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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, 2003
[ ] 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. YES X NO ____
Indicate by checkmark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act. Yes__X__ No____
Aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity, as of
January 31, 2003: $330,798,000.
The number of shares outstanding of the registrant's common stock as of
September 25, 2003: 17,756,531.
Certain responses in Part III are incorporated herein by reference to
information contained in the Company's definitive Proxy Statement for its 2003
annual meeting to be filed on or before November 10, 2003 ("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 47 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.
Products
ANGIOJET(R) RHEOLYTIC(TM) THROMBECTOMY SYSTEM. The development of blood
clots in 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 and impediment of normal flow
during invasive procedures or pressure impeding venous return for 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 through the bloodstream (embolize) 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, hemodialysis vascular access failure, pulmonary embolism, and deep vein
thrombosis.
Based on its clinical trial results, Food and Drug Administration ("FDA")
clearances, approximately 195 scientific journal articles, and approximately
150,000 clinical procedures 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 over a
guidewire 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 enclosed
within the catheter 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 near the tip.
The jets then macerate or pulverize the blood clot into microscopic fragments,
which are ultimately 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 markets the XMI(R), XVG(R), Xpeedior(R) and AVX(TM)
catheters. Each of these catheters feature the Company's 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 than previous catheters with "mural
thrombus," the older, more organized material that adheres to vessel walls and
can complicate patient outcomes.
The AngioJet 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
(both bare metal and drug eluting), 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 exist, 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
indicate 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 incidence
worldwide and the Company's estimated AngioJet System annual market potential.
AngioJet
Estimated System
Annual Annual
Worldwide Market
Incidence 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 (4) Embolic Protection in SVG 306,000 306,000
Intervention
Lungs (4) Pulmonary Embolism 400,000 200,000
Venous (4) Venous Thrombosis 1,200,000 144,000
Total 9,841,000 2,017,000
(1) Marketed under March 1999 FDA approval.
(2) Marketed under April 2000 FDA approval.
(3) Marketed under December 1996 approval.
(4) In research and development phase.
In April 2000, March 1999 and December 1996, the Company received 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 in the trial with AngioJet costs an average of
$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.
In July 2003, the Company completed patient enrollment planned for the TIME
1 clinical study of the AngioJet NV150 catheter system and Possis Microcatheter
to treat acute ischemic stroke. As has been reported, AngioJet treatment in the
study was safe, but clinically significant clot removal was seen in only about
30% of the patients. This outcome was not sufficient to support a Phase 2 study
at this time. The Company intends to continue its research efforts for treating
ischemic stroke along several paths, including using drugs and our device
together, to develop a therapy with the right balance of safety and
effectiveness.
Graft Products
The Company has ceased pursuing development and commercialization of its
graft products and the assets associated with these products have been written
off. The Company is not optimistic that the assets can bring significant value
in a sale.
Research and Development
The Company's product development efforts are focused on product
enhancements for existing approved indications, new products for existing
indications, new products for new clinical indications and general upgrades to
the AngioJet 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
2004, the Company's research and development expenses are expected to increase
from fiscal 2003 levels in order to expand the current realizable market for the
AngioJet System, as well as to expand into new areas, such as distal embolic
protection.
As of September 30, 2003, the Company employed approximately 19 full-time
employees in research and development, including 16 in new product concept
screening, prototype building, product and process development and validation,
and three in regulatory and clinical affairs. The Company performs substantially
all of its research and development activities at its headquarters in Minnesota.
The Company spent $7,503,000, $4,427,000 and $4,820,000 in fiscal 2003, 2002 and
2001, respectively, on medical product research and development exclusively
related to the AngioJet System.
Manufacturing
The Company assembles and tests its entire product line in-house and has
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. Most of the
Company's raw materials and its components and select subassemblies used in its
products are purchased from outside suppliers and are generally readily
available from multiple sources; however, some of the raw material items are
available only from single source suppliers.
The Company's manufacturing facilities are subject to periodic inspections
by regulatory authorities, including Good Manufacturing Practice ("GMP")
compliance inspections by the FDA and a Notified Body, a private sector audit
and test house designated by European Union competent authorities (Ministries of
Health) to determine whether a product can display the CE mark, which is
necessary for marketing in the European Union. We have undergone inspections by
the FDA for GMP compliance and/or our Notified Body each year since 1968.
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 98%, 99% and
99% of fiscal 2003, 2002 and 2001 revenue, respectively.
The Company is currently marketing the AngioJet System for coronary
applications, peripheral vessel and graft applications and hemodialysis graft
thrombosis. If the Company applies the AngioJet System to stroke treatment, the
Company anticipates marketing the AngioJet System 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; for example, the Company
does not have specialized coronary or peripheral sales personnel.
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.
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, distal occlusion devices, and 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 14 United States patents and six foreign patents relating to
the AngioJet System. Of the 14 U.S. patents, ten 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 18 United States and 18 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 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.
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 and 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 platelet 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.
