UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JULY 31, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For transition period from ____________ to___________
Commission file number 0-944
POSSIS MEDICAL, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-0783184
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9055 Evergreen Blvd, NW, Minneapolis, Minnesota 55433-8003 (Address of
principal executive offices) (Zip Code) Registrant's telephone number, including
area code: 763-780-4555 SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE
ACT: None SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT: Common
Stock, 40 Cents Par Value Preferred Shares Purchase Rights
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (X)
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of September 30, 2002 was approximately $176,438,000.
The number of shares outstanding of the registrant's common stock as of
September 30, 2002: 17,280,909.
Certain responses in Part III are incorporated herein by reference to
information contained in the Company's definitive Proxy Statement for its 2002
annual meeting to be filed on or before November 11, 2002 ("The Proxy
Statement").
PART I Item 1. Business:
General
Possis Medical, Inc. (the Company) is a developer, manufacturer and
marketer of medical devices, operating in one business segment. The Company was
incorporated in 1956 and has operated several businesses over the last 46 years.
In 1960, the Company went public. In 1990, the Company decided to focus on
medical products and changed its name 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.
Products
ANGIOJET(R) RHEOLYTIC(TM) THROMBECTOMY SYSTEM. The development of blood
clots at various sites within the vascular system is common and is one of the
leading causes of morbidity and death. Blood clots may be caused by multiple
factors, including cardiovascular disease, trauma, impediment of normal flow
during invasive procedures or pressure impeding venous return in example
prolonged bed rest. If a blood clot becomes large enough, it can block a blood
vessel, preventing oxygenated blood from reaching the organ or tissue it
supplies, a condition called ischemia. In addition, if a blood clot breaks off,
it can travel (embolize) through the bloodstream and block blood flow to other
organs and tissue. Conditions caused by blood clots include acute myocardial
infarction (heart attack), stroke, peripheral ischemia, which can lead to limb
loss, vascular access failure, pulmonary embolism, and deep vein obstruction.
Currently, the three primary methods of removing intravascular blood clots
are surgery, dissolution with drugs (thrombolysis) and mechanical devices.
Thrombolytic drug treatment involves the administration of a drug designed to
soften or dissolve the blood clot in an intensive care setting. Thrombolytic
drugs may require prolonged infusion to be effective, may require significant
time to take effect, which is costly in an intensive or critical care setting,
and then may only partially remove the clot. In addition, thrombolytic drugs may
cause uncontrolled, life-threatening bleeding. Also, other classes of drugs,
specifically glycoprotein llb/llla inhibitors, are being used to prevent blood
clots from forming during coronary interventional procedures. However, these
drugs have no proven benefit against clots already formed. Mechanical devices
such as the Fogarty-type catheter operate by inflating a balloon past the point
of the blood clot and then pulling the balloon along the artery, essentially
dragging the blood clot out of the patient's body. Fogarty-type catheters
require surgical intervention, which may result in overnight hospital stays, are
more limited in their applications and may cause significant vascular trauma.
Fogarty catheters are not used in all of our indications.
Based on its clinical trial results, FDA clearances, 150 scientific journal
articles, and approximately 100,000 cases to date, the Company believes that its
AngioJet System represents a rapid, safe, and medically effective approach to
the removal of blood clots from arteries, veins and grafts and offers certain
advantages over current methods of treatment. The AngioJet System is a
non-surgical, minimally invasive catheter system designed to rapidly remove
blood clots with minimal vascular trauma. The AngioJet System consists of three
major components: a reusable drive unit to power a pump and monitor device
performance, a disposable single-use pump set that delivers pressurized saline
to the catheter, and a family of disposable, single-use catheters. The AngioJet
System has demonstrated the ability to safely and effectively remove blood clots
within seconds to minutes without surgical intervention or the risk of
uncontrolled bleeding.
To operate the AngioJet System, a physician first threads a catheter down a
patient's blood vessel to the site of the blood clot. The AngioJet System's
drive unit is then activated, causing a disposable pump to pressurize sterile
saline to approximately 10,000 pounds per square inch (psi) at the source and
send it through the catheter to the tip. Saline jets spray from the catheter tip
back up the catheter at several hundred miles per hour. The operation of
high-speed jets, contained inside the catheter, creates a localized low-pressure
zone around the catheter's tip. The difference between the low pressure at the
tip and the normal blood pressure in the vessel draws the blood clot into the
catheter through openings at the tip. The jets then macerate or pulverize the
blood clot into microscopic fragments, which are immediately propelled down the
catheter, out of the patient's body and into a disposable collection bag located
on the drive unit. The saline jets are not used directly on the vessel surface
to remove material.
Currently the Company is marketing the XMI(R), XVG, Xpeedior(R) and LF140
catheters. The XMI, XVG and Xpeedior catheters are the first catheters marketed
by the Company featuring its proprietary Cross-Stream(R) 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 outcomes.
The AngioJet Rheolytic Thrombectomy System is a pioneering device for the
removal of intravascular blood clots in a variety of clinical applications. It
is typically used in conjunction with other medical devices, such as angioplasty
balloons and stents, and drugs, such as thrombolytics and platelet inhibitors.
The market potential is not readily quantifiable through widely published
industry statistics. The approach of the Company has been to estimate the total
number of cases for a given indication in a particular vascular territory. These
statistics are available through industry sources. The Company then estimates
the number of procedures that might be amenable to treatment with the AngioJet
System, in conjunction with other therapies, both devices and drugs. In making
these estimates for the number of cases amenable to treatment with the AngioJet
System, the Company has relied on its own estimates, as well as estimates based
on data provided by physician consultants, presentations at medical industry
conferences, peer-reviewed journal articles, security analyst publications, and
publications by industry trade and consulting groups. In cases where little or
no reliable data exists, relatively simple "rules of thumb" are used to estimate
figures for statistics like worldwide diagnosis of certain conditions. We
believe that the totality of these sources provides estimates that are
directionally and relatively accurate, although the Company cannot guarantee
their accuracy.
The Company's marketing analysis and cumulative clinical experience
indicates that the AngioJet System may be effective for the treatment of various
blood clot-induced conditions throughout the vasculature. The following table
shows the vascular territories and indications for which the AngioJet System may
be used. In addition, the table indicates the estimated annual diagnosis
worldwide and the Company's estimated AngioJet System annual market potential.
AngioJet
Estimated System
Annual Annual
Worldwide Market
Diagnosis Potential
Vascular Territory Indication (Patients) (Procedures)
Coronary (1) Coronary Thrombosis (Native 5,300,000 550,000
Arteries and Bypass Grafts)
Legs (2) Peripheral Vascular Disease/ 1,300,000 220,000
Thrombosis
A-V Access (3) Hemodialysis Graft Thrombosis 265,000 265,000
Cerebral (4) Ischemic Stroke 1,070,000 332,000
Coronary (5) Embolic Protection in SVG 306,000 306,000
Intervention
Lungs (5) Pulmonary Embolism 400,000 200,000
Venous (5) Venous Thrombosis 1,200,000 144,000
Total 9,841,000 2,017000
(1) Marketed under March 1999 FDA approval.
(2) Marketed under April 2000 FDA approval.
(3) Marketed under December 1996 approval.
(4) In investigational clinical trials.
(5) In research and development phase.
In April 2000, March 1999 and December 1996, the Company received Food and
Drug Administration (FDA) clearances to commence U.S. marketing of the AngioJet
System, for removal of blood clots in leg arteries, native coronary arteries and
coronary bypass grafts and access grafts used by patients on kidney dialysis,
respectively.
During 1996 through 1998 the Company sponsored a randomized clinical trial,
VeGAS 2, which compared the AngioJet System with the approved thrombolytic drug,
Urokinase(R), in the treatment of intracoronary thrombus. The AngioJet System
proved to be medically safe and effective and cost-effective compared to
Urokinase. Treatment with AngioJet cost, on average, $5,000 less per patient
than did treatment with Urokinase. These results have been presented by
physician investigators at major medical meetings and have been published in the
October 2001 issue of the American Heart Journal, a peer reviewed publication.
With respect to other FDA-approved indications, such as peripheral
arteries, the Company believes that the AngioJet System offers a unique
combination of clinical benefit and cost-effectiveness, when compared with
medical management and thrombolytic therapy. While the Company and some
physicians have assembled considerable data demonstrating these cost-savings, it
is noted that these savings have been documented only in non-randomized patient
sets and not in randomized, clinical trials.
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 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 could
access the middle cerebral artery where most ischemic strokes occur, and that
the device can effectively remove clot from this territory. The review suggested
changes to the protocol covering a variety of areas, including patient
selection, exclusion criteria, and specifications for physician technique in
deploying and moving the device in the cerebral vasculature. Physician reviewers
also suggested changes to the device to improve the trackability, flexibility
and efficacy profile. In May 2001, the FDA approved the re-start of patient
enrollment in the TIME 1 clinical trial. A total of nine patients were enrolled
through April 30, 2002. Enrollment was temporarily stopped to address
compatibility issues between the AngioJet NV150 catheter and the commercially
available microcatheter that was being used to deliver the NV150. These were
addressed with the introduction to the trial a new microcatheter developed by
the Company specifically to work with the NV150 catheter. Patient enrollment
with this new microcatheter is now being restarted. TIME 1 will enroll up to 30
patients at up to eight centers in the U.S. to determine safety of the device
for this indication.
PERMA-SEAL(R) GRAFT. The 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 Perma-Seal Graft is implanted in kidney
dialysis patients to provide necessary vascular access. The Company believes
that its Perma-Seal Graft may offer advantages over currently used synthetic
grafts because of its needle hole sealing capability. A randomized clinical
trial comparing the Perma-Seal Graft to conventional Teflon(R) grafts showed
that the Perma-Seal Graft provides access sites with minimal compression time
and bleeding as compared to other currently available graft products and, as a
result, reduced administrative time and the associated costs 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 Company, however, recognizes
that the market potential for this product is limited by its FDA-approved
labeling, which limits it to use in dialysis patients requiring immediate access
for hemodialysis. Due to the limited market potential for this product, the
Company made a business decision to focus on the AngioJet System business. The
assets associated with this business have been written off, and prior
distribution agreements have been terminated. No additional sales are expected
for fiscal 2003 and beyond. The Company is not optimistic that the assets can
bring significant value in a sale.
Research and Development
The Company's product developments efforts are focused on product
enhancements for existing approved indications, new products for existing
indications, new products for new clinical indications, such as ischemic stroke,
and general upgrades to the System, such as to the drive unit and pump set.
Research and development expenses are generally incurred for product design,
development and qualification, development and validation of manufacturing
process, conduct of clinical trials, and seeking and obtaining governmental
approvals. In fiscal 2003, the Company plans to increase its research and
development spending from historical levels in order to expand the current
realizable market for the AngioJet System, as well as to expand into new areas,
such as distal occlusion.
As of September 30, 2002, the Company employed approximately 19 full-time
employees in research and development, including 15 in new product concept
screening, prototype building, product and process development and validation,
and four in regulatory and clinical affairs. The Company performs substantially
all of its research and development activities at its headquarters in Minnesota.
The Company spent $4,427,000, $4,820,000 and $5,525,000 in fiscal 2002, 2001 and
2000, respectively, on medical product research and development, exclusively
related to the AngioJet System.
