_______________________________________________
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, 2000
Commission File Number 001-12567
POSSIS MEDICAL, INC.
9055 Evergreen Boulevard N.W.
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 June 1, 2000 was 16,680,706.
________________________________
<PAGE>
POSSIS MEDICAL, INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets, April 30, 2000
and July 31, 1999......................................... 3
Consolidated Statements of Operations for the three
months and nine months ended April 30, 2000 and 1999...... 4
Consolidated Statements of Cash Flows for the
nine months ended April 30, 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
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>
ASSETS April 30, 2000 July 31, 1999
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................... $ 2,203,212 $ 9,151,004
Marketable securities....................... 14,101,761 --
Receivables:
Trade (less allowances for doubtful
accounts and returns of $640,000
and $489,000, respectively) .......... 2,230,248 3,063,311
Inventories:
Parts.................................... 1,585,786 1,218,910
Work-in-progress......................... 1,484,082 1,596,313
Finished goods........................... 1,994,888 1,556,482
Prepaid expenses and other assets........... 135,780 247,907
Total current assets............. 23,735,757 16,833,927
PROPERTY:
Leasehold improvements...................... 1,338,118 1,274,814
Machinery and equipment..................... 4,682,391 4,143,032
Assets-in-construction...................... 404,586 258,114
6,425,095
5,675,960
Less accumulated depreciation............... (3,327,061) 2,887,025
Property - net................... 3,098,034 2,788,935
OTHER ASSETS:
Goodwill - net.............................. 143,922 197,922
TOTAL ASSETS..................................... $26,977,713 $19,820,784
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable...................... $ 1,024,652 $ 879,173
Accrued salaries, wages, and commissions.... 1,573,653 1,605,680
Current portion of long-term debt........... 92,348 92,490
Other liabilities........................... 1,043,033 726,940
Total current liabilities....... 3,733,686 3,304,283
LONG-TERM DEBT................................... 96,165 99,728
OTHER LIABILITIES................................ -- 102,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock - authorized 100,000,000
shares of $.40 par value each;
issued and outstanding, 16,680,491
shares and 14,998,360 shares,
respectively............................. 6,672,197 5,999,344
Additional paid-in capital.................. 74,546,140 60,608,623
Unearned compensation ...................... (70,704) (141,467)
Retained deficit............................ (57,999,771) (50,151,727)
Total shareholders' equity...... 23,147,862 16,314,773
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY....... $26,977,713 $19,820,784
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
POSSIS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For Three Months Ended For Nine Months Ended
April 30, 2000 April 30, 1999 April 30, 2000 April 30, 1999
<S> <C> <C> <C> <C>
Product sales.............................................. $ 4,472,184 $ 3,739,108 $14,110,664 $8,361,575
Cost of sales and other expenses:
Cost of medical products.............................. 2,167,251 2,388,331 6,843,468 5,809,886
Selling, general and administrative................... 4,092,624 3,117,129 11,545,041 7,608,750
Research and development................................... 1,294,618 1,510,315 3,916,676 4,530,982
Interest................................................... 2,265 28,216 6,871 379,241
Total cost of sales and other expenses............. 7,556,758 7,043,991 22,312,056 18,328,859
Operating loss............................................. (3,084,574) (3,304,883) (8,201,392) (9,967,284)
Interest income............................................ 178,342 80,256 353,348 357,352
Net loss................................................... $(2,906,232) $(3,224,627) $(7,848,044) $(9,609,932)
Weighted average number of common
shares outstanding................................... 16,057,405 13,909,660 15,362,701 12,852,970
Basic and dilutive net loss per common share............... $(.18) $(.23) $(.51) $(.75)
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
POSSIS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED APRIL 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss .......................................... $(7,848,044) $ (9,609,932)
Adjustments to reconcile net loss to net
cash used in operating activities:
(Gain) loss on asset disposal ..................... (4,718) 3,049
Depreciation....................................... 820,734 743,220
Amortization ..................................... 54,000 186,077
Stock compensation to employees and stock options
issued to non-employees.................. 169,663 263,202
(Increase) decrease in receivables................. 833,063 (1,497,989)