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, more experience in obtaining regulatory approvals, established
marketing and greater 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 platelet 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 of relative risk), 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 System for A-V
access graft thrombectomy are subject to pre-market notification (510(k)
submission) to the FDA, whereas use of the AngioJet System for treating coronary
thrombus is subject to pre-market approval ("PMA") by the FDA, and subsequent
annual and other PMA supplemental 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 Investigational Device Exemption
("IDE") 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 cleared 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 application 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 notification for
treating thrombus in leg arteries.
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 and certain other countries that accept the CE
Mark. Approval to display the CE Mark is dependent, in part, on annual
inspections by representatives of European Notified Bodies to successfully
demonstrate compliance with the ISO 9001 Quality Standards.
Employees
As of September 30, 2003, the Company had 228 full-time employees, three
part-time employees and 14 contract employees. Of these full-time employees, 19
are in research and development, 90 are in manufacturing and production, 13 are
in quality assurance, six are in facilities/maintenance, 82 are in sales and
marketing and 18 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.
Available Information
We maintain a website at www.possis.com. We make available on our website
under "Investors"-"SEC Filings" and "Financial Results," free of charge, our
Annual Report to shareholders, annual reports on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K and the SEC filings of its directors and
executive officers under Section 16 of the Securities Exchange Act (Forms 3, 4
and 5). These links are automatically updated, so the filings also are available
immediately after they are made publicly available by the SEC. These filings
also are available by the SEC through the SEC's EDGAR system at www.sec.gov.
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 9 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 9 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 are
adequate to meet its current levels of production and research and development
activities. However, management anticipates additional space will be needed to
meet expected future production levels and future research and development
activities. Included in the existing lease for the 9055 Evergreen Boulevard NW
property is the option to purchase or continue to lease with the option of
adding on to the current location as the need arises. Management has currently
initiated discussions with its landlord to evaluate expansion timing and costs
and expects to complete expansion plans within the next twelve months.
Item 3. Legal Proceedings:
None
Item 4. Submission of Matters to a Vote of Security Holders:
None
Executive Officers of the Registrant:
Name Age Position
Robert G. Dutcher 58 Chairman, President and Chief Executive Officer
Eapen Chacko 55 Chief Financial Officer and Vice President,
Finance and Investor/Public Relations
Irving R. Colacci 50 Vice President, Legal Affairs and Human Resources
General Counsel and
Secretary
James D. Gustafson 47 Vice President, Technology, Product Development
and Quality Systems
Shawn F. McCarrey 45 Vice President, Worldwide Sales
Robert J. Scott 58 Vice President, Manufacturing and
Information Technology
Robert G. Dutcher joined the Company's medical subsidiary in 1985 as its
General Manager and became its President. He has served as Executive Vice
President of the parent 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 2001, Mr.
Gustafson assumed responsibility for the Company's product technology and
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 and Vice President
of Worldwide Sales in February 2003. 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.
Robert J. Scott joined the Company's medical subsidiary in 1985 and has
served as Vice President of Manufacturing since 1993 and Information Technology
since July 30, 2001.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters:
The Company had 1,366 common shareholders of record at September 30, 2003.
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,
2003 and 2002 are presented below:
2003 2002
High Low High Low
QUARTER:
First $12.62 $ 9.01 $14.70 $ 9.85
Second 19.63 11.49 19.00 13.00
Third 20.19 14.93 21.15 14.19
Fourth 19.79 13.57 15.10 8.91
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 2003 2002 2001 2000 1999
INCOME STATEMENT DATA:
Products sales................................... $57,428 $42,471 $30,001 $20,552 $13,210
Net income (loss):
Before income taxes......................... 12,013 6,256 (3,304) (10,590) (12,021)
Income tax benefit.......................... 4,555 11,526 -- -- --
After income taxes.......................... 16,568 17,782 (3,304) (10,590) (12,021)
Net income (loss) per common share - basic:
Before income taxes......................... .69 .37 (.20) (.67) .90)
Income tax benefit.......................... .26 .67 -- -- --
After income taxes.......................... .95 1.04 (.20) (.67) (.90)
Net income (loss) per common share - diluted:
Before income taxes......................... .64 .34 (.20) (.67) (.90)
Income tax benefit.......................... .24 .62 -- -- --
After income taxes.......................... .88 .96 (.20) (.67) (.90)
Weighted average shares outstanding:
Basic....................................... 17,502 17,079 16,739 15,697 13,356
Diluted..................................... 18,889 18,602 16,739 15,697 13,356
BALANCE SHEET DATA:
Working capital.................................. $38,881 $25,038 $14,405 $16,788 $13,530
Total assets..................................... 67,765 44,689 22,009 25,004 19,821
Long-term debt, excluding current maturities..... -- -- -- 7 100
Shareholders' equity............................. 61,034 39,754 18,071 20,495 16,315
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 relate to the Company's
ability to increase sales of disposable product and capital equipment in the
face of new product introductions from competitors; its ability to obtain
additional regulatory approvals in a timely basis; the ability to obtain
regulatory clearance in new foreign markets; customer responses to the Company's
marketing strategies; ability to retain and motivate skilled employees
especially sales positions; ability to expand the sales force; deferred tax
asset valuation allowance; its outlook including future revenue, earnings,
earnings per share and expense levels; 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 due to rising expenditures on drug-eluting stents and trends
toward managed care; changes in supplier requirements by group purchasing
organizations; 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 such as filterwires
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. A discussion of these and other factors that could
impact the Company's future results are set forth in the risk factors included
in Exhibit 99.1 to this report on Form 10-K.