Manufacturing
We assemble and test our entire product line in-house and have vertically
integrated a number of processes in an effort to provide increased quality and
reliability of the components used in the production process. Many of the
processes are proprietary and were developed by the Company. The Company
believes that as product and process improvements are identified, our ability to
control costs and quality will improve. Raw materials, components and select
subassemblies used in our products are purchased from outside suppliers and are
generally readily available from multiple sources.
Our manufacturing facilities are subject to periodic inspections by
regulatory authorities, including Good Manufacturing Practice (GMP) compliance
inspections by the FDA and TuV Product Services. TuV is a notified body
designated by the European Union competent authorities (Ministries of Health) to
determine whether a product can display the CE mark, necessary for marketing in
the European Union. We have undergone inspections by the FDA for GMP compliance
and the TuV each year since 1998. All marketed Company products distributed in
the European community currently carry the CE mark.
FDA inspections focus on GMP as defined in federal regulation 21 CFR 820.
These regulations define standards for the manufacturing and quality systems
used to produce medical devices. The FDA has conducted inspections of the
Company at regular intervals since 1993, and prior to approval of some the
Company marketing applications. Some of these inspections have identified
deficiencies in our compliance with certain GMP requirements, including systems
to address corrective and preventive actions, complaint processing, design and
process validation, material defect trending and use of statistical techniques.
Deficiencies found during the inspections have been corrected and subsequently
deemed acceptable by the FDA. The risk of non-compliance includes seizure,
injunction and/or civil penalties. The Company does not anticipate any adverse
FDA action.
Marketing and Sales
The Company markets its AngioJet System primarily to interventional
cardiologists, interventional radiologists and vascular surgeons and secondarily
to physician specialty groups, such as nephrologists and osteopaths. Revenue
from AngioJet System sales in the United States was approximately 99%, 99%, and
93% of fiscal 2002, 2001, and 2000 revenue, respectively.
The Company is currently marketing the AngioJet System for coronary
applications, peripheral vessel and graft applications and hemodialysis graft
thrombosis. The AngioJet System for stroke treatment will be marketed to
interventional neuroradiologists, neurologists and interventional cardiologists
as FDA marketing approvals are obtained.
The AngioJet System is currently marketed by a direct sales force in the
United States, consisting entirely of Company employees. A single sales force
calls on all the distinct specialties listed above; we do not have specialized
coronary or peripheral sales personnel, for example.
The Company is currently marketing its AngioJet System outside the United
States using an independent distributor network. Generally, the distributorship
agreements provide that the distributors, at their own expense, will
investigate, negotiate and obtain regulatory approvals for the Company's
products in the specified territory. All sales made to the Company's independent
distributors are denominated in United States dollars.
In December 1998, the Company entered into an exclusive worldwide supply
and distribution agreement for its Perma-Seal Dialysis Access Graft. The
distributor defaulted under the agreement by failing to comply with
contractually obligated levels of product purchases and with payment schedules.
In November 2000, the distributor indicated its desire to terminate the
distribution agreement and return unsold product. The Company has settled all
outstanding litigation with the Perma-Seal distributor, and has terminated the
distribution relationship.
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 publications in medical journals and presentations at
medical meetings are important to encourage broad acceptance of its products.
Other marketing activities include medical journal advertising, participating in
medical meetings, and supporting physician course and studies designed to gather
clinical and cost effectiveness data of the Company's products compared to
conventional treatment.
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 patents held and applied for
by the Company describe method and apparatus claims related to thrombectomy and
atherectomy devices, as well as method and apparatus claims related to the
design and use of synthetic vascular grafts. The Company no longer considers the
graft patents as material to its business going forward. The Company holds
eleven United States patents and four foreign patents relating to the AngioJet
System. Of the eleven U.S. patents, seven were filed between 1990 and 1995 and
are valid for 17 years following issuance. The remaining four were filed in or
after 1998 and are valid for 20 years following their filing dates. In addition,
the Company has 14 United States and 22 foreign patent applications pending
relating to the AngioJet System. The validity and breadth of claims covered in
medical technology patents involve complex legal and factual questions and,
therefore, may be highly uncertain.
The Company requires all employees 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.
Competition
The Company's products will compete with a number of different products and
treatment methods 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,
particulate capture systems, such as occlusion balloons, filters and combined
systems, direct stenting, surgical intervention, balloon embolectomy, mechanical
and laser thrombectomy devices, ultrasound ablators, and other thrombectomy
devices based on waterjet systems that may currently be under development by
other companies.
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, established
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.
The AngioJet System is a device for the rapid, safe and effective removal
of intravascular thrombus from native coronary vessels and saphenous vein
grafts, kidney dialysis access grafts, and leg arteries. The AngioJet System has
a unique profile of safety, clinical effectiveness, and cost-effectiveness. In
general, it competes against pharmacological dissolution of the thrombus using
thrombolytics or glycoprotein IIb/IIIa inhibitors, mechanical removal using
other devices, and against surgical revision of grafts. Drugs take time, do not
work in a significant number of cases, have deleterious side effects and are
expensive. Drugs are, however, easy to administer, particularly in an emergency
room setting or in a community hospital that lacks interventional facilities. In
general, drugs have the biggest market share among the set of procedures which
constitute our potential markets.
For native coronary arteries and coronary bypass grafts, there is no other
currently approved mechanical device for clot removal, or thrombectomy. In the
peripheral arteries, there is no other FDA-approved mechanical device. In the
A-V access area, there are numerous mechanical devices, under many different
trade names; no individual device has a dominant share of the market. This
market is extremely price sensitive, so devices do not necessarily gain share
because of improved performance and effectiveness alone.
Government Regulation
Government regulation in the United States and other countries is a
significant factor in both the Company's products and its activities, which are
regulated by the U.S. FDA under a number of statutes, including the Food, Drug
and Cosmetic ("FDC") Act.
FDA regulations place the Company's products in either Class II or III (the
highest level), based on the extent of both the pre-market approvals and
post-market controls deemed necessary to assure that they are safe and
effective. For example, Class II devices such as the AngioJet for AV access
graft thrombectomy are subject to pre-market notification (510(k) submission) to
the FDA, whereas AngioJet for treating coronary thrombus is subject to
pre-market approval (PMA) by the FDA, and subsequent annual and other PMA
supplement reporting requirements. While the FDA attempts to complete review of
these different types of pre-market submissions within specific timeframes (90
days for a 510(k); 180 days for a PMA), final action by the FDA may take
considerably longer. Any adverse determination or request for additional
information could delay market introduction and have a materially adverse effect
on the Company's continued operations.
In addition, either a 510(k) or PMA may require the inclusion of data and
analyses from the conduct of investigational clinical trials. Generally, such
clinical trials may be conducted only under an IDE (Investigational Device
Exemption) approved by the FDA. The FDA monitors and oversees the conduct of
clinical trials under an IDE. Such clinical trials typically take several years
to conduct, and they can cost several million dollars. Many of the Company's
products were the subject of such clinical trials in the past, and the Company
expects that some of its future products will also require investigational
clinical trials.
The AngioJet Coronary catheter is a Class III device and is marketed in the
U.S. under an approved PMA. The AngioJet AV-access and peripheral arterial
thrombus catheters are Class II devices and are marketed in the U.S. under
cleared 510(k) submissions.
Once a Company product is able to be marketed in the U.S., product labeling
and promotional activities are subject to scrutiny by the FDA and, in certain
instances, by the Federal Trade Commission. The FDA imposes other post-marketing
controls on the Company and its products, such as annual establishment
registration, annual product listings, and administration of complaint and
medical device reporting files. Failure to meet these pervasive FDA requirements
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 AngioJet System received its first clearance for the U.S. market via a
510(k) premarket notification application approved by the FDA in December 1996,
for use in treating thrombosed AV access grafts. In March 1999, the AngioJet
System received FDA approval of a PMA for treating thrombus in coronary arteries
and saphenous vein bypass grafts. In May 2000, the AngioJet System received FDA
market clearance via another 510(k) premarket approval application for treating
thrombus in leg arteries.
The Perma-Seal Dialysis Access Graft was FDA-approved for marketing under a
PMA in September 1998.
The Company's manufacturing and quality systems are also subject to FDA
regulations requiring compliance with the FDA's current Good Manufacturing
Practice ("GMP"). The FDA conducts periodic on-site inspections of manufacturing
facilities. The Company has successfully undergone several such inspections in
the past. The Company is obliged to address any deficiency noted during such
inspections. If the FDA notices violations of applicable regulations, the
continued marketing of the Company's products may be adversely affected. Such
regulations are subject to change and depend heavily on regulatory
interpretations.
The Company conducts sales and marketing activities in various foreign
countries. The time required to obtain approval to market a product in a foreign
country may be longer or shorter than that required for FDA approval, and the
requirements may differ. The Angiojet System displays the CE Mark, allowing
import into the European Union. Approval to display the CE Mark is dependent, in
part, on annual inspections by representatives of European regulatory bodies to
successfully demonstrate compliance with the ISO 9001 Quality Standards.
Employees
As of September 30, 2002, the Company had 215 full-time employees, four
part-time employees and three contract employees. Of these full-time employees,
19 are in research and development, 86 are in manufacturing and production,
twelve are in quality assurance, six are in facilities/maintenance, 75 are in
sales and marketing and 17 are in management or administrative positions. None
of the Company's employees are covered by a collective bargaining agreement, and
management considers its relations with its employees to be good.
Item 2. Properties:
The Company leases approximately 51,000 square feet of office and
manufacturing space (including approximately 6,500 square feet of controlled
environment manufacturing space) at 9055 Evergreen Boulevard NW, Minneapolis,
Minnesota 55433-8003. See Note 7 of Notes to Consolidated Financial Statements
in Part II, Item 8, in this Form 10-K.
The Company leases approximately 800 square feet of office space at 1513
Johnson Ferry Road, Marietta, Georgia. See Note 7 of Notes to Consolidated
Financial Statements in Part II, Item 8, in this Form 10-K.
Management believes these properties to be in good condition and that they
are adequate and suitable for the Company's foreseeable needs.
Item 3. Legal Proceedings:
None
Item 4. Submission of Matters to a Vote of Security-Holders:
None
Item 4A Executive Officers of the Registrant:
Name Age Position
Robert G. Dutcher 57 Chairman, President and Chief Executive Officer
Eapen Chacko 54 Chief Financial Officer and Vice President,
Finance and Investor/Public Relations
Irving R. Colacci 49 Vice President, Legal Affairs and Human
Resources General Counsel and Secretary
James D. Gustafson 46 Vice President, Technology, Product Development
and Quality Systems
Shawn McCarrey 44 Vice President, U.S. Sales
T. V. Rao 59 Vice President, Marketing and Worldwide Sales
Robert J. Scott 57 Vice President, Manufacturing Operations
Robert G. Dutcher served as Executive Vice President of the Company from
June 1992 until October 1993. He has served as President and Chief Executive
Officer since October 1993. Mr. Dutcher was elected to Chairman of the Board in
December 2001.
Eapen Chacko has served as Chief Financial Officer, Vice President of
Finance and Investor/Public Relations since September 2000. Mr. Chacko joined
the Company in September 1999 as Vice President of Investor/Public Relations.
Mr. Chacko was Director of Investor Relations for Fingerhut Companies, Inc., a
catalog and Internet marketer.
Irving R. Colacci joined the Company in 1988 as Secretary and Corporate
Counsel. Since 1993, he has served as General Counsel and Vice President, Legal
Affairs and Human Resources.
