodwill................................................... 54,000 54,000
Stock compensation......................................................... 70,751 379,086
Increase in receivables......................................................... (401,409) (535,420)
Increase in inventories......................................................... (655,400) (1,120,253)
(Increase) decrease in other assets............................................. (70,066) 45,892
Increase in trade accounts payable.............................................. 131,048 215,609
Increase in accrued and other current liabilities............................... 403,304 23,687
Net cash used in operating activities........................................... (5,715,464) (6,498,888)
INVESTING ACTIVITIES:
Proceeds from discontinued operations........................................... -- 589,441
Additions to plant and equipment................................................ (474,694) (629,142)
Proceeds from the disposal of assets............................................ 20,954 1,892
Purchase of marketable securities............................................... (1,987,665) (15,987,224)
Proceeds from sale/maturity of marketable securities............................ 7,011,641 1,275,000
Net cash provided by (used in) investing activities............................. 4,570,236 (14,750,033)
FINANCING ACTIVITIES:
Repayment of long-term debt..................................................... (62,805) (61,498)
Proceeds from issuance of stock and exercise of options......................... 430,407 26,893,150
Net cash provided by financing activities....................................... 367,602 26,831,652
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS .................................................................... (777,626) 5,582,731
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD.......................................................... 7,688,507 5,450,057
CASH AND CASH EQUIVALENTS AT END OF
PERIOD ....................................................................... $6,910,881 $11,032,788
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid................................................................... $ 4,790 $ 11,717
Inventory transferred to fixed assets........................................... 31,733 19,983
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
POSSIS MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. The accompanying consolidated financial statements and notes
should be read in conjunction with the audited financial statements and notes
thereto included in the Company's 1996 Annual Report.
2. INTERIM FINANCIAL STATEMENTS
Operating results for the three and nine month periods ended April 30, 1997
are not necessarily indicative of the results that may be expected for the year
ending July 31, 1997.
3. RECENTLY ISSUED ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings per Share, which is
effective for interim and annual reporting periods ending after December 1997.
SFAS No. 128 supersedes Accounting Principles Board Opinion No. 15, Earnings per
Share, and replaces the presentation of primary earnings per share with a
presentation of basic earnings per share. It also requires dual presentation for
all entities with complex capital structures and provides guidance on other
computational changes. The implementation of SFAS No. 128 is not expected to
have a material impact on earnings per share
4. EARNINGS (LOSS) PER SHARE
The Company's outstanding stock options and stock warrants were not
included in the computation of earnings per share since the impact would have
been anti-dilutive because of the net loss.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Three and Nine Month Periods Ended April 30, 1997 and 1996
Total revenues for the three and nine month periods ended April 30, 1997
were $1,323,000 and $3,626,000, respectively. This was an increase of $984,000
and $2,850,000 from the same periods in the previous year. Third quarter 1997
sales agreement and other revenue included $200,000 from Baxter Healthcare
Corporation for the first anniversary payment due Possis under a supply and
distribution agreement for the Perma-Flow Coronary Bypass Graft and an
additional $47,000 from the termination and settlement of the Company's
Perma-Seal Dialysis Access Graft Supply and Distribution Agreement. Product
sales for the third quarter and nine month period ending April 30, 1997
increased $936,000 and $1,066,000, respectively. On December 6, 1996, the
Company was notified that it had received U.S. Food and Drug Administration
(FDA) clearance to commence U.S. marketing of the AngioJet Rapid Thrombectomy
System with labeling claims for removal of blood clots from grafts used by
patients on kidney dialysis. The AngioJet System drive unit is considered
capital equipment and currently lists for $80,000 to U.S. hospitals. The
purchasing cycle for the AngioJet System drive unit, the Company believes, will
take up to nine months. The Company offers a program for system evaluation
lasting up to 90 days during which time the hospital purchases disposable
products. Short-term drive unit rental options are also available. Through a
third party, the Company offers attractive drive unit financing plans such as
prime interest rate capital leases, operating leases, and a plan to acquire the
drive unit through the purchase of a minimum number of disposable products.
AngioJet System disposable product sales in the U.S. during the 1997 third
quarter and through nine months were $651,000 and $741,000, respectively.
Foreign sales of the AngioJet System, drive units and disposable products, were
$405,000 and $721,000 during the same three and nine month periods. U.S.
AngioJet System disposable product sales are growing and the Company expects to
sell its first U.S. AngioJet System drive units in the fourth quarter ending
July 31, 1997.
During the three and nine month periods ended April 30, 1997 there were
$20,000 and $43,000, respectively, of Perma-Flow Coronary Bypass Graft product
sales compared to $(2,000) and $12,000, respectively, for the same periods in
1996. Baxter Healthcare Corporation, the Company's Perma-Flow Coronary Graft
distributor, has developed marketing materials to support the non-U.S. sales
effort and has increased its marketing budget for the Perma-Flow Graft going
forward. Due to the termination of the Company's Perma-Seal Dialysis Access
Graft distributor in January 1997, there were no sales of this product during
the six months ended April 30, 1997. The Company recorded Perma-Seal Graft sales
of $124,000 in the three months ended October 31, 1996 and $163,000 in the 12
months ended July 31, 1996. The Company intends to select another partner to
market this product and is in discussions with several potential companies.
<PAGE>
Possis is planning for continued growth in product sales in the fourth
quarter of fiscal 1997 and beyond and believes that for the next several years
most of this growth will come from AngioJet System sales in the U.S.
marketplace.