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. The Company 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 98% of fiscal 2003
revenues were from product sales in the United States. The high concentration 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 of
America 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. 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. Revenue Recognition
Revenues associated with products that are already maintained at customer
locations are recognized and ownership and risk of loss are transferred to the
customer when the Company receives a valid purchase order from the customer.
Revenues associated with products that are not maintained at the customer
locations are recognized and title and risk of loss are 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. Revenue recognition for drive unit
extended warranties is amortized on a straight-line basis over the life of the
warranty period.
Allowance for Returns
Accounts receivable are reduced by an allowance for items that may be
returned in the future. The allowance requires us to make estimates at the time
the account receivable is recorded concerning the likelihood for returns in the
future. The estimate is based upon historical experience, information received
from our customers and 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
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. In order to
determine the market value of inventory on a quarterly basis, management
assesses the inventory quantities on hand to estimated future usage and sales
and, if necessary, writes down inventory deemed excess or obsolete to estimated
market value.
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
Company establishes a warranty reserve at the time products are sold which 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, given our historical experience; 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 ten quarters, including the fourth quarter
of fiscal 2003. 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 quarters of fiscal 2003 and
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 through the carry-forward period, the
Company reduced its valuation allowance on the deferred tax asset by $9,060,000
and $12,269,000 during the fourth quarter of fiscal 2003 and 2002, respectively.
Management believes the remaining valuation allowance is necessary as $740,000
of the deferred tax asset will not be realizable due to the expiration of
research and development tax credits.
In our Selected Financial Data, Management's Discussion and Analysis, and
Notes to Consolidated Financial Statements, the Company makes reference to a
non-GAAP (general accepted accounting principles) financial measure - income per
common share before income taxes. The Company believes that this non-GAAP
financial measures is useful to investors because it provides investors with
another measure to consider, in conjunction with the GAAP results, that may be
helpful to meaningfully compare the Company's operating performance. It is
especially useful for fiscal 2003 and 2002, when the Company had an unusual tax
benefit due to the reduction of the tax valuation allowance. In each case that
the Company makes reference to a non-GAAP financial measure, the Company also
provides a reconciliation to the comparable GAAP financial measures.
Results of Operations
Fiscal Years Ended July 31, 2003, 2002 and 2001
Total product sales for fiscal 2003 increased $14,957,000, or 35%, to
$57,428,000, compared to $42,471,000 in fiscal 2002. Total product sales for
fiscal 2002 increased $12,470,000, or 42%, to $42,471,000, compared to
$30,001,000 in fiscal 2001. The Company recorded pre-tax net income of
$12,013,000, or $0.64 per diluted share, in fiscal 2003 and $6,256,000, or $0.34
per diluted share, in fiscal 2002. This compared to a net loss of $3,304,000, or
$0.20 per diluted share, in fiscal 2001. In fiscal 2003, the Company recorded a
benefit for income taxes in the amount of $9,060,000 due to the reduction of the
deferred tax asset valuation allowance and changes in temporary differences.
This income tax benefit offset the Company's income tax provision of $4,505,000
and resulted in a net income tax benefit of $4,555,000 and resulted in net
income after income taxes in fiscal 2003 of $16,568,000, or $0.88 per diluted
share. 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 2003 increased $14,179,000, or 34%,
to $56,212,000 compared to $42,033,000 in fiscal 2002. U.S. AngioJet System
revenue for fiscal 2002 increased $12,404,000 or 42%, to $42,033,000 compared to
$29,629,000 in fiscal 2001. The Company markets the AngioJet System worldwide.
The AngioJet System consists of a drive unit (capital equipment) 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 and the expansion of its direct
sales force. During fiscal 2003, 2002 and 2001, the Company began U.S. marketing
of three new catheters for the removal of blood clots in leg (peripheral)
arteries: the Xpeedior(R) Plus 120 in August 2002, the XVG in April 2002 and the
XMI in March 2001. In addition, the Company received clearance to market the
Company's XMI catheter for coronary use in December 2001. The XVG, XMI and
Xpeedior catheters feature the Company's 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 than previous catheters with "mural thrombus," the older, more
organized material that adheres to vessel walls and can complicate patient
results.
As of July 31, 2003, the Company had a total of 1,062 domestic AngioJet
System drive units in the field, compared to 863 and 669 at the end of the
previous two years. During fiscal 2003, the Company sold approximately 42,500
catheters and pump sets versus approximately 33,300 in fiscal 2002 and 25,200 in
fiscal 2001. This represents a 28% and 32% increase in unit catheters sales from
the previous years. During the fiscal years ended July 31, 2003, 2002 and 2001,
the Company sold 212, 161 and 160 AngioJet System drive units worldwide,
respectively. The number of AngioJet System drive unit sales in fiscal 2003,
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 seven 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 $1,215,000 in fiscal 2003,
$438,000 in fiscal 2002 and $372,000 in fiscal 2001. The increase in sales in
fiscal 2003 is primarily due to the introduction of the XMI and XVG catheters
and the increase in drive unit sales in the European market. The Company has
recently expanded the sales territory of one of its existing European
distributors to expand product penetration in Europe. 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 Company
has decided to independently pursue an alternative regulatory strategy that will
utilize the Company's U.S. coronary clinical trial results and extensive body of
published clinical studies which is expected to result in regulatory approval
and satisfactory reimbursement for the AngioJet System with the XMI catheter in
treating coronary thrombus. Currently, the Japanese Ministry is reviewing the
Company's regulatory approval submission. The Company has responded to two
rounds of questions and are waiting for their response to the Company's answers.