James D. Gustafson has served as Vice President of the Company since
January 1, 1994 and has been responsible for Quality Assurance and
Regulatory/Clinical Affairs for the Company since June 1993. In August of 2001,
Mr. Gustafson assumed responsibility for the Company's technology and product
development functions.
Shawn F. McCarrey joined the Company as Director of U.S. Sales in December
1998, and became Vice President of U.S. Sales in April 2001. Prior to joining
the Company, Mr. McCarrey served in a variety of sales positions with USCI, a
subsidiary of C.R. Bard, Inc.from January 1982 until 1998.
T.V. Rao joined the Company in June 1998 as Vice President and General
Manager of the AngioJet System business, and currently holds the position of
Vice President of Sales and Marketing. Prior to joining the Company, Mr. Rao
served as Vice President of Sales and Marketing for Angeion Corporation from
1995 until 1998, Vice President of Brunswick Biomedical from 1994 to 1995, and
Director of Product Management at Medtronic, Inc. from 1990 to 1994.
Robert J. Scott has served as Vice President of Manufacturing Operations of
the Company since 1993.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters:
The Company had 1,402 common shareholders of record at July 31, 2002. The
common stock is traded on the Nasdaq Stock Market under the symbol POSS. High
and low closing sale prices for each quarter of fiscal years ended July 31, 2002
and 2001 are presented below:
2002 2001
High Low High Low
QUARTER:
First $14.70 $ 9.85 $ 8.88 $5.50
Second 19.00 13.00 8.13 3.75
Third 21.15 14.19 6.35 3.94
Fourth 15.10 8.91 13.11 6.10
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.
Item 6. Selected Financial Data:
SELECTED FINANCIAL DATA
POSSIS MEDICAL, INC. AND SUBSIDIARIES
YEARS ENDED JULY 31,
In Thousands Except per Share Data 2002 2001 2000 1999 1998
INCOME STATEMENT DATA:
Operating revenues................................ $42,471 $30,001 $ 20,552 $ 13,210 $ 6,158
Net income (loss):
Before income taxes............................ 6,256 (3,304) (10,590) (12,021) (11,969)
After income taxes............................. 17,782 (3,304) (10,590) (12,021) (11,969)
Net income (loss) per common share - basic:
Before income taxes .37 (.20) (.67) (.90) (.98)
After income taxes............................. 1.04 (.20) (.67) (.90)
(.98)
Net income (loss) per common share - diluted:
Before income taxes............................ .34 (.20) (.67) (.90) (.98)
After income taxes............................. .96 (.20) (.67) (.90) (.98)
Weighted average shares outstanding -
Basic.......................................... 17,079 16,739 15,697 13,356 12,191
Diluted........................................ 18,602 16,739 15,697 13,356 12,191
BALANCE SHEET DATA:
Working capital................................... $25,038 $14,405 $ 16,788 $13,530 $16,598
Total assets...................................... 44,689 22,009 25,004 19,821 23,897
Long-term debt, excluding current maturities...... -- -- 7 100 11,493
Shareholders' equity.............................. 39,754 18,071 20,495 16,315 8,744
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations:
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
Certain statements made in Management's Discussion and Analysis of
Financial Condition and Results of Operations and elsewhere in this Form 10-K
are "forward-looking statements" as defined in the Private Securities Litigation
Reform Act of 1995. Such statements can be identified by the use of terminology
such as "anticipate," "believe," "could," "estimate," "expect," "forecast,"
"intend," "may," "plan," "possible," "project," "should," "will," and similar
words or expressions. Our forward-looking statements that may occur in company
communications include statements regarding the Company's ability to increase
sales of disposable and capital equipment; its ability to obtain additional FDA
approvals; the ability to open up new foreign markets, such as Japan; customer
responses to the Company's marketing strategies; future revenue levels, gross
margins, expense levels; ability to retain and motivate skilled employees
especially sales positions; deferred tax asset valuation allowance; earnings per
share; future equity financing needs and the Company's ability to develop new
products and enhance existing ones. These forward-looking statements are based
on current expectations and assumptions and entail various risks and
uncertainties that could cause actual results to differ materially from those
expressed in such forward-looking statements. Certain factors that may affect
whether these anticipated results occur include clinical and market acceptance
of our products; factors affecting the health care industry such as restricting
sales time at interventional labs; consolidation, cost containment and trends
toward managed care; changes in supplier requirements by group purchasing
organizations; delays, unanticipated costs or other difficulties and
uncertainties associated with lengthy and costly new product development and
regulatory clearance processes; changes in governmental laws and regulations;
changes in reimbursement; the development of new competitive products and
compounds that may make our products obsolete; sudden restrictions in supply of
key materials and deterioration of general market and economic conditions. We
also caution you not to place undue reliance on forward-looking statements,
which speak only as of the date made. Any or all forward-looking statements in
this report and in any other public statements we make may turn out to be
inaccurate or false. They can be affected by inaccurate assumptions we might
make or by known or unknown risks and uncertainties. Except as required by
federal securities laws, we undertake no obligation to update any
forward-looking statement, but investors are advised to consult any further
disclosures by us on this subject set forth in the risk factors included in
Exhibit 99 to the Company's Form 10-K for the year ended July 31, 2002 as filed
with the Securities and Exchange Commission.
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. In
1990 the Company made the decision to focus on medical products and subsequently
divested all non-medical operations.
The Company operates in one business segment -- the manufacture and sale of
medical devices. Possis Medical, Inc. evaluates revenue performance based on the
total revenues of each major product line and profitability based on an
enterprise-wide basis due to shared infrastructures to make operating and
strategic decisions.
The Company generates revenue from the sale of its products. The resulting
cash flow, together with the net proceeds from the Company's debt and equity
offerings, has been used to fund the Company's operations, including research
and development related to its products. Approximately 99% of fiscal 2002
revenues were from product sales in the United States. The importance of United
States revenue generation is expected to continue for the foreseeable future.
Critical Accounting Policies
The consolidated financial statements include accounts of the Company and
all wholly-owned subsidiaries. The preparation of financial statements in
conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions in certain circumstances
that affect amounts reported in the accompanying consolidated financial
statements and related footnotes. In preparing these financial statements,
management has made its best estimates and judgments of certain amounts included
in the financial statements, giving due consideration to materiality. The
Company's most critical accounting policies are those described below. The
Company does not believe there is a great likelihood that materially different
amounts would be reported related to the accounting policies described below.
However, application of these accounting policies involves the exercise of
judgment and use of assumptions as to future uncertainties and, as a result,
actual results could differ from these estimates. For a detailed discussion of
these and other accounting policies, see Note 1 to the Consolidated Financial
Statements.
Revenue Recognition
Revenues associated with products that are already maintained at customer
locations are recognized when the Company receives a valid purchase order from
the customer. At this time, ownership and risk of loss is transferred to the
customer. Revenues associated with products that are not maintained at the
customer locations are recognized and title and risk of loss is transferred to
the customer when a valid purchase order is received and the products are
received at the customer's location. Provisions for returns are recorded in the
same period the related revenues are recognized.
Allowance for Returns
Accounts receivable are reduced by an allowance for items that may be
returned in the future. The estimated allowance for returns is based upon
historical experience, information received from our customers and on
assumptions that are believed to be reasonable under the circumstances.
Management, on a quarterly basis, evaluates the adequacy of the allowance for
returns. Management believes the amount of the allowance for returns is
appropriate; however, actual returns incurred could differ from the original
estimate, requiring adjustments to the allowance.
Allowance for Doubtful Accounts
Accounts receivable are reduced by an allowance for amounts that may become
uncollectable in the future. Substantially all of the Company's receivables are
due from health care facilities located in the United States. The estimated
allowance for doubtful accounts is based upon the age of the outstanding
receivables and the payment history and creditworthiness of each customer.
Management, on a quarterly basis, evaluates the adequacy of the allowance for
doubtful accounts. Management believes the amount of the allowance for doubtful
accounts is appropriate; however, nonpayment of accounts could differ from the
original estimate, requiring adjustments to the allowance.
Inventories
Inventories are valued at the lower of cost or market. On a quarterly
basis, management assesses the inventory quantities on hand to estimated future
usage and sales and, if necessary, writes down to market the value of inventory
deemed excess or obsolete.
Warranty Reserve
The Company provides a one-year limited warranty on its AngioJet System
drive unit and a limited warranty on AngioJet System disposable products. The
warranty reserve is established at the time products are sold and is based upon
historical frequency of claims relating to the Company's products and the cost
to replace disposable products and to repair drive units under warranty.
Management, on a quarterly basis, evaluates the adequacy of the warranty
reserve. Management believes the amount of the warranty reserve is appropriate;
however, actual claims incurred could differ from the original estimate,
requiring adjustments to the reserve.
Deferred Tax Asset Valuation Allowance
The Company became profitable starting in the third quarter of fiscal 2001.
It has maintained profitability for six quarters, including the fourth quarter
of fiscal 2002. Prior to the fourth quarter of fiscal 2002, the Company reduced
its net deferred tax asset to zero through a valuation allowance due to the
uncertainty of realizing such asset. In the fourth quarter of fiscal 2002, the
Company reassessed the likelihood that the deferred tax asset will be recovered
from future taxable income.
Based on the previous two full years' operating results projected forward,
the Company has reduced its valuation allowance on the deferred tax asset by
$12,269,000. Management will continue to assess the likelihood that the balance
of the deferred tax assets will be realizable and the valuation allowance will
be adjusted accordingly. The Company expects that if operations continue to
improve in fiscal 2003, the remaining valuation allowance will be reduced to
zero by the end of fiscal 2003.
Results of Operations
Fiscal Years Ended July 31, 2002, 2001 and 2000
Total product sales for fiscal 2002 increased $12,470,000, or 42%, to
$42,471,000, compared to $30,001,000 in fiscal 2001. Total product sales for
fiscal 2001 increased $9,449,000, or 46%, to $30,001,000, compared to
$20,552,000 in fiscal 2000. The Company recorded pre-tax net income of
$6,256,000, or $0.34 per diluted share, for fiscal 2002. This compared to a net
loss of $3,304,000, or $0.20 per diluted share, in fiscal 2001 and a net loss of
$10,590,000, or $0.67 per diluted share, in fiscal 2000. In fiscal 2002, the
Company recorded a benefit for income taxes in the amount of $11,526,000 due to
the reduction of the deferred tax asset valuation allowance. This resulted in
net income after income taxes in fiscal 2002 of $17,782,000, or $0.96 per
diluted share.
Revenue - AngioJet System
U.S. AngioJet System revenue for fiscal 2002 increased $12,480,000, or 42%,
to $42,033,000 compared to $29,553,000 in fiscal 2001. U.S. AngioJet System
revenue for fiscal 2001 increased $10,400,000 or 54%, to $29,553,000 compared to
$19,153,000 in fiscal 2000. The Company markets the AngioJet Rheolytic
Thrombectomy System (AngioJet System) worldwide. The AngioJet System consists of
a drive unit (capital) that powers a disposable pump and a family of disposable
catheters, each aimed at a specific indication. The main factors in the AngioJet
System revenue increase were increased sales resulting from the Company
commencing U.S. marketing of the AngioJet System with additional labeling
claims. During fiscal 2002, 2001 and 2000, the Company began U.S. marketing of
four new catheters for the removal of blood clots in leg (peripheral) arteries;
the XVG 135 in April 2002, the XMI 135 in March 2001, the Xpeedior 100 in May
2000 and the LF140 in April 2000. In addition, the Company received clearance to
market the Company's XMI catheter for coronary use in December 2001 and it's
Xpeedior 60 catheter for removal of blood clots from dialysis access grafts in
April 2000. The XVG, XMI and Xpeedior catheters feature its proprietary
Cross-Stream 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.
