_______________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended October 31, 2000
Commission File Number 001-12567
POSSIS MEDICAL, INC.
9055 Evergreen Boulevard
Minneapolis, Minnesota 55433-8003
(763) 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 November 30, 2000 was 16,696,156.
________________________________
<PAGE>
POSSIS MEDICAL, INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets, October 31, 2000
and July 31, 2000........................................ 3
Consolidated Statements of Operations and Comprehensive
Loss for the three months ended October 31, 2000 and 1999 4
Consolidated Statements of Cash Flows for the
three months ended October 31, 2000 and 1999 ............ 5
Notes to Consolidated Financial Statements............... 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 7-11
ITEM 3. Quantitative and Qualitative Disclosure about
Market Risks ............................................ 11
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K........................... 12
SIGNATURES................................................. 13
<PAGE>
POSSIS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
October 31, 2000 July 31, 2000
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.................. $ 1,729,176 $ 4,053,429
Marketable securities...................... 7,659,996 8,917,251
Receivables:
Trade (less allowance for doubtful
accounts and returns of $827,000
and $672,000, respectively)............ 3,491,954 2,940,497
Inventories:
Parts.................................... 1,214,826 1,441,137
Work-in-process.......................... 1,594,248 1,551,524
Finished goods........................... 1,979,165 2,107,677
Prepaid expenses and other assets.......... 171,384 278,491
Total current assets..................... 17,840,749 21,290,006
PROPERTY:
Leasehold improvements..................... 1,453,382 1,363,902
Machinery and equipment.................... 6,124,928 5,688,540
Assets in construction..................... 415,572 305,474
7,993,882 7,357,916
Less accumulated depreciation.............. (3,914,860) (3,643,976)
Property - net........................... 4,079,022 3,713,940
TOTAL ASSETS................................. $21,919,771 $25,003,946
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable..................... $ 863,836 $ 1,916,063
Accrued salaries, wages, and commissions... 1,458,830 1,603,061
Current portion of long-term debt.......... 180,052 179,949
Other liabilities.......................... 1,184,532 802,989
Total current liabilities.................... 3,687,250 4,502,062
LONG-TERM DEBT............................... 5,863 7,279
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock-authorized, 100,000,000
shares of $ .40 par value each; issued
and outstanding, 16,696,156 and
16,700,942 shares, respectively.......... 6,678,463 6,680,377
Additional paid-in capital................. 74,662,261 74,581,145
Unearned compensation...................... -- (24,809)
Retained deficit............................. (63,114,066) (60,742,108)
Total shareholders' equity................... 18,226,658 20,494,605
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY... $21,919,771 $25,003,946
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
POSSIS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE THREE MONTHS ENDED OCTOBER 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Product sales......................................... $6,545,110 $ 4,483,189
Cost of sales and other expenses:
Cost of medical products............................ 3,082,045 2,098,395
Selling, general and administrative................... 4,516,228 3,811,554
Research and development.............................. 1,487,507 1,262,225
Interest.............................................. 2,199 2,316
Total cost of sales and other expenses............ 9,087,979 7,174,490
Operating loss........................................ (2,542,869) (2,691,301)
Interest income....................................... 170,911 99,322
Net loss and comprehensive loss.......................($2,371,958) $(2,591,979)
Weighted average number of common shares outstanding.. 16,700,527 15,005,810
Basic and dilutive net loss per common share:
Net loss.......................................... $(.14) $(.17)
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED OCTOBER 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss .............................................$(2,371,958) $(2,591,979)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation...................................... 444,316 254,572
Amortization.......................................... -- 18,000
Stock compensation to employees and stock options
issued to non-employees............................. 26,309 83,033
Increase in receivables........................... (551,457) (25,437)
Decrease (increase) in inventories................ 146,099 (270,683)
Decrease (increase) in other assets............... 107,107 (4,190)
Decrease in trade accounts payable.................... (1,052,227) (204,084)
Increase in accrued and other liabilities............. 292,355 227,156
Net cash used in operating activities................. (2,959,456) (2,513,612)
INVESTING ACTIVITIES:
Purchase of marketable securities..................... (7,742,745) --
Proceeds from maturity of marketable securities....... 9,000,000 --
Additions to plant and equipment...................... (643,398) (188,785)
Net cash provided (used) by investing activities...... 613,857 (188,785)
FINANCING ACTIVITIES:
Proceeds from issuance of stock and exercise
of options.......................................... 22,659 60,842
Repayment of long-term debt........................... (1,313) (1,210)
Net cash provided by financing activities............. 21,346 59,632
DECREASE IN CASH AND CASH EQUIVALENTS................. (2,324,253) (2,642,765)
CASH AND CASH EQUIVALENTS AT BEGINNING OF QUARTER..... 4,053,429 9,151,004
CASH AND CASH EQUIVALENTS AT END OF QUARTER...........$ 1,729,176 $ 6,508,239
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid.........................................$ 159 $ 347
Accrued payroll taxes related to restricted stock..... 55,043 24,881
Issuance of restricted stock.......................... -- 32,250
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
POSSIS MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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
accompanying notes thereto included in the Company's 2000 Annual Report.