Once the Company receives regulatory approval, the Company will apply for an
appropriate national medical insurance reimbursement. The timing of the
regulatory approval and satisfactory reimbursement is dependent upon Japanese
Ministry response to the Company submissions.
Revenue - Vascular Grafts
Revenue from Perma-Seal Dialysis Access Grafts was $75,000 in fiscal 2001.
The Company received no revenue in fiscal 2003 and 2002, respectively, from
Perma-Seal Dialysis Access Grafts. 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 14% in fiscal
2003 and 8% in fiscal 2002. The increases are primarily due to the significant
growth in the U.S. AngioJet System product sales. Medical product gross margins
improved by $13,137,000 in fiscal 2003 and $11,517,000 in fiscal 2002 over the
prior years. The gross margin percentage in fiscal 2003 was 75% compared to 70%
in fiscal 2002 and 61% in fiscal 2001. The improvement in gross margins was
driven by higher volumes of XMI, XVG and Xpeedior Plus 120 catheters that carry
higher margins than the catheters they replaced and an improvement in the XMI,
XVG and Xpeedior Plus 120 product catheter mix in the year ended July 31, 2003.
This was partially offset by the impact of higher international sales versus the
prior year. The Company believes that gross margins will continue to improve
slightly 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 $4,455,000 in fiscal
2003 and $2,126,000 in fiscal 2002, as compared to prior periods. The primary
factors for the expense increase for fiscal 2003 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, increased sales demos and sales materials, increased outside
services and higher medical insurance expense. 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. In fiscal 2002 and 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 2004.
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
commissions 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 the issuance of 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 increased 70% in fiscal 2003 as compared
to fiscal 2002. The increase was largely due to the timing of expenses incurred
for various R&D projects including the new drive unit, rapid exchange catheter
and the distal protection balloon. Research and development expense decreased 8%
in fiscal 2002 as compared to fiscal 2001. The decrease in fiscal 2002 is 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 2004 over fiscal 2003 levels 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 increased $102,000 in fiscal 2003 from fiscal 2002. The
increase is due to the investing of excess cash and cash equivalents in an
enhanced cash management portfolio of marketable securities. Interest income
decreased $224,000 in fiscal 2002 from fiscal 2001 due to declining market
interest rates. The Company expects interest income to increase in fiscal 2004
as compared to fiscal 2003 as cash is generated from operations.
Benefit for Income Taxes
The Company became profitable starting in the third quarter of fiscal 2001.
It has maintained profitability for ten quarters. 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 quarters of fiscal 2003 and 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
reduced its valuation allowance on the deferred tax asset by $9,778,000 and
$13,713,000 during the fourth quarter of fiscal 2003 and 2002, respectively.
These amounts are offset by changes in temporary differences. In fiscal 2003 and
2002, the Company increased the deferred tax asset by an additional $2,777,000
and $743,000, respectively related to tax benefit from disqualified stock
options that are recorded directly in the Consolidated Statement of Changes in
Shareholders' Equity. Management believes the remaining valuation allowance is
necessary as $740,000 of the deferred tax asset will not be realizable due to
the expiration of research and development tax credits.
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 2003.
Liquidity and Capital Resources
The Company's cash, cash equivalents and marketable securities totaled
approximately $31,944,000 at July 31, 2003 compared to $18,557,000 at July 31,
2002. The primary factors in the increase were cash provided by operations of
$12,995,000 and the issuance of stock and exercise of stock options and warrants
of $5,883,000, which was partially offset by the repurchase of Company's stock
for $3,994,000 and capital expenditures of $1,428,000.
During fiscal 2003, cash provided by operating activities was $12,995,000,
which resulted primarily from $16,568,000 net income, depreciation of
$2,085,000, stock compensation expense of $161,000, an increase in accounts
payable and accrued liabilities of $1,781,000, partially offset by an increase
in receivables of $2,093,000, an increase in inventories of $697,000 and an
increase in deferred tax assets of $4,798,000. Depreciation includes
company-owned drive units at customer locations, as well as property and
equipment. The increase in trade accounts payable and accrued liabilities was
due to the timing of the payments, an increase in accrued clinical and marketing
trials, an increase in accrued outside services and an increase in deferred
drive unit warranty revenue. The $2,093,000 increase in receivables was due to
increase in revenue in fiscal 2003 as compared to fiscal 2002. Inventory
increased due to the increase in demand for the AngioJet System. Deferred tax
assets increased due to the reduction of the valuation allowance. Cash used in
investing activities was $28,658,000. This includes the net purchase of
marketable securities of $27,272,000 of marketable securities and the purchase
of $1,428,000 of property and equipment. Net cash provided by financing
activities was $1,889,000, which resulted from the cash received in connection
with the exercise of stock options and warrants for $5,883,000, offset by the
repurchase of 246,900 shares for $3,994,000 of the Company's stock in the open
market transactions.