As of July 31, 2002, the Company had a total of 863 domestic AngioJet
System drive units in the field, compared to 669 and 493 at the end of the
previous two years. During fiscal 2002, the Company sold approximately 33,300
catheters and pump sets versus approximately 25,200 in fiscal 2001 and 16,100 in
fiscal 2000. This represents a 32% and 57% increase in unit catheters sales from
the previous years. During the fiscal years ended July 31, 2002, 2001 and 2000,
the Company sold 161, 160 and 138 AngioJet System drive units worldwide,
respectively. The number of AngioJet System drive unit sales in fiscal 2002 and
2001 resulted from a continued increase in market penetration and the overall
acceptance of the AngioJet System by physicians.
The Company employs a variety of flexible drive unit acquisition programs
including outright purchase and various evaluation programs. The purchasing
cycle for the AngioJet System drive unit varies depending on the customer's
budget cycle. The Company has signed contracts with six purchasing groups in
order to accelerate orders and increase market penetration. These purchasing
groups evaluate and screen new medical technologies on behalf of their members,
and once they recommend a technology, such as the AngioJet System, they
negotiate pre-determined discounts on behalf of their members. The benefit for
the Company is access to the recommended vendor list, along with marketing
support provided by the purchasing group. The purchasing groups receive a
marketing fee on their member purchases from the Company. These discounts and
marketing fees have been offset by the increase in sales to the member hospitals
of the purchasing group. There has been no material negative effect on the
Company's margins due to these discounts and marketing fees. The discounts
reduce gross revenue on the income statement, while marketing fees are included
in selling, general and administrative expense on the income statement.
The Company expects U.S. AngioJet System sales to continue to grow
primarily through obtaining additional Food and Drug Administration (FDA)
approved product uses, introduction of new catheter models for existing
indications, introduction of AngioJet System-related products, more face-time
selling to existing accounts, peer-to-peer selling, and the publication of
clinical performance and cost-effectiveness data.
Foreign sales of the AngioJet System were $438,000 in fiscal 2002, $372,000
in fiscal 2001 and $393,000 in fiscal 2000. The limited foreign sales are
primarily due to cost constraints in overseas markets. In foreign markets, where
public sector funds are more crucial for hospital operation, Euro devaluations
generated higher public sector deficits, which, in turn, forced reductions in
hospital procedure and equipment budgets. 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 (MHW). The
Company believes that we have assembled all the information required by the MHW
in support of our LF140 coronary catheter submission. Our prospective Japanese
distributor must make the submission of this information in response to the last
set of questions from MWH. Our prospective Japanese distributor will make this
submission dependent on reaching a commercial agreement with the Company. The
Company is currently negotiating with its prospective Japanese distributor to
resolve key issues relating to regulatory submissions, ownership of regulatory
approvals for our coronary products and distribution following regulatory
approval.
The Company believes that the treatment of blood clots in the coronary
vessels, peripheral vessels, vessels in the brain and vascular grafts, provide
significant worldwide marketing opportunities for the AngioJet System.
Revenue - Vascular Grafts
Revenue from Perma-Seal(R)Dialysis Access Grafts was $75,000 in fiscal 2001
and $1,006,000 in fiscal 2000. The Company received no revenue in fiscal 2002
from Perma-Seal 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. The distributor defaulted
under the agreement by failing to comply with contractually obligated levels of
product purchases and with payment schedules. In November 2000, the distributor
indicated its desire to terminate the distribution agreement and return unsold
product. The Company has settled all outstanding litigation with the Perma-Seal
distributor, and has terminated the distribution relationship. The settlement
had no impact on the financial statements as the related accounts receivable
balances had been appropriately written down in prior periods. No additional
sales of Perma-Seal Dialysis Access Grafts are expected.
The assets of this business have been written off, and the Company is not
optimistic that the assets can bring significant value in a sale.
Cost of Medical Products
Cost of medical products, compared to prior years, increased 8% in fiscal
2002 and 16% in fiscal 2001. The increases are primarily due to the significant
growth in the U.S. AngioJet System product sales. Medical product gross margins
improved by $11,517,000 in fiscal 2002 and $7,852,000 in fiscal 2001, over the
prior year. The gross margin percentage in fiscal 2002 was 70% compared to 61%
in fiscal 2001 and 51% in fiscal 2000. The improvement in gross margins was
driven by higher volumes of XMI, XVG and Xpeedior catheters that carry higher
margins than the catheters they replaced and an improvement in the XMI, XVG and
LF140 product catheter mix in the year ended July 31, 2002. The Company believes
that gross margins will continue to improve as product sales and related volumes
continue to grow and as product and process improvements are made.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $2,126,000 in fiscal
2002 and $1,165,000 in fiscal 2001, as compared to prior periods. The primary
factors for the expense increase for fiscal 2002 were increased sales and
marketing expenses related to the expansion of the Company's U.S. direct sales
organization for the AngioJet System, increased commission expense due to
increased AngioJet System product sales, increased marketing fees for the
national purchasing contracts, increased patient enrollment in the Company's
marketing studies and an increase in management and key employee cash
compensation. The primary factors for the expense increase for fiscal 2001 were
increased sales and marketing expenses related to the expansion of the Company's
U.S. direct sales organization for the AngioJet System, increased commission
expense due to increased AngioJet System product sales, increased marketing fees
for the national purchasing contracts, and increased computer and software
depreciation. In fiscal 2001, expense increases were partially offset by the
reduction in costs related to a work force reduction in January 2001, a 2001
Special Equity Compensation Program, discussed in the next paragraph, and a
reduction in sales product demonstrations and samples. The Company expects that
the current U.S. sales force will be sufficient to continue to grow sales and
service the current customer base for the Company's AngioJet System through
fiscal 2003.
The Company issued stock option awards totaling 1,800,865 shares in fiscal
2001. In August 2000, stock option awards of 443,800 were issued that related to
the Company's fiscal 2000 performance, since the fiscal 2000 year ended in July.
In fiscal 2001, the Company was faced with two issues: 1) potential of
additional dilutive financing due to the prospect of continuing losses, and 2)
the hiring away of key employees by competitors. Consequently, 403,885 net stock
option awards were issued to conserve cash and reduce expenses. These stock
option awards reduced management and key employee cash compensation and sales
commission by approximately $810,000. An additional 733,800 stock option awards
were issued to retain management and key employees in fiscal 2001. Of the
733,800 stock option awards, 539,800 relate to fiscal 2001 performance stock
option awards that are normally issued in August 2001, subsequent to fiscal 2001
year-end. Accelerating these awards was, in the opinion of management, a
necessary and effective retention tool to ensure the continuity of business
growth and the achievement of profitability goals.
Research and Development Expenses
Research and development expense decreased 8% in fiscal 2002 and 13% in
fiscal 2001, as compared to prior periods. The decreases in fiscal 2002 and 2001
are due to the timing of outlays in different stages of development of new
AngioJet System applications and related products. The Company believes that
research and development expense for AngioJet System applications and related
products will increase in fiscal 2003 as the Company completes the development
of its current products and invests in the development of new AngioJet System
thrombectomy applications and related products including clinical trials.
Interest Income
Interest income decreased $224,000 in fiscal 2002 from fiscal 2001 due to
declining market interest rates. Interest income decreased $107,000 in fiscal
2001 from fiscal 2000 due to use of cash to fund operations. The Company expects
interest income to increase slightly in fiscal 2003 as compared to fiscal 2002
due to an anticipated increase in cash and cash equivalents.
Benefit For Income Taxes
The Company became profitable starting in the third quarter of fiscal 2001.
It has maintained profitability for six quarters, including the fourth quarter
of fiscal 2002. Prior to the fourth quarter of fiscal 2002, the Company reduced
its net deferred tax asset to zero through a valuation allowance due to the
uncertainty of realizing such asset. In the fourth quarter of fiscal 2002, the
Company reassessed the likelihood that the deferred tax asset will be recovered
from future taxable income. Due to the previous two full years' operating
results projected forward, the Company has reduced its valuation allowance on
the deferred tax asset by $12,269,000. $11,526,000 is recorded as a tax benefit
in fiscal 2002. The remaining $743,000 relates to disqualified stock options
that are recorded in the Consolidated Statement of Changes in Shareholders'
Equity. Management will continue to assess the likelihood that the balance of
the deferred tax asset will be realizable and the valuation allowance will be
adjusted accordingly. The Company expects that if operations continue to improve
in fiscal 2003, the remaining valuation allowance will be reduced to zero by the
end of fiscal 2003.
Effects of Inflation
Due to the low rate of inflation and small changes in prices there has been
very little effect on the Company's net revenues and net income from operations
as of fiscal 2002. Net income from operations has been slightly affected due to
higher employment costs.
Liquidity and Capital Resources
The Company's cash and cash equivalents totaled approximately $18,557,000
at July 31, 2002 compared to $9,516,000 at July 31, 2001. The primary factors in
the increase were cash provided by operations of $6,966,000 and the issuance of
stock and exercise of stock options and warrants of $2,997,000, which was
partially offset by capital expenditures of $903,000.
During fiscal 2002, cash provided by operating activities was $6,966,000,
which resulted primarily from $17,782,000 net income, depreciation of
$2,119,000, stock compensation expense of $187,000, write-down due to the
impairment of assets of $70,000, and an increase in accrued liabilities of
$1,140,000. The net cash provided by operations was partially offset by an
expense reimbursement from a city government of $84,000, an increase in
receivables of $1,605,000, an increase in inventories of $635,000, an increase
in other current assets of $420,000, an increase in deferred tax assets of
$11,526,000 and a decrease in accounts payable of $59,000. Depreciation includes
company-owned drive units at customer locations, as well as property and
equipment. The increase in accrued liabilities was due to the timing of the
payments and the increase in accrued corporate incentives. The expense
reimbursement from a city government of $84,000 relates to debt forgiven by the
city government due to the Company achieving minimum headcount employment
objectives. The $1,605,000 increase in receivables was due to increase in
revenue in fiscal 2002 as compared to fiscal 2001. Inventory increased due to
the increase in demand for the AngioJet System. The increase in other current
assets was due to the increase in prepaid insurance and a grant receivable. The
Company received a grant from the National Institute of Neurological Disorders
and Stroke in the amount of $248,000. The grant helped fund development of the
AngioJet NV150 catheter for ischemic stroke. The Company received the grant
funds subsequent to July 31, 2002. Deferred tax assets increased due to the
reduction of the valuation allowance. The $59,000 decrease in trade accounts
payable was due to timing of year-end payables. Cash used in investing
activities was $903,000 for the purchase of property and equipment. Net cash
provided by financing activities was $2,971,000, which resulted from the cash
received in connection with the issuance of stock and exercise of stock options
and warrants of $2,997,000.