(Increase) decrease in inventories................. (1,043,931) 592,167
Decrease in other assets........................... 112,127 115,383
Increase (decrease) in trade accounts payable...... 145,479 (797,944)
Increase in accrued and other current liabilities.. 197,947 338,216
Net cash used in operating activities.............. (6,563,680) (9,664,551)
INVESTING ACTIVITIES:
Additions to plant and equipment................... (780,457) (505,157)
Proceeds from the disposal of assets............... 6,222 14,001
Purchase of marketable securities.................. (17,116,761) --
Proceeds from maturity of marketable securities.... 3,015,000 --
Net cash used in investing activities.............. (14,875,996) (491,156)
FINANCING ACTIVITIES:
Proceeds from issuance of stock and exercise of
options and warranties........................ 14,495,589 1,240,642
Repayment of long-term debt........................ (3,705) (12,884)
Proceeds from notes payable........................ -- 21,074
Deferred debt issue costs.......................... -- (24,255)
Net cash provided by financing activities.......... 14,491,884 1,224,577
DECREASE IN CASH AND CASH EQUIVALENTS ............. (6,947,792) (8,931,130)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD... 9,151,004 13,841,793
CASH AND CASH EQUIVALENTS AT END OF PERIOD........ $ 2,203,212 $ 4,910,663
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid...................................... $ 965 $ 1,674
Issuance of restricted stock....................... 59,000 20,250
Inventory transferred to fixed assets.............. 23,280 32,150
Accrued payroll taxes related to restricted stock.. 15,881 83,229
Conversion of subordinated debentures and accrued
interest into common stock.................... -- 12,346,174
Deferred debt issue costs and original issue
discount netted against conversion of
subordinated debentures....................... -- 1,371,122
Issuance of stock to settle litigation............. -- 225,000
Cancellation of restricted stock................... -- 37,934
<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 1999 Annual Report.
2. INTERIM FINANCIAL STATEMENTS
Operating results for the three and nine month periods ended April 30, 2000
are not necessarily indicative of the results that may be expected for the year
ending July 31, 2000.
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 non-United States for the nine months
ended April 30, 2000 and 1999 are as follows:
2000 1999
United States...................... $13,837,129 $8,039,559
Non-United States.................. 273,535 322,016
Total revenues..................... $14,110,664 $8,361,575
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, 2000 and 1999
Total product sales for the three and nine months ended April 30, 2000 were
$4,472,000 and $14,111,000, respectively. This was an increase of $733,000 and
$5,749,000, respectively, as compared to the same periods in the previous year.
The main factor in the revenue increase was the March 1999 U.S. Food and Drug
Administration ("FDA") approval to commence U.S. marketing of the AngioJet(R)
Rheolytic(TM) Thrombectomy System with labeling claims for removal of blood
clots in symptomatic native coronary arteries and coronary bypass grafts. The
Company recorded a net loss for the quarter ended April 30, 2000 of $2,906,000
or $.18 per diluted share. This compared to a net loss of $3,225,000, or $.23
per diluted share, for the quarter ended April 30, 1999. The net loss for the
nine months ending April 30, 2000 and 1999 was $7,848,000 and $9,610,000,
respectively. This resulted in a net loss per diluted share of $.51 and $.75,
respectively.
Revenue - AngioJet System
AngioJet System revenue for the three and nine months ended April 30, 2000
was $4,238,000 and $13,262,000, respectively. This was an increase of 28% and
69%, respectively, over the same period year-ago periods. Foreign sales of the
AngioJet System for the three and nine months ended April 30, 2000 were $105,000
and $274,000, respectively. This compared to foreign sales of the AngioJet
System of $128,000 and $322,000 for the same periods the previous year.
As of April 30, 2000, the Company had a total of 427 domestic drive units
in the field, compared to 239 drive units at the end of the same prior year
period, and 394 units as of the end of the second quarter. During the three and
nine month periods ended April 30, 2000, the Company sold approximately 3,500
and 10,400 catheters and pump sets versus approximately 2,300 and 5,700 in the
same year-ago periods. This was a 55% and 81% increase in unit catheter sales
from the same year-ago periods. The average catheter utilization rate per
installed domestic drive unit was 8.3 in the third quarter, compared to a rate
of 10.1 in the same prior year period, and to a rate of 9.9 in the second
quarter of fiscal 2000. The Company sold 25 and 98 drive units during the three
and nine months ended April 30, 2000. This compared to 40 and 95 drive units in
the same prior year-ago periods.