2. INTERIM FINANCIAL STATEMENTS
Operating results for the three month period ended October 31, 2000 are not
necessarily indicative of the results that may be expected for the year ending
July 31, 2001.
3. SEGMENT AND GEOGRAPHIC INFORMATION AND CONCENTRATION OF CREDIT RISK
The Company's operations are in one business segment, the design,
manufacture and distribution of cardiovascular and vascular medical devices.
Possis Medical, Inc. evaluates revenue performance based on the worldwide
revenues of each major product line and profitability based on an
enterprise-wise basis due to shared infrastructures to make operating and
strategic decisions.
Total revenues by United States and outside the United States for the three
months ended October 31, 2000 and 1999 are as follows:
2000 1999
United States............................ $6,410,400 $ 4,406,084
Outside the United States................ 134,710 77,105
Total revenues.......................... $6,545,110 $ 4,483,189
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
Quarters Ended October 31, 2000 and 1999
Total product sales for the quarter ended October 31, 2000 increased
$2,062,000, or 46%, to $6,545,000 compared to $4,483,000 in the first quarter of
1999. The Company recorded a net loss of $2,372,000, or $.14 per diluted share,
compared to a net loss of $2,592,000 or $.17 per diluted share, in the
prior-year fiscal first quarter. The main factors in the revenue increase were
the April 2000 and May 2000 FDA clearances to commence U.S. marketing of the
AngioJet(R) Rheolytic(TM) Thrombectomy System (AngioJet System), with labeling
claims for the Company's LF140 catheter for removal of blood clots in leg
(peripheral) arteries, the clearance to market its new Xpeedior 60 and 100
catheters for removal of blood clots from dialysis access grafts and the
clearance to market its Xpeedior 100 catheter for removal of blood clots in leg
arteries. The Xpeedior catheters are the first catheters marketed by the Company
based upon its proprietary Cross-Stream(TM) Technology. This exclusive
technology platform intensifies the action at the tip of the catheter, which
doubles the clot removal rate and triples the treatable vessel size compared to
other available mechanical thrombectomy devices on the market today. In
addition, Cross-Stream Technology has been able to deal more effectively with
"mural thrombus," the older, more organized material that adheres to vessel
walls and can complicate patient results.
Revenue - AngioJet System
U.S. AngioJet System revenue for the first quarter ended October 31, 2000
increased 57% to $6,335,000 compared to $4,025,000 in the first quarter of 1999.
As of October 31, 2000, the Company had a total of 541 domestic drive units in
the field, compared to 342 drive units at the end of the same prior year period,
and 493 drive units as of July 31, 2000. During the three months ended October
31, 2000 and 1999, the Company sold approximately 5,400 and 3,200 catheters and
pump sets, respectively. This represents a 69% increase in unit catheter sales
from the previous year. The significant increase in unit catheter sales was due
to the April 2000 and May 2000 FDA clearances to commence U.S. marketing of the
AngioJet System, with labeling claims for the Company's LF140 catheter for
removal of blood clots in leg (peripheral) arteries, the clearance to market its
new Xpeedior 60 and 100 catheters for removal of blood clots from dialysis
access grafts and the clearance to market its Xpeedior 100 catheter for removal
of blood clots in leg arteries. The average catheter utilization rate per
installed domestic drive unit was 10.1 in the first quarter, compared to a rate
of 9.4 in the same prior year period, and to a rate of 11.0 in the fourth
quarter of fiscal 2000. The Company sold 42 drive units in the quarter compared
to 32 drive units in the like quarter a year ago.
Currently the Company lists its AngioJet System drive unit, considered
capital equipment, at $35,000 to U.S. hospitals. The Company employs a variety
of flexible drive unit acquisition programs including outright purchase, rental
and capital free program. The capital free program allows the customer to use
the drive unit in exchange for payment of list price for the catheter. The
purchasing cycle for the AngioJet System drive unit varies from purchasing the
drive unit with no evaluation to an evaluation period of up to six months,
depending on the customer's budget cycle. The Company has recently signed
contracts with four purchasing groups in order to accelerate orders and increase
marketing penetration. These purchasing groups acquire drive units for their
member hospitals at pre-negotiated discounts.
<PAGE>
The Company expects U.S. AngioJet System sales to continue to grow
primarily through obtaining additional FDA-approved product uses, introduction
of new catheter models for existing indications, more face time selling to
existing accounts, peer-to-peer selling, and the publication of clinical
performance and cost effectiveness data.