During fiscal 2001, cash used in operating activities was $2,755,000, which
resulted primarily from the $3,304,000 net loss, an expense reimbursement from a
city government of $102,000, an increase in receivables of $1,328,000, and a
decrease in trade accounts payable of $595,000, partially offset by non-cash
charges, a decrease in inventories, and an increase in accrued liabilities
totaling $2,638,000. The expense reimbursement from a city government of
$102,000 relates to debt forgiven by the city government due the Company
achieving minimum headcount employment objectives. The $1,328,000 increase in
receivables was due to increase in revenue in fiscal 2001 as compared to fiscal
2000. The $595,000 decrease in trade accounts payable was due to timing of
year-end payables, especially for software and computer upgrades. The decrease
in inventories of $218,000 was due to record sales, implementation of lean
manufacturing initiatives and the write-down of certain raw material inventories
related to the LF140 catheter during the fourth quarter of fiscal 2001. Cash
provided by investing activities was $22,545,000 of proceeds from the maturity
of marketable securities, offset by purchase of marketable securities of
$13,628,000 and the purchase of property and equipment of $1,334,000. Net cash
provided by financing activities was $633,000, which resulted from the cash
received in connection with the issuance of stock and exercise of stock options
of $638,000.
During fiscal 2000, cash used in operating activities was $8,818,000, which
resulted primarily from the $10,590,000 net loss and a $1,231,000 increase in
inventory, partially offset by non-cash charges, a decrease in receivables, and
an increase in accounts payable totaling $3,044,000. The $1,231,000 increase in
inventories was due to the increase in the number of evaluation drive units in
the field as of July 31, 2000 as compared to July 31, 1999 and due to the
expected increase in future AngioJet System revenue. The $123,000 decrease in
receivables was due to reduction in days sales outstanding for U.S. AngioJet
System receivables as of July 31, 2000 as compared to July 31, 1999. The
$1,037,000 increase in accounts payable was due to the purchasing of software
and computers toward the end of fiscal 2000. The capital expenditures were paid
in August 2000. Cash used in investing activities was $10,756,000, which
resulted from the purchase of marketable securities of $24,122,000 and the
purchase of property and equipment of $1,852.000, partially offset by the
proceeds from the maturity of marketable securities of $15,205,000. Net cash
provided by financing activities was $14,476,000, which resulted from the net
proceeds of the $14,019,000 private placement offering and the exercise of stock
options of approximately $500,000.
Outlook
The Company expects that overall revenue from the AngioJet System,
primarily in the United States, will be in the range of $53 million to $57
million in fiscal 2003. Gross margin for fiscal 2003 is expected to be between
70% and 75% of total sales. The Company expects selling, general and
administrative expenses to increase in fiscal 2003 due to anticipated growth in
revenue. Research and development expenditures are expected to increase from the
fiscal 2002 level as the Company completes development of projects and invests
in development of new AngioJet System thrombectomy applications and related
products including clinical trials. The Company expects diluted earnings per
share before taxes for the full year in the range of $0.50 to $0.60. The net
income after tax diluted earnings per share is estimated to be in the range of
$0.31 to $0.38, not including any potential tax benefit related to a further
reduction of the deferred tax asset valuation allowance. The quarterly revenue
progression will be affected by the timing of new product introductions as well
as the timing of expenses related to marketing and clinical trials. In addition,
the Company expects that increasing working capital investments in trade
receivables and inventory will be required to support growing product sales.
Item 7A. 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 July 2002, 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.
The Company does not have any debt or off balance sheet liabilities.
Item 8. Financial Statements and Supplementary Data:
Report of Management
Management of Possis Medical Inc., is responsible for the integrity of the
financial information presented in this 10-K. The consolidated financial
statements have been prepared in accordance with accounting principles generally
accepted in the United States. Where necessary, they reflect estimates based on
management's judgment.
Management relies upon established accounting procedures and related
systems of internal control for meeting its responsibilities to maintain
reliable financial records. These systems are designed to provide reasonable
assurance that assets are safeguarded and that transactions are properly
recorded and executed in accordance with management's intentions.
The Audit Committee of the Board of Directors meets regularly with
management and its independent accountants to discuss audit scope and results,
internal control evaluations, and other accounting, reporting, and financial
matters. The independent accountants have access to the Audit Committee without
management's presence.
/s/
Robert G. Dutcher
Chairman, President and Chief Executive Officer
/s/
Eapen Chacko
Vice President of Finance and Chief Financial Officer
INDEPENDENT AUDITORS' REPORT
To the Shareholders of Possis Medical, Inc.:
We have audited the accompanying consolidated balance sheets of Possis
Medical, Inc. and subsidiaries (the Company) as of July 31, 2002 and 2001 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,
2002. Our audits also included the financial statement schedules listed in the
Index at Item 15. These consolidated financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit 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
subsidiaries as of July 31, 2002 and 2001 and the results of their operations
and their cash flows for each of the three years in the period ended July 31,
2002, in conformity with accounting principles generally accepted in the United
States of America. Also, in our opinion, such financial statement schedules,
when considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
Deloitte & Touche LLP
Minneapolis, Minnesota
September 12, 2002
POSSIS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
July 31, 2002 July 31, 2001
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 1).................................. $18,556,663 $ 9,515,751
Trade receivables (less allowance for doubtful
accounts and returns of $582,000 and
$659,000, respectively)........................................ 5,873,358 4,268,114
Inventories (Note 1)................................................ 4,134,817 4,216,629
Prepaid expenses and other assets................................... 762,615 342,995
Deferred tax asset (Note 3)......................................... 646,000 --
Total current assets...................................... 29,973,453 18,343,489
PROPERTY AND EQUIPMENT, net (Notes 1 and 2).............................. 3,092,644 3,665,751
DEFERRED TAX ASSET (Note 3).............................................. 11,623,000 --
TOTAL ASSETS............................................................. $44,689,097 $22,009,240
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable.............................................. $ 1,262,711 $ 1,321,485
Accrued salaries, wages, and commissions............................ 2,471,557 1,532,912
Current portion of long-term debt (Note 2).......................... -- 94,310
Other liabilities................................................... 1,200,763 989,556
Total current liabilities.................................. 4,935,031 3,938,263
COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' EQUITY (Note 4):
Common stock-authorized, 100,000,000 shares
of $0.40 par value each; issued and outstanding,
17,274,222 and 16,822,023 shares, respectively................. 6,909,689 6,728,809
Additional paid-in capital.......................................... 78,385,073 75,411,387
Unearned compensation............................................... (18,900) (22,700)
Retained deficit......................................................... (45,521,796) (64,046,519)
Total shareholders' equity..................................... 39,754,066 18,070,977
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............................... $44,689,097 $22,009,240
See notes to consolidated financial statements.
POSSIS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JULY 31
2002 2001 2000
Products sales (Note 8) .................................... $42,470,693 $30,000,547 $ 20,551,704
Cost of sales and other expenses:
Cost of medical products .................................... 12,689,835 11,736,253 10,139,799
Selling, general and administrative............................... 19,352,991 17,227,164 16,062,207
Research and development.......................................... 4,426,663 4,820,037 5,525,431
Total cost of sales and other expenses................... 36,469,489 33,783,454 31,727,437
Operating income (loss)........................................... 6,001,204 (3,782,907) (11,175,733)
Interest income................................................... 254,519 478,496 585,352
Net income (loss) before income taxes............................. 6,255,723 (3,304,411) (10,590,381)
Benefit for income taxes (Note 3)................................. 11,526,000 -- --
Net income (loss)................................................. $17,781,723 $(3,304,411) $(10,590,381)
Net income (loss) per common share:
Basic .................................................. $1.04 $(.20) $(.67)
Diluted .................................................. $ .96 $(.20) $(.67)
Weighted average number of common shares outstanding:
Basic .................................................. 17,078,759 16,739,277 15,697,135
Diluted .................................................. 18,602,156 16,739,277 15,697,135
See notes to consolidated financial statements.
POSSIS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JULY 31
2002 2001 2000
OPERATING ACTIVITIES:
Net income (loss) ................................................ $17,781,723 $(3,304,411) $(10,590,381)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation...................................................... 2,119,240 1,950,533 1,195,848
Stock compensation expense........................................ 186,940 196,199 271,534
Expense reimbursement from city government........................ (83,866) (101,938) --
Writedown due to impairment of assets............................. 70,000 87,582 338,922
(Gain) loss on disposal of assets................................. (3,850) 8,564 6,345
Amortization...................................................... -- -- 72,000
(Increase) decrease in trade receivables.......................... (1,605,244) (1,327,617) 122,814
(Increase) decrease in inventories................................ (635,188) 217,959 (1,230,513)
Increase in other current assets.................................. (419,620) (64,504) (30,584)
Increase in deferred tax assets................................... (11,526,000) -- --
(Decrease) increase in trade accounts payable..................... (58,774) (594,578) 1,036,890
Increase (decrease) in accrued and other current liabilities...... 1,140,205 177,499 (10,489)
Net cash provided by (used in) operating activities............. 6,965,566 (2,754,712) (8,817,614)
INVESTING ACTIVITIES:
Additions to property and equipment............................... (902,627) (1,334,142) (1,851,510)
Proceeds from sale of fixed assets................................ 7,344 1,402 13,192
Proceeds from sale/maturity of marketable securities.............. -- 22,545,000 15,205,000
Purchase of marketable securities................................. -- (13,627,749) (24,122,251)
Net cash (used in) provided by investing activities............. (895,283) 7,584,511 (10,755,569)
FINANCING ACTIVITIES:
Proceeds from issuance of stock and exercise
of options and warrants...................................... 2,997,151 637,941 14,480,598
Repayment of long-term debt....................................... (26,522) (5,418) (4,990)
Net cash provided by financing activities....................... 2,970,629 632,523 14,475,608
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS.................................................. 9,040,912 5,462,322 (5,097,575)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR........................................................... 9,515,751 4,053,429 9,151,004
CASH AND CASH EQUIVALENTS AT END OF YEAR.............................. $18,556,663 $ 9,515,751 $ 4,053,429
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Disqualified stock options............................................ $ 743,000 $ -- $ --
Issuance of restricted stock.......................................... 36,000 23,900 59,000
Accrued payroll taxes related to restricted stock..................... (12,600) 46,643 18,080
Inventory transferred to fixed assets................................. -- -- 23,280
Cancellation of restricted stock...................................... -- -- 1,977
See notes to consolidated financial statements.