Cost of medical products decreased 11% and 1% in the three and nine month
periods, respectively, over the same prior year periods. Production expenses
relating to vascular grafts in the three and nine month periods ending April 30,
1997 decreased $204,000 and $840,000, respectively, over the same 1996 periods.
During most of fiscal 1997 the Company has worked to validate the vascular graft
production processes and has not been producing graft products. The cost of
product and process validation activity is considered by the Company to be a
research and development expense. Current year AngioJet System production costs
for the three and nine month periods increased $34,000 and $764,000,
respectively. The increase is primarily due to significant growth in AngioJet
System product sales. In April 1997 the Company received full ISO 9001 quality
system certification. ISO certification is issued by the International Standards
Organization and incorporates standards of quality excellence recognized
worldwide in design, development, production, installation and service.
Selling, general and administrative expense in the three and nine months
periods ending April 30, 1997, increased $194,000 and $788,000, respectively,
over the same periods in the previous year. The primary factor is increased
sales and marketing expense related to the establishment of a direct U.S. sales
organization to sell the AngioJet Rapid Thrombectomy System and expenses of
marketing the product in the United States. Based on strong early physician
interest, the Company has grown the U.S. AngioJet System sales and marketing
organization from eight employees in January 1997 to 22 employees in June 1997.
Sales and marketing expenses are expected to grow along with product revenue
growth.
Research and development expense in the three and nine month periods ending
April 30, 1997, increased $793,000 and $1,404,000, respectively, over the
previous year. The increases are due primarily to vascular graft product and
production process validation expenses and increased expenses of conducting the
AngioJet System coronary clinical trial. The Company believes that research and
development expenses will continue to increase as it completes the development
of its current products, invests in the development of new AngioJet Rapid
Thrombectomy System applications, new vascular grafts and new AngioJet
technology based products.
Interest income has decreased in the most recent periods due to the use of
the Company's cash reserves to fund the Company's operations
The Company recorded the final income relating to the sale of its Technical
Service division during the first quarter of fiscal 1997. The Company believes
that income from discontinued operations will be zero through the remaining
quarter of fiscal 1997.
<PAGE>
Liquidity and Capital Resources
Cash, cash equivalents and marketable securities totaled $17,804,000 on
April 30, 1997 versus $23,527,000 at July 31, 1996.
Net cash usage for the nine months ended April 30, 1997 averaged $645,000
per month, consistent with the Company's expectations. Most of the $5,715,000
cash used in operations in the most recent nine month period is due to the
$5,594,000 net loss. The Company believes that product sales of the AngioJet
System in the U.S. and internationally will yield meaningful sales growth going
forward. At the same time, sales and marketing expenditures will continue to
increase with the sales growth and research and development expenditures are
expected to grow as well. The Company anticipates reporting a loss for the final
quarter of the current fiscal year. In addition, the Company expects that
increasing working capital investments in trade accounts receivable and
inventory will be required to support growing product sales.
The Company believes that its existing cash reserves will be adequate to
complete the development and commercialization of its three current products.
Forward-Looking Statements
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains certain "forward-looking statements" as defined
in the Private Securities Litigation Reform Act of 1995. Such statements
relating to future events and financial performance, including the submission of
applications to the FDA, revenue and expense levels and future capital
requirements, are forward-looking statements that involve risks and
uncertainties, including the Company's ability to meet its timetable for FDA
submissions, the review time at the FDA which is out of the Company's control,
changes in the Company's marketing strategies, changes in manufacturing methods,
market acceptance of the AngioJet System, changes in the levels of capital
expenditures by hospitals, the levels of sales of the Company's products that
can be achieved, and other risks detailed from time to time in the Company's
various Securities and Exchange Commission filings.
<PAGE>
Part II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Certain of the following exhibits are incorporated by reference from prior
filings. The form with which each exhibit was filed and the date of filing are
indicated below.
Exhibit Form Date Filed Description
27 Financial data schedule
(b) Reports on Form 8-K
Possis Medical, Inc. filed no reports on form 8-K during the quarter ended
April 30, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
POSSIS MEDICAL, INC.
DATE: June 11, 1997 BY: /s/ Robert G. Dutcher
ROBERT G. DUTCHER
President and Chief Executive Officer
DATE: June 11, 1997 BY: /s/ Russel E. Carlson
RUSSEL E. CARLSON
Vice President of Finance
Chief Financial and Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> APR-30-1997
<CASH> 6,910,881
<SECURITIES> 10,893,068
<RECEIVABLES> 918,214
<ALLOWANCES> 65,000
<INVENTORY> 2,744,454
<CURRENT-ASSETS> 21,835,170
<PP&E> 4,425,243
<DEPRECIATION> 1,809,661
<TOTAL-ASSETS> 24,810,674
<CURRENT-LIABILITIES> 2,206,242
<BONDS> 0
0
0
<COMMON> 4,850,756
<OTHER-SE> 17,724,442
<TOTAL-LIABILITY-AND-EQUITY> 24,810,674
<SALES> 1,628,319
<TOTAL-REVENUES> 3,625,649
<CGS> 3,605,514
<TOTAL-COSTS> 3,605,514
<OTHER-EXPENSES> 6,506,349
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,790
<INCOME-PRETAX> (5,705,745)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,705,745)
<DISCONTINUED> 111,539
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,594,206)
<EPS-PRIMARY> (.46)
<EPS-DILUTED> (.46)