The Company expects its cash on hand and funds from operations to be
sufficient to cover both short-term and long-term operating requirements.
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 of $895,000 was primarily due to $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.
Off-Balance Sheet Obligations
The Company does not have any debt or off-balance-sheet financial obligations.
Outlook
The Company expects that overall revenue from the AngioJet System,
primarily in the United States, will be in the range of $70 million to $73
million in fiscal 2004. Gross margin percent for fiscal 2004 is expected to be
in the mid-seventies as a percent of total sales. The Company expects selling,
general and administrative expenses to increase in fiscal 2004 due to
anticipated growth in revenue and an increase in marketing scientific studies.
Research and development expenditures are expected to increase from the fiscal
2003 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 for the full year in the range of $0.54 to $0.62. The quarterly revenue
and earnings progression should build steadily through the year from a low in
the first quarter, with the profile being affected by the timing of the rapid
exchange catheter introduction and regulatory approvals as well as the patient
enrollment rates in key clinical and marketing 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 a professionally managed,
institutional fixed income portfolio of short duration. The market risk on a
diversified portfolio of relatively short duration is minimal, while enhancing
returns above money market levels.
The product sales for the Company's foreign subsidiary are in U.S. Dollars
("USD"). As of July 31, 2003, the Company's foreign bank accounts were closed.
Item 8. Financial Statements and Supplementary Data:
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, 2003 and 2002 and
the related consolidated statements of operations and comprehensive income
(loss), cash flows and changes in shareholders' equity for each of the three
years in the period ended July 31, 2003. 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, 2003 and 2002 and the results of their operations
and comprehensive income (loss) and their cash flows for each of the three years
in the period ended July 31, 2003, 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 15, 2003
POSSIS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
July 31, 2003 July 31, 2002
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 1)............................. $ 4,782,942 $18,556,663
Marketable securities.......................................... 27,161,223 --
Trade receivables (less allowance for doubtful
accounts and returns of $507,000 and
$582,000, respectively)..................................... 7,966,394 5,873,358
Inventories (Note 1)........................................... 4,165,253 4,134,817
Prepaid expenses and other assets.............................. 729,936 762,615
Deferred tax asset (Note 4).................................... 806,000 646,000
Total current assets...................................... 45,611,748 29,973,453
PROPERTY AND EQUIPMENT, net (Note 1)............................. 3,055,335 3,092,644
DEFERRED TAX ASSET (Note 4)...................................... 19,098,000 11,623,000
TOTAL ASSETS..................................................... $67,765,083 $44,689,097
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable......................................... $ 1,585,776 $ 1,262,711
Accrued salaries, wages, and commissions....................... 2,777,189 2,471,557
Other liabilities.............................................. 2,367,645 1,200,763
Total current liabilities................................. 6,730,610 4,935,031
COMMITMENTS AND CONTINGENCIES (Note 9)
SHAREHOLDERS' EQUITY (Note 5):
Common stock-authorized, 100,000,000 shares
of $0.40 par value each; issued and outstanding,
17,757,531 and 17,274,222 shares, respectively.............. 7,103,013 6,909,689
Additional paid-in capital..................................... 83,743,496 79,128,073
Unearned compensation.......................................... (15,000) (18,900)
Accumulated other comprehensive loss........................... (100,000) --
Retained deficit............................................... (29,697,036) (46,264,796)
Total shareholders' equity................................ 61,034,473 39,754,066
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY....................... $67,765,083 $44,689,097
See notes to consolidated financial statements.
POSSIS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
YEARS ENDED JULY 31
2003 2002 2001
Products sales (Note 10) ................................. $57,427,709 $42,470,693 $30,000,547
Cost of sales and other expenses:
Cost of medical products ................................. 14,510,064 12,689,835 11,736,253
Selling, general and administrative....................... 23,808,304 19,352,991 17,227,164
Research and development.................................. 7,502,763 4,426,663 4,820,037
Total cost of sales and other expenses................ 45,821,131 36,469,489 33,783,454
Operating income (loss)........................................ 11,606,578 6,001,204 (3,782,907)
Interest income................................................ 356,495 254,519 478,496
Gain on sale of securities..................................... 49,687 -- --
Income (loss) before income taxes.............................. 12,012,760 6,255,723 (3,304,411)
Income tax benefit (Note 4).................................... 4,555,000 11,526,000 --
Net income (loss).............................................. 16,567,760 17,781,723 (3,304,411)
Other comprehensive loss, net of tax -
Unrealized loss on securities............................. (100,000) -- --
Comprehensive income (loss).................................... $16,467,760 $17,781,723 $(3,304,411)
Net income (loss) per common share:
Basic ............................................... $0.95 $1.04 $(0.20)
Diluted ............................................... $0.88 $0.96 $(0.20)
Weighted average number of common shares outstanding:
Basic ............................................... 17,501,573 17,078,759 16,739,277
Diluted ............................................... 18,889,245 18,602,156 16,739,277
See notes to consolidated financial statements.