POSSIS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY
Unearned
Common Stock Additional Stock
Number of Paid-in Compen- Retained
Shares Amount Capital sation Deficit Total
BALANCE AT JULY 31, 1999........... 14,998,360 $5,999,344 $60,608,623 $(141,467) $(50,151,727) $16,314,773
Employee stock purchase plan... 51,999 20,800 270,180 -- -- 290,980
Stock options issued to
directors and physicians
(Note 4) -- -- 97,853 -- -- 97,853
Stock options exercised 58,682 23,473 147,634 -- -- 171,107
Stock grants................... 5,000 2,000 37,000 (59,000) -- (20,000)
Unearned stock compensation
amortization................. -- -- -- 173,681 -- 173,681
Stock retired.................. (7,148) (2,860) 38,963 1,977 -- 38,080
Private placement
stock offering............... 1,594,049 637,620 13,380,892 -- -- 14,018,512
Net loss....................... -- -- -- -- (10,590,381) (10,590,381)
BALANCE AT JULY 31, 2000........... 16,700,942 6,680,377 74,581,145 (24,809) (60,742,108) 20,494,605
Employee stock purchase plan... 52,493 20,997 160,128 -- -- 181,125
Stock options issued to
directors and physicians
(Note 4)..................... -- -- 170,190 -- -- 170,190
Stock options exercised........ 72,127 28,851 427,965 -- -- 456,816
Stock grants................... 5,000 2,000 13,500 (23,900) -- (8,400)
Unearned stock compensation
amortization................. -- -- -- 26,009 -- 26,009
Stock retired.................. (8,539) (3,416) 58,459 -- -- 55,043
Net loss....................... -- -- -- -- (3,304,411) (3,304,411)
BALANCE AT JULY 31, 2001........... 16,822,023 6,728,809 75,411,387 (22,700) (64,046,519) 18,070,977
Employee stock purchase plan... 63,242 25,297 213,023 -- -- 238,320
Stock options issued to
directors and physicians
(Note 4)..................... -- -- 147,140 -- -- 147,140
Stock options and
warrants exercised........... 387,708 155,083 2,603,748 -- -- 2,758,831
Stock grants................... 2,124 850 22,550 (36,000) -- (12,600)
Unearned stock compensation
amortization................. -- -- -- 39,800 -- 39,800
Stock retired.................. (875) (350) (12,775) -- -- (13,125)
Disqualified stock options..... -- -- -- -- 743,000 743,000
Net income..................... -- -- -- -- 17,781,723 17,781,723
BALANCE AT JULY 31, 2002........... 17,274,222 $6,909,689 $78,385,073 $(18,900) $(45,521,796) $39,754,066
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business Possis Medical, Inc. (the Company) is a developer,
manufacturer and marketer of medical devices, operating in one business segment.
The Company was incorporated in 1956 and has operated several businesses over
the last 46 years. In 1990, the Company decided to focus on medical products and
changed its name 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. Possis Medical
received AngioJet Rheolytic Thrombectomy System U.S. marketing approval for use
in arterio-venous (AV) access hemodialysis grafts in December 1996, for use in
native coronary arteries and coronary bypass grafts in March 1999, and for use
in leg arteries in April 2000.
The Company's thrombectomy products utilize new technology and the
production processes and equipment used to manufacture them are unique and have
been designed and constructed by Company employees. In addition, the medical
device industry is subject to the laws and oversight of the United States Food
and Drug Administration as well as non-U.S. regulatory bodies in countries where
the Company does business.
Basis of Consolidation The consolidated financial statements include the
accounts of Possis Medical, Inc. and its wholly-owned subsidiaries: Possis
Holdings, Inc., JEI Liquidation, Inc. (Jet Edge) and Possis Medical Europe B.V.,
after elimination of intercompany accounts and transactions.
Use of Estimates The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Cash Equivalents The Company considers highly liquid investments with
original maturities of three months or less to be cash equivalents.
Marketable Securities During 2001 and 2000 the Company invested in
commercial paper with original maturities of less than six months. These
instruments are classified as held to maturity and carried at amortized cost,
which approximates fair value.
Inventories Inventories are stated at the lower of cost (on the first-in,
first-out basis) or market. Inventory balances at July 31 were as follows:
2002 2001
Finished goods.................. $1,444,973 $1,935,590
Work-in-process................. 805,911 1,432,536
Raw materials................... 1,883,933 848,503
$4,134,817 $4,216,629
Property and Equipment Property is carried at cost and depreciated using
the straight-line method over the estimated useful lives of the various assets.
Property and equipment balances and corresponding lives at July 31 were as
follows:
2002 2001 Life
Leasehold improvements $1,454,833 $1,454,833 10 years
Equipment 7,536,959 6,814,596 3 to 10 years
Assets in construction 138,271 255,502 N/A
9,130,063 8,524,931
Less accumulated depreciation 6,037,419 4,859,180
Property and equipment - net $3,092,644 $3,665,751
Goodwill Goodwill was 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
Graft acquired in 1988. As of July 31, 2000, the value of goodwill was
determined to be impaired, and the remaining balance of $125,922 was written off
as of July 31, 2000.
Impairment of Long-Lived Assets In fiscal 2002, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 replaces SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." The Financial Accounting Standards Board (FASB)
issued SFAS No. 144 to establish a single accounting model, based on the
framework established in SFAS No. 121, as SFAS No. 121 did not address the
accounting for a segment of a business accounted for as a discontinued operation
under Accounting Principle Board (APB) Opinion No. 30, "Reporting the Results of
Operations - Reporting the Effects of Disposal of a Segment of a Business and
Extraordinary, Unusual and Infrequent Occurring Events and Transactions." SFAS
No. 144 also resolves significant implementation issues related to SFAS No. 121.
The provisions of SFAS No. 144 are to be applied prospectively. There was no
impact on the Company's financial statements due to adoption of SFAS No. 144.
Impairment of long-lived assets requires that long-lived assets be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable. An impairment loss is
recognized, based on the difference between the carrying value and the fair
market value of an asset, when the estimated future undiscounted cash flows from
the asset are less than the carrying value of the asset. In fiscal 2002 and
2001, the Company wrote down $70,000 and $87,582 of a fixed asset (included in
selling, general and administrative expense). The value of this fixed asset was
determined to be impaired due to the unlikely continued use of this fixed asset.
The Company wrote the asset down to net realizable value. In fiscal 2000, the
Company wrote down $213,000 of fixed assets (included in cost of goods sold) and
$125,922 of goodwill (included in selling, general and administrative expense)
related to the Company's vascular graft business. The value of these vascular
assets was determined to be impaired due to the reduction of sales by the
Company's vascular graft distributor.
Income Taxes The Company accounts for income taxes under SFAS No. 109,
"Accounting for Income Taxes." Deferred taxes are provided on an asset and
liability method whereby deferred tax assets are recognized for deductible
temporary differences and operating loss or tax credit carryforwards and
deferred tax liabilities are recognized for taxable temporary differences.
Temporary differences are the variances between the amounts of assets and
liabilities recorded for income tax and financial reporting purposes. Deferred
tax assets are reduced by a valuation allowance to reflect the possibility that
some portion or all of the deferred tax assets may not be realized.
Revenue Recognition Revenues associated with products that are already
maintained at customer locations are recognized when the Company receives a
valid purchase order from the customer. At this time ownership and risk of loss
is transferred to the customer. Revenues associated with products that are not
maintained at the customer locations are recognized when a valid purchase order
is received and the products are received at the customer's location. At this
time title and risk of loss is transferred to the customer. Provisions for
returns are provided for in the same period the related revenues are recorded.
Shipping and Handling In fiscal 2001, the Company adopted Emerging Issues
Task Force ("EITF") 00-10, "Accounting for Shipping and Handling Costs." EITF
00-10 requires all amounts billed to customers in a sales transaction related to
shipping and handling to be classified as product sales. The Company records
costs related to shipping and handling in cost of medical products. Prior period
product sales and cost of medical products have been adjusted for this change,
which had no effect on previously reported net losses.
Fair Value of Financial Instruments The carrying value of all financial
instruments approximates fair value due to the short-term nature of the
instruments.
Income (Loss) Per Share Income per share for fiscal 2002 and loss per share
for fiscal 2001 and fiscal 2000 is computed by dividing net income (loss) by the
weighted average number of common shares outstanding. Warrants and options
representing 373,468, 3,826,089 and 2,549,264 shares of common stock at July 31,
2002, 2001 and 2000, respectively, have been excluded from the computations
because their effect is antidilutive.
Reclassifications Certain reclassifications have been made to the fiscal
2001 and fiscal 2000 financial statements to conform to the presentation used in
the fiscal 2002 financial statements. The reclassifications had no effect on
shareholders' equity or net losses as previously reported.
Derivative Instruments and Hedging Activities In fiscal 2000, the Company
adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended by SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities." SFAS No. 133 establishes accounting
and reporting standards for derivative instruments and for hedging activities.
It requires that all derivatives, including those embedded in other contracts,
be recognized as either assets or liabilities and that those financial
instruments be measured at fair value. The accounting for changes in the fair
value of derivatives depends on their intended use and designation. Management
has reviewed the requirements of SFAS No. 133 and has determined that they have
no free-standing or embedded derivatives. All contracts that contain provisions
meeting the definition of a derivative also meet the requirements of, and have
been designated as, normal purchases and sales. The Company's policy is to not
use free-standing derivatives and to not enter into contracts with terms that
cannot be designated as normal purchases or sales.
Accounting for Asset Retirement Obligations In August 2001, the FASB issued
SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143
requires entities to record the fair value of a liability for an asset
retirement obligation in the period in which it is incurred. When the liability
is initially recorded, the entity capitalizes the cost by increasing the
carrying amount of the related long-lived asset. Over time, the liability is
accreted to its present value each period, and the capitalized cost is
depreciated over the useful life of the related asset. Upon settlement of the
liability, an entity either settles the obligation for its recorded amount or
incurs a gain or loss upon settlement. SFAS No. 143 is effective for the Company
in fiscal 2003. The Company has not yet determined the impact of SFAS No. 143 on
its financial position and results of operations.
2. LONG-TERM DEBT
Long-term debt at July 31, 2002 and 2001 is as follows:
2002 2001
Note payable, interest at 4.5%, interest and principal due June
1999 and August 2001, collateralized by the Company's equipment.......... $ -- $87,500
Notes payable - other ..................................................... -- 6,810
-- 94,310
Less current maturities
-- 94,310
$ -- $ --
In fiscal 2001, the Company's note payable and accrued interest to a city
government in the amount of $101,938 was forgiven. The note payable and accrued
interest were forgiven due to achieving minimum headcount employment objectives
with the city government.
In August 2002, the Company's note payable and accrued interest to a city
government in the amount of $83,538 was forgiven. The note payable and accrued
interest were forgiven due to maintaining minimum headcount employment
objectives with the city government.
3. INCOME TAXES
At July 31, 2002, the Company had net operating loss carryforwards of
approximately $53,378,000 for federal tax purposes, which expire in 2010 through
2021, and $15,587,000 for Minnesota tax purposes, which expire in 2010 through
2016.
In addition, at July 31, 2002, the Company has approximately $2,408,000 and
$772,000 in federal and state tax credits, respectively, substantially all of
which are research and development tax credits, which expire from 2003 through
2019, and approximately $65,000 alternative minimum tax credit which does not
expire.
Deferred tax assets and liabilities as of July 31, 2002 and 2001 are
described in the table below.
2002 2001
Current assets (liabilities):
Allowance for doubtful accounts and returns......................... $ 271,000 $ 298,000
Inventory........................................................... 188,000 252,000
Employee compensation and benefits.................................. 126,000 111,000
Other ............................................................. 61,000 79,000
646,000 740,000
Valuation allowance................................................. -- (740,000)
Net ............................................................. $ 646,000 $ --
Long-term assets:
Net operating losses................................................ $19,219,000 $20,710,000
Amortization of patents............................................. 532,000 459,000
Tax credits......................................................... 2,421,000 2,421,000
Depreciation........................................................ (31,000) (99,000)
22,141,000 23,491,000
Valuation allowance................................................. (10,518,000) (23,491,000)
Net ............................................................. $11,623,000 $ --
The effective income tax rate differed from the U.S. federal statutory rate
for each of the three years ended July 31, 2002, 2001 and 2000 as follows:
2002 2001 2000
Tax expense (benefit) on income (loss) from
continuing operations computed at
statutory rate of 35%............................... $ 2,190,000 $(1,157,000) $(3,707,000)
Change in valuation allowance............................ (13,713,000) 1,047,000 3,644,000
Other.................................................... (3,000) 110,000 63,000
Total income tax (benefit) expense....................... $(11,526,000) $ -- $ --
4. COMMON STOCK
Private Placement Offerings In March 2000, in conjunction with a private
placement offering, the Company issued 1,594,049 shares of its common stock to
various investors and received $15,000,000 in gross proceeds. The Company
incurred issuance costs of $981,488. In addition, the Company issued 318,810
warrants to purchase shares of its common stock. The exercise price is $12.67
per share. These warrants expire in March 2004.