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 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 two large purchasing groups in order
to accelerate orders and marketing penetration. These purchasing groups acquire
drive units for their member hospitals at pre-negotiated discounts. Due to the
continued difficulty in selling capital equipment the Company is employing a
"capital free" program. This allows the customer to use the drive unit in
exchange for an increase in the catheter unit price.
<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 at
existing accounts, peer-to-peer selling, and the publication of clinical
performance and cost effectiveness data. The current sales increases are
believed to be generated primarily from the FDA coronary approval received in
March 1999.
In April 2000, the Company received FDA clearance to market the Company's
LF140 catheter for treating thrombus in leg (peripheral) arteries. This
clearance makes the AngioJet System the first and only new-generation
thrombectomy device with FDA-approved labeling for this indication. In May 2000,
the Company received FDA clearance to market its new Xpeedior 60 and 100
catheters for removing clots from dialysis access grafts. The Xpeedior catheters
are the first catheters marketed by Possis Medical based 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
can deal more effectively with "mural thrombus," the older, more organized
material that adheres to vessel walls and can complicate patient results. In May
2000, the Health Care Financing Administration (HCFA) announced that the
AngioJet Rheolytic Thrombectomy System has been classified as a device eligible
for pass-through payment in Medicare's new Outpatient Prospective Payment
System. Hospitals should receive additional reimbursement for kidney dialysis
access graft declotting procedures involving the AngioJet System. Additional
sales growth is planned due to the recent FDA actions and continued expansion of
the coronary market.
In October 1999, the Company received full FDA approval for its
Investigational Device Exemption (IDE) application for the clinical trial of the
AngioJet System in the treatment of severe acute cerebrovascular stroke. The
first patient was enrolled in May 2000. Due to the start of the cerebrovascular
stroke clinical trial, the Company has stopped enrolling patients in the
clinical trial of the AngioJet System for use in the treatment of stroke caused
by the blockage of the carotid arteries, the main vessels supplying blood to the
brain. A total of five patients were enrolled in the carotid stroke clinical
trial (ReACT). The Company believes that the treatment of blood clots in
coronary vessels, peripheral arteries, veins and neuro vessels are significant
worldwide marketing opportunities for the AngioJet System.
Revenue - Vascular Grafts
Vascular graft sales were $234,000 and $848,000 for the three and nine
months ended April 30, 2000. This compared to $453,000 and $522,000 for the
three and nine months ended April 30, 1999. All of the vascular graft sales were
Perma-Seal(R) Dialysis Access Grafts. In September 1998, the Company received
FDA marketing approval for its Perma-Seal Dialysis Access Graft, and in December
1998, the Company entered into an exclusive worldwide supply and distribution
agreement with Horizon Medical Products, Inc. The first shipment under this
agreement was made in January 1999.
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. In March 1999, a
distribution agreement with the Company's independent distributor expired.
Currently the Company is exploring strategic options relating to future
development and commercialization of the product.
<PAGE>
In February 1999, the Company received 510(k) clearance from the FDA to
market three expanded poltetrafluoroethylene (ePTFE) synthetic grafts. ePTFE
synthetic grafts are the most commonly used synthetic grafts in peripheral
vessel bypass procedures. These products are planned to be marketed and sold by
a marketing partner or independent distributor.
A goal of the Company is to maximize the value of these 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 on
hold.
Cost of Medical Products
Cost of medical products decreased $221,000 and increased $1,034,000 in the
2000 three and nine month periods, respectively, over the same periods in the
previous year. The changes are primarily due to the significant growth in
AngioJet System product sales and a favorable mix of coronary catheters sold,
partially offset by higher scale-up costs. Medical product gross margins
improved by $954,000 and $4,716,000 for the three and nine months, respectively,
over the same periods in the previous year. This resulted in gross margins of
52% for the three and nine months ended April 30, 2000. This compares to 36% and
31% gross margins for the three and nine months ended April 30, 1999. The
Company believes that manufacturing costs per unit will be reduced and gross
margins will continue to improve as product sales and related production volumes
continue to grow and as identified product and process improvements are made.