POSSIS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JULY 31
2003 2002 2001
OPERATING ACTIVITIES:
Net income (loss) ........................................... $16,567,760 $17,781,723 $(3,304,411)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation................................................. 2,084,604 2,119,240 1,950,533
Deferred income taxes........................................ (4,798,000) (11,526,000) --
Stock compensation expense................................... 160,550 186,940 196,199
Gain on sale of securities................................... (49,687) -- --
Expense reimbursement from city government................... -- (83,866) (101,938)
Writedown due to impairment of assets........................ -- 70,000 87,582
Loss (gain) on disposal of assets............................ 6,226 (3,850) 8,564
Increase in trade receivables................................ (2,093,036) (1,605,244) (1,327,617)
(Increase) decrease in inventories........................... (697,387) (635,188) 217,959
Decrease (increase) in other current assets.................. 32,679 (419,620) (64,504)
Increase (decrease) in trade accounts payable................ 323,065 (58,774) (594,578)
Increase in accrued and other current liabilities............ 1,458,291 1,140,205 177,499
Net cash provided by (used in) operating activities....... 12,995,065 6,965,566 (2,754,712)
INVESTING ACTIVITIES:
Additions to property and equipment.......................... (1,427,781) (902,627) (1,334,142)
Proceeds from sale of fixed assets........................... 41,211 7,344 1,402
Proceeds from sale/maturity of marketable securities......... 54,299,309 -- 22,545,000
Purchase of marketable securities............................ (81,570,845) -- (13,627,749)
Net cash (used in) provided by investing activities (28,658,106) (895,283) 7,584,511
FINANCING ACTIVITIES:
Proceeds from issuance of stock and exercise
of options and warrants.................................. 5,883,234 2,997,151 637,941
Common stock repurchased...................................... (3,993,914) -- --
Repayment of long-term debt................................... -- (26,522) (5,418)
Net cash provided by financing activities................. 1,889,320 2,970,629 632,523
(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS............................................. (13,773,721) 9,040,912 5,462,322
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR...................................................... 18,556,663 9,515,751 4,053,429
CASH AND CASH EQUIVALENTS AT END OF YEAR.......................... $ 4,782,942 $18,556,663 $ 9,515,751
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Disqualified stock options........................................ $ 2,777,000 $ 743,000 $ --
Cash paid for income taxes........................................ 287,977 -- --
Issuance of restricted stock...................................... 36,000 36,000 23,900
Inventory transferred to fixed assets............................. 47,951 -- --
Accrued payroll taxes related to restricted stock................. -- (12,600) 46,643
See notes to consolidated financial statements.
POSSIS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY
Common Stock Additional Stock Unrealized
Number of Paid-in Compen- Loss on Retained
Shares Amount Capital sation Securities Deficit Total
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 5)..................... -- -- 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 5)..................... -- -- 147,140 -- -- -- 147,140
Stock options and
warrants exercised........... 387,708 155,083 2,603,748 -- -- -- 2,758,831
Disqualified stock options..... -- -- 743,000 -- -- -- 743,000
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)
Net income..................... -- -- -- -- -- 17,781,723 17,781,723
BALANCE AT JULY 31, 2002........... 17,274,222 6,909,689 79,128,073 (18,900) -- (46,264,796) 39,754,066
Employee stock purchase plan... 25,267 10,107 354,923 -- -- -- 365,030
Stock options issued to
directors and physicians
(Note 5) -- -- 120,650 -- -- -- 120,650
Stock options and warrants
exercised.................... 703,993 281,597 5,236,607 -- -- -- 5,518,204
Disqualified stock options..... -- -- 2,777,000 -- -- -- 2,777,000
Stock grants................... 2,010 804 35,196 (36,000) -- -- --
Unearned stock compensation
amortization............... -- -- -- 39,900 -- -- 39,900
Unrealized loss on investments. -- -- -- -- (100,000) -- (100,000)
Stock retired.................. (1,061) (424) (13,799) -- -- -- (14,223)
Common stock repurchased....... (246,900) (98,760) (3,895,154) -- -- -- (3,993,914)
Net income..................... -- -- -- -- -- 16,567,760 16,567,760
BALANCE AT JULY 31, 2003........... 17,757,531 $7,103,013 $83,743,496 $(15,000) $(100,000) $(29,697,036) $61,034,473
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 47 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. The Company 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 fiscal 2003, the Company invested its excess
cash and cash equivalents in a professionally managed portfolio of marketable
securities. All Company securities in this portfolio as of July 31, 2003 are
classified as available-for-sale and consist primarily of U.S. government
securities and corporate bonds. These investments are reported at fair value
with a net unrealized loss of approximately $100,000, net of tax effect, which
is included in other comprehensive loss as of July 31, 2003. The cost of
securities sold is based on the specific identification method.