In May and June 1999, in conjunction with a private placement offering, the
Company issued 827,852 shares of its common stock to various investors and
received $7,000,000 in gross proceeds. The Company incurred issuance costs of
$300,000. In addition, the Company issued 124,178 warrants to purchase shares of
its common stock. The exercise price is $11.43 per share for 106,509 warrants
and $11.69 per share for 17,669 warrants. These warrants expire in May and June
2003.
Stock Options In December 1999, the Company established the 1999 Stock
Compensation Plan (the 1999 Plan), which replaced the 1992 Stock Compensation
Plan (the 1992 Plan). The 1992 Plan replaced the 1985 and 1983 plans. Although
the 1992, 1985 and 1983 plans remain in effect for options outstanding, no new
options may be granted under these plans.
The 1999 Plan authorizes awards of the following type 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 December 16, 2009, 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 1999 Plan originally was 2,000,000 shares, a maximum of 2,000,000 of
which may be issued as incentive stock options. The total number of shares of
stock reserved and available for distribution under the 1999 Plan are being
increased annually beginning on August 1, 2000 by 2% of the number of shares of
the Company's common stock outstanding on July 31 of the prior fiscal year.
At July 31, 2002, there were 2,941,974 shares reserved for outstanding
options under all plans and 671,263 shares available for granting of options
under the 1999 Plan.
In fiscal 2002, 2001 and 2000, the Company granted 7,915, 40,289 and 13,609
compensatory options, respectively, to its outside directors in lieu of cash
payments for directors fees. Fiscal 2002, 2001 and 2000 options were granted
under the 1999 Plan. These options vest six months after date of grant and
expire not more than ten years from date of grant. The expense associated with
compensatory options to outside directors were approximately $67,000, $89,000
and $55,000 for the years ended July 31, 2002, 2001 and 2000, respectively.
In fiscal 2002, 2001 and 2000, the Company granted 1,000, 13,000 and 5,000
compensatory options, respectively, to various physicians in lieu of cash
payments for services. The Company's policy is to treat these options under
variable plan accounting in accordance with SFAS No. 123 and related Emergency
Issues Task Force Issues. These options were granted under the 1999 Plan and
vest ratably over a six month to a four year period and expire not more than ten
years from date of grant. The expense associated with non-employee options was
approximately $50,000, $81,000 and $43,000 for the years ended July 31, 2002,
2001 and 2000, respectively.
A summary of changes in outstanding options for each of the three years
ended July 31, 2002 follows:
2002 2001 2000
Shares under option at
beginning of year.............................. 3,246,061 1,969,236 1,621,070
Options granted................................... 295,045 1,800,865 586,109
Options exercised................................. (379,884) (72,127) (58,682)
Options canceled.................................. (219,248) (451,913) (179,261)
Shares under option at end of year................ 2,941,974 3,246,061 1,969,236
Shares exercisable at end of year................. 1,878,695 1,009,283 1,011,298
Stock option weighted average exercise prices during fiscal 2002, 2001 and
2000 are summarized below:
2002 2001 2000
Outstanding at beginning of year..................... $ 7.54 $10.43 $10.89
Granted ........................................ 16.45 5.19 8.97
Exercised ........................................ 7.38 6.33 3.53
Canceled ........................................ 9.09 10.27 12.56
Outstanding at end of year........................... 8.43 7.54 10.43
The following table summarizes information concerning options outstanding
and exercisable options as of July 31, 2002:
Weighted
Average
Range of Remaining Weighted Weighted
Exercise Shares Contractual Life Average Shares Average
Price Outstanding in Years Exercise Price Exercisable Exercise Price
$ 1 - 6 1,092,691 8.04 4.45 804,090 4.80
6 - 12 1,170,671 7.06 7.72 653,396 7.98
12 - 17 359,912 5.40 14.45 302,825 14.35
17 - 21 318,700 7.44 17.88 118,384 18.22
In fiscal 1999, the Company granted 2,500 shares of restricted stock to
employees under the terms of the 1992 Plan, which vest 1,250 shares each year in
fiscal 2000 and 2001. Approximately $8,000 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 withholding taxes. In case
of termination of the employees, unvested shares are forfeited. Unearned
compensation of $20,250 was recorded at the date of grant and is being
recognized over the vesting period.
In fiscal 2000, the Company granted 3,000 shares of restricted stock to an
employee under the terms of the 1992 Plan, which vest 1,500 shares each year in
fiscal 2000 and 2001 and 2,000 shares of restricted stock to an employee under
the terms of the 1999 Plan which vest in fiscal 2001. Approximately $20,000 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 withholding taxes. In case of termination of the employees, unvested shares
are forfeited. Unearned compensation of $59,000 was recorded at the date of
grant and is being recognized over the vesting period.
In fiscal 2001, the Company granted 5,000 shares of restricted stock to an
employee under the terms of the 1999 Plan, which vest 2,500 shares each year in
fiscal years 2002 and 2003. The fair market value of the restricted shares was
approximately $61,000 as of July 31, 2001. Approximately $8,000 was accrued to
pay the estimated withholding taxes on those shares as management believes that
the employee will elect to receive fewer shares in lieu of paying the
withholding taxes. In case of termination of the employee, unvested shares are
forfeited. Unearned compensation of approximately $24,000 was recorded at the
date of grant and is being recognized over the vesting period.
In fiscal 2002, the Company granted 2,124 shares of restricted stock to
Board of Directors under the terms of the 1999 Plan, which vest in twelve
months. The fair market value of the restricted shares was approximately $21,000
as of July 31, 2002. Approximately $13,000 was accrued to pay the estimated
withholding taxes on those shares as management believes that the Board of
Directors will elect to receive fewer shares in lieu of paying the withholding
taxes. In case of termination of the Board of Directors, unvested shares are
forfeited. Unearned compensation of $36,000 was recorded at the date of grant
and is being recognized over the vesting period.
In fiscal 2002, 2001 and 2000, total compensation expense of approximately
$40,000, $26,000 and $174,000, respectively, were recognized on these restricted
stock grants.
Effective August 1, 1996, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation." As permitted by SFAS No. 123, the Company has elected
to continue following the guidance of APB No. 25 for measurement and recognition
of stock-based transactions with employees. No compensation cost has been
recognized for stock options issued under the 1999 and 1992 Plans because the
exercise price for all options granted was at least equal to the fair value of
the common stock at the date of grant except as noted previously in this note.
If compensation cost for the Company's stock option and employee purchase plans
had been determined based on the fair value at the grant dates for grants during
fiscal 2002, 2001 and 2000, consistent with the method provided in SFAS No. 123,
the Company's net income (loss) and income (loss) per share would have been as
follows:
2002 2001 2000
Net income (loss):
As reported................................... $17,781,723 $(3,304,411) $(10,590,381)
Pro forma..................................... 13,602,723 (7,184,411) (13,283,866)
Income (loss) per share - basic:
As reported................................... $1.04 $(.20) $(.67)
Pro forma..................................... .80 (.43) (.85)
Income (loss) per share - diluted:
As reported................................... $ .96 $(.20) $(.67)
Pro forma..................................... .73 (.43) (.85)
The fair value of options granted under the various option plans during
fiscal 2002, 2001, and 2000 was estimated on the date of grant using the
Black-Sholes option pricing model with the following weighted average
assumptions and results:
2002 2001 2000
Dividend yield................................... None None None
Expected volatility.............................. 79%-86% 82% 85%
Risk-free interest rate.......................... 5.4% 3.0% 6.0%
Expected life of option.......................... 120 mo. 120 mo. 120 mo.
Fair value of options on grant date.............. $4,179,000 $8,648,000 $4,362,000
Stock Warrants Stock purchase warrants held by unrelated parties
representing the right to purchase 26,400 shares of the Company's common stock
at $8.52 a share were outstanding as of July 31, 2002. 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 any sixty consecutive
calendar days.
In July 1998, the Company issued to various investors 110,640 stock
purchase warrants in conjunction with a private placement of convertible
debentures and are exercisable into common stock at $15.58 per share. These
warrants expired on July 15, 2002.
In May and June 1999, the Company issued 106,509 and 17,669 warrants,
respectively, to various investors in conjunction with the Company's private
placement offering. These warrants expire in May and June 2003 and are
exercisable into common stock at $11.43 and $11.69, respectively. During fiscal
2002, 19,150 of these warrants were exercised. As of July 31, 2002, the
remaining 105,028 warrants were outstanding and unexercised.
In March 2000, the Company issued 318,810 warrants to various investors in
conjunction with the Company's private placement offering. These warrants expire
in March 2004 and are exercisable into common stock at $12.67. During fiscal
2002, 13,984 of these warrants were exercised. As of July 31, 2002, the
remaining 304,826 warrants were outstanding and unexercised.
A summary of changes in outstanding warrants for each of the three years
ended July 31 follows:
2002 2001 2000
Warrants outstanding at beginning of year.................... 580,028 580,028 261,218
Warrants issued.............................................. -- -- 318,810
Warrants exercised........................................... (33,134) -- --
Warrants expired............................................. (110,640) -- --
Warrants outstanding at end of year.......................... 436,254 580,028 580,028
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 63,242 shares in
fiscal 2002, 52,493 shares in fiscal 2001 and 51,999 shares in fiscal 2000 under
this Plan.
5. 401 K PLAN
The Company has an employees' savings and profit sharing plan for all
qualified employees who have completed six months 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, 2002, 2001 and 2000 were $276,196, $250,179 and
$260,482, respectively.
6. RELATED PARTY TRANSACTIONS
A Director of the Company at times performs outside legal services for the
Company. During fiscal 2002, 2001 and 2000 the amount of these services were
approximately $2,000, $74,000 and $1,000, respectively. A Director of the
Company is a Principal of an investment banking firm that performed services for
the Company and which received fees of $925,000 during fiscal 2000 in connection
with a private placement financing by the Company.
7. COMMITMENTS AND CONTINGENCIES
The Company's medical products operation is conducted from a leased
facility under an operating lease which expires in fiscal 2006. The lease can be
canceled by either party with notice and payment of a termination fee.
The Company is also leasing a sales office under an operating lease that
expires in 2005. The future annual rentals on this operating lease are
approximately $15,000 per year through 2005.
Total rental expense charged to operations was approximately $261,000,
$258,000 and $260,000 for the years ended July 31, 2002, 2001, and 2000,
respectively.
Future minimum payments under the non-cancelable operating leases at July
31, 2002 were:
Year Ended
July 31 Amount
2003 $257,000
2004 257,000
2005 257,000
2006 151,000
Total minimum lease payments $922,000
8. 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. The
Company evaluates revenue performance based on the worldwide revenues of each
major product line and profitability based on an enterprise-wide basis due to
shared infrastructures to make operating and strategic decisions.
Total revenues from sales in the United States and outside the United
States for each of the three years ended July 31, 2002, 2001 and 2000 are as
follows:
2002 2001 2000
United States............... $42,032,901 $29,628,777 $20,158,934
Outside the United States... 437,792 371,770 392,770
Total revenues.............. $42,470,693 $30,000,547 $20,551,704
In fiscal 2002, 2001 and 2000 there were no individual customers with sales
exceeding 10% of total revenues.