In October 1999, the Company received full FDA approval for its
Investigational Device Exemption (IDE) application for the clinical trial (TIME
1) of the AngioJet System in the treatment of severe acute ischemic stroke. The
first patient was enrolled in May 2000. After the first five patients had been
treated in the TIME 1 clinical trial for ischemic stroke, a planned review was
conducted. This review concluded that the AngioJet NV150 neurocatheter can
access the middle cerebral artery where most ischemic strokes occur, and that
the device can effectively remove clot from this territory. The review also
identified enhancements that can be made to the protocol, the catheter and
physician technique to further improve outcomes. Patient enrollment in TIME 1
will continue after these enhancements are in place, anticipated for February
2001.
Foreign sales of the AngioJet System for quarters ending October 31, 2000
and 1999 were $135,000 and $77,000, respectively. The limited foreign sales are
due to cost constraints in overseas markets. In Japan, the coronary AngioJet
System clinical study was completed in April 1998 and a regulatory filing was
completed in November 1999 with the Japanese Ministry of Health and Welfare.
Japanese approval for coronary use of the AngioJet System is expected in mid-
calendar 2001.
The Company believes that the treatment of blood clots in the coronary
vessels, peripheral arteries, and neuro vessels are significant worldwide
marketing opportunities for the AngioJet System.
Revenue - Vascular Grafts
Vascular graft sales were $75,000 and $380,000 for the quarter ended
October 31, 2000 and 1999, respectively. All of the vascular graft sales in the
2000 and 1999 periods were Perma-Seal(R) Dialysis Access Grafts. In September
1998 the Company received FDA marketing approval for its Perma-Seal Dialysis
Access Graft. In December 1998, the Company entered into an exclusive worldwide
supply and distribution agreement for its Perma-Seal Dialysis Access Graft. In
November 2000, the distributor indicated their desire to terminate the
distribution agreement and return unsold product. The Company is working to
resolve this issue. No additional sales of Perma-Seal Dialysis Access Grafts are
expected in fiscal 2001.
<PAGE>
In April 1998, the Company received Humanitarian Device Exemption (HDE)
approval from the FDA, allowing U.S. marketing of the Perma-Flow(R) Coronary
Bypass Graft for patients who require coronary bypass surgery, but who have
inadequate blood vessels of their own for use in the surgery. Currently the
Company is exploring strategic options relating to future development and
commercialization of the product.
In February 1999, the Company received 510(k) clearance from the FDA to
market three expanded polytetrafluoroethylene (ePTFE) synthetic grafts. ePTFE
synthetic grafts are the most commonly used synthetic grafts in peripheral
vessel bypass procedures.
A goal of the Company is to maximize the value of these graft products and
technologies for its shareholders. Its strategy is to seek partners to
distribute the products and possibly fund the graft product development program.
In addition, the Company will continue to pursue the possible sale of its
vascular graft products and technologies. While the Company works toward
completing these activities, it has placed vascular graft product development
and production on hold.
Cost of Medical Products
Cost of medical products increased 47%, or $984,000, compared to the same
period a year ago. The increase is primarily due to the significant growth in
the U.S. AngioJet System product sales. This resulted in gross margins of 53%
for each of the quarters ended October 31, 2000 and 1999, respectively. The
improvement in gross margins driven by volume increases in the quarter ended
October 31, 2000 was offset by higher scrap rates and lower yields on catheters,
and an unfavorable mix of higher margin coronary catheters. The Company believes
that gross margins will improve as product sales and related volumes continue to
grow and as product and process improvements are made.
Selling, General and Administrative Expense
Selling, general and administrative expenses for the three months ended
October 31, 2000 increased $705,000, compared to the same period a year ago. The
primary factors are increased sales and marketing expenses related to the
establishment of a U.S. direct sales organization to sell the AngioJet System,
increased expenses related to marketing the product in the United States and an
increase in computer and software depreciation. Based upon early physician
interest and the AngioJet System FDA approvals for coronary and leg artery use,
the Company has grown the U.S. sales and marketing organization from 53
employees in October 1999 to 70 in October 2000. The Company expects that the
current level of the U.S. sales force will be able to grow sales and service the
customer base for the Company's AngioJet System through fiscal 2001.
<PAGE>
Research and Development Expense
Research and development expenses increased 18% from last year, due mainly
to an increase in the development of new AngioJet System applications. The
Company believes that research and development will increase slightly from the
fiscal 2000 level as it completes the development of its current products and
invests in development of new AngioJet System thrombectomy applications and new
miniaturized waterjet technology-based products.