Information regarding the Company's available-for-sale marketable
securities as of July 31, 2003 is as follows:
U.S.Govt. Corporate Municipal Mutual
Securities Bonds Bonds Funds Total
Cost.................................. $18,196,000 $6,630,000 $1,333,000 $1,162,000 $27,321,000
Gross unrealized losses............... (129,000) (7,000) (24,000) -- (160,000)
Fair value............................ $18,067,000 $6,623,000 $1,309,000 $1,162,000 $27,161,000
The following information for the year ended July 31, 2003 is as follows:
U.S.Govt. Corporate Mutual
Securities Bonds Funds Total
Proceeds from sales................... $16,409,000 $368,000 $37,522,000 $54,299,000
Net gain realized..................... $ 51,000 $ 3,000 $ -- $ 54,000
Net loss realized..................... $ (2,000) $ (2,000) $ -- $ (4,000)
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:
2003 2002
Finished goods.......... $1,866,397 $1,883,933
Work-in-process......... 884,451 805,911
Raw materials........... 1,414,405 1,444,973
$4,165,253 $4,134,817
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:
2003 2002 Life
Leasehold improvements............. $1,540,965 $1,454,833 10 years
Equipment.......................... 7,148,702 7,536,959 3 to 10 years
Assets in construction............. 503,722 138,271 N/A
9,193,389 9,130,063
Less accumulated depreciation...... 6,138,054 6,037,419
Property and equipment - net....... $3,055,335 $3,092,644
Impairment of Long-Lived Assets In September 2001, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets," which addresses financial accounting and reporting for the impairment
or disposal of long-lived assets. Although SFAS No. 144 supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of," it retains many of the fundamental provisions of that
statement. Management of the Company periodically reviews the carrying value of
property equipment owned by the Company by comparing the carrying value of these
assets with their related expected future net cash flows. Should the sum of the
related expected future net cash flows be less than the carrying value,
management will determine whether an impairment loss should be recognized. An
impairment loss would be measured by the amount by which the carrying value of
the asset exceeds the fair value of the asset. In fiscal 2002 and 2001, the
Company wrote down $70,000 and $87,582, respectively, 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. The adoption of
SFAS No. 144 on August 1, 2002 did not have an effect on the Company's
consolidated balance sheet, results of operations, or cash flows.
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.
Derivative Instruments and Hedging Activities All contracts that contain
provisions meeting the definition of a derivative also meet the requirements of,
and have been designated as, normal purchases or sales. The Company's policy is
to not enter into contracts with terms that cannot be designated as normal
purchases or sales.
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.
Revenue recognition for drive unit extended warranties is amortized on a
straight-line basis over the life of the warranty period.
Shipping and Handling The Company recognizes 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.
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 2003 and 2002 and loss
per share for fiscal 2001 is computed by dividing net income (loss) by the
weighted average number of common shares outstanding. Warrants and options
representing 228,850, 373,468 and 3,826,089 shares of common stock at July 31,
2003, 2002 and 2001, respectively, have been excluded from the computations
because their effect is antidilutive.
Reclassifications Certain reclassifications have been made to prior years'
financial statements to conform to the current year presentation. Such
reclassifications had no effect on net income (loss) or shareholders' equity as
previously reported.
Guarantor's Accounting and Disclosure Requirements for Guarantees In
November 2002, the FASB issued FASB Interpretation No. ("FIN") 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." FIN 45 clarifies the requirements for a
guarantor's accounting for and disclosure of certain guarantees issued and
outstanding. The initial recognition and measurement provisions of FIN 45 are
applicable to guarantees issued or modified after December 31, 2002. The
disclosure requirements of FIN 45 are effective for financial statements of
interim or annual periods ending after December 15, 2002. The adoption of FIN 45
did not have an impact on the Company's financial statement disclosures and is
not expected to have an impact on the Company's consolidated balance sheet,
results of operations, or cash flows.
Consolidation of Variable Interest Entities In January 2003, the FASB
issued FIN 46, "Consolidation of Variable Interest Entities." FIN 46 provides
guidance on the identification of variable interest entities, and the assessment
of a company's interests in a variable interest entity to determine whether
consolidation is appropriate. FIN 46 requires the consolidation of a variable
interest entity by the primary beneficiary if the entity does not effectively
disperse risks among the parties involved. FIN 46 applies immediately to
variable interest entities created after January 31, 2003 and is effective for
periods beginning after December 15, 2003 for existing variable interest
entities. As the Company has no exposures to especial purpose entities or other
off-balance-sheet arrangements, the Company does not expect the adoption of FIN
46 to have a material effect on the Company's consolidated balance sheet,
results of operations, or cash flows.
Accounting for Asset Retirement Obligations In fiscal 2003, the Company
adopted 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. The adoption of SFAS No. 143 did not have
a material impact on the Company's consolidated balance sheet, results of
operations, or cash flows.
Accounting for Stock-Based Compensation In December 2002, the FASB issued
Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure" ("SFAS 148"), which amends Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 148 provides alternative methods of transition
for a voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, SFAS 148 amends the disclosure
requirements of SFAS 123 to require more prominent and more frequent disclosures
in financial statements of the effects of stock-based compensation. The
transition guidance and annual disclosure provisions of SFAS 148 are effective
for fiscal years ending after December 15, 2002. The interim disclosure
provisions are effective for financial reports containing condensed financial
statements for interim periods beginning after December 15, 2002, and such
disclosures have been provided in Note 2. The adoption of SFAS 148 did not have
a material impact on the Company's consolidated balance sheet, results of
operations, or cash flows.