9. PRODUCT SUPPLY AND DISTRIBUTION AGREEMENTS
In December 1998, the Company entered into an exclusive worldwide supply
and distribution agreement for its Perma-Seal Dialysis Access Graft. The
distributor defaulted under the agreement by failing to comply with
contractually obligated levels of product purchases and with payment schedules.
In November 2000, the distributor indicated its desire to terminate the
distribution agreement and return unsold product. The Company has settled all
outstanding litigation with the Perma-Seal distributor, and has terminated the
distribution relationship. The settlement had no impact on the financial
statements.
10. SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
Fiscal Year Ended July 31, 2002
First Second Third Fourth
Quarter Quarter Quarter Quarter
Product Sales........................................... $9,585,268 $10,223,788 $10,755,468 $11,906,169
Gross profit............................................ 6,585,286 7,013,293 7,601,264 8,581,015
Net income-before income taxes.......................... 938,528 1,625,349 1,686,922 2,004,924
Net income-after income taxes........................... 938,528 1,625,349 1,686,922 13,530,924
Net income per common share-before income taxes
Basic................................................ $ 0.06 $ 0.10 $ 0.10 $ 0.12
Diluted.............................................. 0.05 0.09 0.09 0.11
Net income per common share-after income taxes
Basic................................................ $ 0.06 $ 0.10 $ 0.10 $ 0.78
Diluted.............................................. 0.05 0.09 0.09 0.74
Fiscal Year Ended July 31, 2001
First Second Third Fourth
Quarter Quarter Quarter Quarter
Product Sales........................................... $6,578,110 $ 6,947,017 $ 7,411,418 $ 9,064,002
Gross profit............................................ 3,463,065 3,993,346 4,865,420 5,943,113
Net income-before income taxes.......................... (2,371,958) (1,598,409) 28,726 637,232
Net income-after income taxes........................... (2,371,958) (1,598,409) 28,726 637,232
Net income per common share-before income taxes
Basic and diluted.................................... $(0.14) $(0.10) $ -- $ 0.04
Net income per common share-after income taxes
Basic and diluted.................................... $(0.14) $(0.10) $ -- $ 0.04
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure:
During fiscal 2002 and 2001, there were no changes in or disagreements with
the Company's independent certified public accountants on accounting procedures
or accounting and financial disclosures.
PART III
Item 10. Directors and Executive Officers of the Registrant:
Information under the heading "Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance" in the Proxy Statement is
incorporated herein by reference. The information regarding executive officers
is included in Part I of this report under the caption "Executive Officers of
the Registrant."
Item 11. Executive Compensation:
Information regarding compensation of directors and officers for the fiscal
year ended July 31, 2002 is in the Proxy Statement under the heading "Election
of Directors" and "Executive Compensation" and is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management:
The security ownership of certain beneficial owners and management is
contained in the Proxy Statement under the heading "Common Stock Ownership" and
is incorporated herein by reference.
Information regarding securities authorized for issuance under equity
compensation plans is contained in the Proxy Statement under the heading
"Securities authorized for issuance under equity compensation plan" and is
incoroporated herein by reference.
Item 13. Certain Relationships and Related Transactions:
Information regarding related party transactions is contained under the
heading "Certain Relationships and Related Transactions" in the Proxy Statement
and is incorporated herein by reference.
Item 14. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. The term "disclosure
controls and procedures" is defined in Rules 13a-14(c) and 15d-14(c) of the
Securities and Exchange Act of 1934 ("Exchange Act"). These rules refer to the
controls and other procedures of a company that are designed to ensure that
information required to be disclosed by a company in the reports that it files
under the Exchange Act is recorded, processed, summarized and reported within
required time periods. Our chief executive officer and our chief financial
officer have evaluated the effectiveness of the Company's disclosure controls
and procedures as of a date within 90 days before the filing of this yearly
report (the "Evaluation Date"), and they have concluded that, as of the
Evaluation Date, such controls and procedures were effective at ensuring that
required information will be disclosed on a timely basis in our reports filed
under the Exchange Act.
(b) Changes in internal controls. We maintain a system of internal
accounting controls that are designed to provide reasonable assurance that our
books and records accurately reflect our transactions and that our established
policies and procedures are carefully followed. For the year ended July 31,
2002, there were no significant changes to our internal controls or in other
factors that could significantly affect our internal controls, and we have not
identified any significant deficiencies or material weaknesses in our internal
controls.
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K:
(a) 1. Financial Statements
The following financial statements of the Company, accompanied by an
Independent Auditors' Report, are contained in Part II, Item 8:
Consolidated Balance Sheets, July 31, 2002 and 2001
Consolidated Statements of Operations for each of the three years in the
period ended July 31, 2002
Consolidated Statements of Cash Flows for each of the three years in the
period ended July 31, 2002.
Consolidated Statements of Changes in Shareholders' Equity for each of the
three years in the period ended July 31, 2002.
Notes to Consolidated Financial Statements
2. Schedules
The following financial statement schedules are submitted herewith:
SCHEDULE II - Valuation Accounts
Other schedules are omitted because they are not required or are not
applicable or because the required information is included in the financial
statements listed above.
3. Exhibits
Certain of the following exhibits are incorporated by reference from prior
filings. The form with which each exhibit was filed and the date of filing are
indicated on the following three pages.
Exhibit Form Date Filed Description
3.1 10-K Fiscal year ended Articles of incorporation, as amended
July 31, 1994 and restated to date
3.2 10-K Fiscal year ended Bylaws, as amended and restated
July 31, 1999 to date
4.1 8-A December 13, Rights Agreement, dated December 12,
1996 1996, between the Company and
Norwest Bank Minnesota N.A., as
rights agent
4.2 10-K November 23, Debenture Agreement with St. Paul
1966 Fire and Marine Company and
Western Life Insurance Company
and form of debenture rates and
warrants
4.3 8-K May 12, 1999 Form of Warrant to investors of the
Purchase Agreement dated May 11,
1999
4.4 8-K March 14, 2000 Private placement Purchase Agreement
dated March 6, 2000 between the
Company and the investors listed
therein
4.5 8-K March 14, 2000 Registration Rights Agreement between
the Company and the investors in the
Purchase Agreement dated March 6,
2000
4.6 8-K March 14, 2000 Form of Warrant to investors of the
Purchase Agreement dated March 6,
2000
10.1 S-1 June 30, 1988 Form of indemnification agreement
with officers and directors of
Registrant
* 10.2 10-K Fiscal year ended Form of incentive stock option
July 31, 1989 agreement for officers
* 10.3 10-K Fiscal year ended Form of stock option agreement for
July 31, 1989 directors
* 10.4 S-8 June 16, 1998 1992 Stock Compensation Plan
* 10.5 10-K Fiscal year ended Form of nonqualified stock option
July 31, 1993 agreement for officers (1992 Plan)
* 10.6 10-K Fiscal year ended Form of incentive stock option
July 31, 1993 agreement for officers (1992 Plan)
Exhibit Form Date Filed Description
* 10.7 10-K Fiscal year ended Form of nonqualified stock option
July 31, 1993 agreement for 1992 directors' fees
(1992 Plan)
10.8 10-Q Quarter ended Lease agreement for corporate
January 31, 1996 headquarters and manufacturing
facility dated December 15, 1995
* 10.9 10-K Fiscal Year ended Change in Control Termination
July 31, 2001 Pay Plan - Amended effective April
3, 2001
* 10.10 10-K Fiscal year ended 1999 Stock Compensation Plan
July 31, 1999
* 10.11 10-K Fiscal year ended Form of nonqualified stock option
July 31, 2002 agreement(1999 Plan)
* 10.12 10-K Fiscal year ended Form of incentive stock option
July 31, 2002 agreement(1999 Plan)
21 10-K Fiscal year ended Subsidiaries of registrant
July 31, 2002
23 10-K Fiscal year ended Consent of independent certified
July 31, 2002 public accountants
99.1 10-K Fiscal year ended Risk Factors
July 31, 2002
99.2 10-K Fiscal year ended Certification of Chief Executive
July 31, 2002 Officer pursuant to Section 906 of
the Sarbanes-Oxley Act
99.3 10K Fiscal year ended Certification of Chief Financial
July 31, 2002 Officer pursuant to Section 906 of
the Sarbanes-Oxley Act
* Indicates management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
Possis Medical, Inc. filed no reports on Form 8-K during the quarter ended
July 31, 2002.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
POSSIS MEDICAL, INC.
by: /s/ Eapen Chacko
Eapen Chacko
Chief Financial Officer and
Vice President of Finance
Dated: October 29, 2002
SECTION 302 CERTIFICATION
I, Robert G. Dutcher, certify that:
1. I have reviewed this annual report on Form 10-K of Possis Medical, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a. designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c. presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: October 29, 2002
Robert G. Dutcher
Chairman, President and
Chief Executive Officer
SECTION 302 CERTIFICATION
I, Eapen Chacko, certify that:
1. I have reviewed this annual report on Form 10-K of Possis Medical, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a. designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c. presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: October 29, 2002
Eapen Chacko
Chief Financial Officer and
Vice President of Finance
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Signature Title Date
/s/ Robert G. Dutcher Chairman, President and October 29, 2002
Robert G. Dutcher Chief Executive Officer
/s/ Eapen Chacko Chief Financial Officer October 29, 2002
Eapen Chacko Vice President of Finance
/s/ Mary K. Brainerd Director October 29, 2002
Mary K. Brainerd
/s/ Seymour J. Mansfield Director October 29, 2002
Seymour J. Mansfield
/s/ William C. Mattison, Jr. Director October 29, 2002
William C. Mattison, Jr.
/s/ Whitney A. McFarlin Director October 29, 2002
Whitney A. McFarlin
/s/ Donald C. Wegmiller Director October 29, 2002
Donald C. Wegmiller
/s/ Rodney A. Young Director October 29, 2002
Rodney A. Young
POSSIS MEDICAL, INC.
VALUATION ACCOUNTS
YEARS ENDED JULY 31, 2002, 2001 AND 2000
Column A Column B Column C Column D
Additions
Balance at Charged to
Beginning Costs and Deductions Balance at
Description of Year Expenses Write-offs End of Year
Allowance for doubtful accounts
and returns - deducted from trade
receivables in the balance sheet:
Year ended July 31, 2002 $ 659,000 $1,305,000 $ 1,382,000 $ 582,000
Year ended July 31, 2001 672,000 1,297,000 1,310,000 659,000
Year ended July 31, 2000 489,000 502,000 319,000 672,000
Valuation allowance on
deferred tax asset:
Year ended July 31, 2002 $24,231,000 $ -- $13,713,000 $10,518,000
Year ended July 31, 2001 23,184,000 1,047,000 -- 24,231,000
Year ended July 31, 2000 19,540,000 3,644,000 -- 23,184,000
POSSIS MEDICAL, INC.
FORM 10-K - ITEM 14(a)3
EXHIBIT INDEX
Exhibit
Number Description
10.11 Form of nonqualified stock option agreement (1999 Plan)
10.12 Form of incentive stock option agreement (1999 Plan)
21 Subsidiaries of Possis Medical, Inc.
23 Consent of independent certified public accountants
99.1 Risk Factors
99.2 Certification of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act
99.3 Certification of Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act