Interest Income and Expense
Interest income increased $72,000 in the quarter ended October 31, 2000 as
compared to the same period a year ago. The increase was due to the gross
proceeds of $15 million received from the private placement offering in March
2000. The Company expects interest income to decrease during the remainder of
fiscal 2001 as the Company's cash reserves are used to fund the Company's
operations.
Interest expense was $2,000 for the quarters ended October 31, 2000 and
1999, respectively. The Company expects interest expense to stay at low levels
in fiscal 2001 unless a line of credit through a bank is obtained. If a line of
credit is obtained, the amount of increase in interest expense is dependent upon
how much is borrowed, the interest rate, and the length of time the borrowing is
outstanding.
Liquidity and Capital Resources
The Company's cash, cash equivalents and marketable securities totaled
approximately $9.4 million at October 31, 2000 versus $13.0 million at July 31,
2000.
Net cash, cash equivalents and marketable securities usage for the three
months ended October 31, 2000 averaged $1.2 million per month. The $3.6 million
used in operations in the most recent three month period was due to the net loss
of $2.4 million, a $1.1 million reduction in accounts payable, an increase of
$551,000 in accounts receivable and capital expenditures of $643,000, partially
offset by the combined effect of non-cash charges, a decrease in inventory, a
decrease in other assets and an increase in accruals totaling $1.0 million.
The Company believes that product sales of the AngioJet System, primarily
from the U.S., will yield meaningful sales growth going forward. The Company
expects the current level of the U.S. sales force will be able to grow sales and
service the customer base for the Company's AngioJet System through the fiscal
year 2001. Research and development expenditures are expected to increase
slightly from the fiscal 2000 level as it completes the development of its
current products and invests in development of new AngioJet System thrombectomy
applications and new miniaturized waterjet technology-based products. Possis
expects to report a loss for fiscal 2001, which is expected to be less than the
fiscal 2000 loss. In addition, the Company expects that increasing working
capital investments in trade receivables and inventory will be required to
support growing product sales. The Company has no plans to raise additional
outside capital in fiscal 2001, although there can be no assurance that
additional capital will not be required during that time.
<PAGE>
Forward-Looking Statements
Management's Discussion and Analysis of Financial Condition and Results of
Operations contain 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 statements relating to the
Company's ability to establish an adequate recurring revenue stream from U.S.
AngioJet(R) System disposable sales, the ability to maintain manufacturing
yields at acceptable levels, changes in the Company's marketing strategies, the
ability to grow sales while maintaining its current level of U.S. sales force,
the ability to achieve growing acceptance of the AngioJet System, the ability to
control expenses in order to become profitable, the ability to develop new
products, the ability to raise additional capital on acceptable terms, the
results of clinical trials and physician-directed studies, and the ability to
achieve levels of interest income and interest expense. These statements involve
risks and uncertainties, and consequently, actual results may vary materially
from those projected in the forward-looking statements. It is not possible to
foresee or identify all factors affecting the Company's future results and
investors therefore should not consider any list of such factors to be an
exhaustive statement of all risks and uncertainties. Although it is not possible
to create a comprehensive list of all factors that may cause actual results to
differ from the Company's forward-looking statements, these factors include
trends toward managed health care, health care cost containment, the trend of
consolidation in the medical device industry, difficulties and uncertainties
associated with the lengthy and costly new product development and regulatory
clearance processes, changes in government laws and regulations and the
enforcement there of that may be adverse to the Company, the development of new
products by competitors that may make our products obsolete, product recalls,
and economic factors over which the Company has no control, including changes in
inflation and interest rates. These and other risk factors set forth in the risk
factors included in Exhibit 99 to the Company's registration statement on Form
S-3 dated April 17, 2000 are filed with the Securities and Exchange Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company invests its excess cash in money market mutual funds. The
market risk on such investments is minimal.
The product sales for the Company's foreign subsidiary are in U.S. Dollars
("USD"). At the end of October 2000, the amount of currency held in foreign
exchange was approximately $1,000 USD. The market risk on the Company's foreign
subsidiary operations is minimal.
At October 31, 2000, all of the Company's outstanding long-term debt
carries interest at a fixed rate. There is no material market risk relating to
the Company's long-term debt.
<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
3.1 10-K Fiscal year ended Articles of incorporation as amended
July 31, 1994 and restated to date.
3.2 10-K Fiscal year ended Bylaws as amended and restated
July 31, 1999 to date.
27 Financial Data Schedule
(b) Reports on Form 8-K
Possis Medical, Inc. filed no reports on Form 8-K during the quarter ended
October 31, 2000.
<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: December 12, 2000 BY: /s/
ROBERT G. DUTCHER
President and Chief Executive Officer
DATE: December 12, 2000 BY: /s/
EAPEN CHACKO
Vice President of Finance and
Chief Financial Officer