Selling, General and Administrative Expense
Selling, general and administrative expenses for the three and nine months
ended April 30, 2000 increased $975,000 and $3,936,000, respectively, compared
to the same year-ago periods. The primary factors are increased sales and
marketing expenses related to the establishment of a U.S. directs sales
organization to sell the AngioJet System and expenses of marketing the product
in the United States. Based upon early physician interest and with the AngioJet
System receiving FDA approval for coronary and leg artery use, the Company has
grown the U.S. sales and marketing organization from 39 employees in April 1999,
to 67 employees in April 2000. 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 remainder of fiscal year 2000.
Research and Development
Research and development expenses decreased 14% in the three and nine
months ended April 30, 2000, respectively, from last year, due mainly to the
shutdown of graft product development. The reduction in graft product
development was offset by an increase in development of new AngioJet System
applications. The Company believes that research and development expenses for
AngioJet System applications will increase as it completes the development of
its current products and invests in development of new AngioJet System
thrombectomy applications and new high-pressure waterjet technology-based
products.
<PAGE>
Interest Income
Interest income increased $98,000 and decreased $4,000 in the most recent
three and nine month periods, respectively, over the prior year periods. The
increase in the three months ended April 30, 2000 was due to the March 2000
private placement offering of its common stock in the amount of $15 million. The
Company expects interest income to increase for the remainder of the fiscal year
due to the private placement offering proceeds.
Interest Expense
Interest expense decreased in the most recent three and nine month periods
due to the 5% convertible subordinated debentures being converted into the
Company's common stock in March 1999. The Company expects interest expense to
stay at low levels through the remainder of the fiscal year.
Liquidity and Capital Resources
The Company's cash, cash equivalents and marketable securities totaled $
16,305,000 at April 30, 2000 versus $9,151,000 at July 31, 1999. The primary
factor in the improved cash position was the completion in March 2000 of the $15
million private placement offering.
Net cash and marketable securities usage for the nine months April 30, 2000
averaged $816,000 per month. The $6,564,000 cash used in operations in the most
recent nine month was due to the net loss of $7,848,000 and a $1,044,000
increase in inventory offset by non-cash expenses of depreciation, amortization,
stock compensation to employees and stock options issued to non-employees of
$1,044,000, a decrease in accounts receivables of $833,000 and an increase in
accounts payable and accrued liabilities of $343,000.
The Company believes that product sales of the AngioJet System, primarily
in 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
remainder of fiscal year 2000. Research and development expenditures are
expected to increase as the Company completes the development of its current
products and invests in development of new AngioJet System thrombectomy
applications and new high-pressure waterjet technology-based products. Possis
expects to report a loss for the current fiscal year, which is expected to be
less than the fiscal 1999 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 2000.
<PAGE>
Forward-Looking Statements
Management's Discussion and Analysis of Financial Condition and Results of
Operations, including the discussion regarding Year 2000 compliance, 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 the submission of applications to the FDA,
anticipated FDA approvals, the timing of FDA approvals, revenue and expense
levels, profitability and future capital requirements, and the timing and method
of raising additional capital, are forward-looking statements that involve risks
and uncertainties, including the Company's ability to meet its timetable for FDA
submissions, the review time and process at the FDA, anticipated reimbursement
for the use of its products by its customers, results of clinical trials,
changes in the Company's marketing strategies, the Company's ability to
establish product distribution channels, 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, ability to raise additional capital and other risks set forth
in the cautionary statements included in Exhibit 99 to the Company's report on
Form S-3 dated April 17, 2000, 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 April 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 April 30, 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
July 31, 1994 amended and restated to date.
3.2 10-K Fiscal Year ended Bylaws as amended and
July 31, 1999 restated to date.
27 Financial data schedule
99 S-3 April 17, 2000 Investment Risk Factors
(b) Reports on Form 8-K
During the quarter ended April 30, 2000, the Company filed a report on Form
8-K dated March 3, 2000 reporting under Item 5 that the Company had entered into
a Private Placement Agreement.
<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 7, 2000 BY: /s/ Robert G. Dutcher
ROBERT G. DUTCHER
President, Chief Executive Officer
and Principal Finance Officer