Accounting for Certain Financial Instruments In May 2003, the FASB issued
SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics
of Both Liabilities and Equity." SFAS No. 150 establishes standards for how an
issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer
classify a financial instrument that is within its scope as a liability (or an
asset in some circumstances). Many of those instruments were previously
classified as equity. This statement is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003. The
adoption of this standard did not have an effect on the Company's consolidated
balance sheet, results of operations, or cash flows.
2. STOCK BASED COMPENSATION
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. 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 2003, 2002 and 2001,
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:
2003 2002 2001
Net income (loss):
As reported........................ $16,567,760 $17,781,723 $(3,304,411)
Pro forma.......................... 13,820,760 13,602,723 (7,184,411)
Income (loss) per share - basic:
As reported........................ $0.95 $1.04 $(0.20)
Pro forma.......................... 0.79 0.80 (0.43)
Income (loss) per share - diluted:
As reported........................ $0.88 $ 0.96 $(0.20)
Pro forma.......................... 0.73 0.73 (0.43)
The fair value of options granted under the various option plans during
fiscal 2003, 2002 and 2001 was estimated on the date of grant using the
Black-Sholes option pricing model with the following weighted average
assumptions and results:
2003 2002 2001
Dividend yield........................ None None None
Expected volatility................... 60-80% 79-86% 82%
Risk-free interest rate............... 3.4-4.3% 5.4% 3.0%
Expected life of option............... 120 mo. 120 mo. 120 mo.
Fair value of options on grant date... $4,395,000 $4,179,000 $8,648,000
3. LONG-TERM DEBT
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 fiscal 2002, the Company's note payable and accrued interest to a city
government in the amount of $83,866 was forgiven. The note payable and accrued
interest were forgiven due to maintaining minimum headcount employment
objectives with the city government.
4. INCOME TAXES
At July 31, 2003, the Company had net operating loss carry-forwards of
approximately $46,251,000 for federal tax purposes, which expire in 2010 through
2021, and $14,478,000 for Minnesota tax purposes, which expire in 2010 through
2016.
In addition, at July 31, 2003, the Company has approximately $2,619,000 in
federal tax credits, substantially all of which are research and development tax
credits, which expire from 2004 through 2022, and approximately $65,000
alternative minimum tax credit which does not expire. The Company established a
valuation allowance for $740,000 against these research and development tax
credits as a portion of them may not be realizable due to expiration in future
years.
The components of the income tax benefit as of July 31, 2003, 2002 and 2001
are as follows:
2003 2002 2001
Current:
Federal................................. $ 243,000 $ -- $ --
Deferred:
Federal................................. (4,494,000) (10,758,000) --
State................................... (304,000) (768,000) --
(4,798,000) (11,526,000) --
Total income tax benefit.................... $(4,555,000) $(11,526,000) $ --
Deferred tax assets and liabilities as of July 31, 2003 and 2002 are
described in the table below.
2003 2002
Current assets:
Allowance for doubtful accounts and returns....................... $ 255,000 $ 271,000
Inventory......................................................... 272,000 188,000
Employee compensation and benefits................................ 148,000 126,000
Other ........................................................... 131,000 61,000
806,000 646,000
Valuation allowance............................................... -- --
Net ........................................................... $ 806,000 $ 646,000
Long-term assets (liabilities):
Net operating losses.............................................. $16,760,000 $19,219,000
Amortization of patents........................................... 591,000 532,000
Tax credits....................................................... 2,619,000 2,421,000
Depreciation...................................................... (132,000) (31,000)
19,838,000 22,141,000
Valuation allowance............................................... (740,000) (10,518,000)
Net ........................................................... $19,098,000 $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, 2003, 2002 and 2001 as follows:
2003 2002 2001
Tax expense (benefit) on income (loss) from
continuing operations computed at
statutory rate of 35%.............................. $ 4,204,000 $ 2,190,000 $(1,157,000)
Change in valuation allowance........................... (9,778,000) 13,713,000) 1,047,000
Change in valuation allowance related to
disqualified stock options......................... 952,000 -- --
Other................................................... 67,000 (3,000) 110,000
Total income tax benefit................................ $(4,555,000) $(11,526,000) $ --
Deferred tax benefit of $2,777,000 and $743,000 in 2003 and 2002,
respectively, relate to disqualified stock options which is recorded directly in
equity.
5. 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 expired in May and June
2003.
Common Stock Repurchased During the first quarter of fiscal 2003, the
Company's Board of Directors authorized its initial share repurchase program of
$4,000,000. During fiscal 2003, in open market transactions, the Company
repurchased 246,900 shares of its common stock, at an average price of
approximately $16.18 per share, thereby completing the $4,000,000 authorization.
In July 2003, the Company's Board of Directors authorized the repurchase of up
to an additional $4,000,000 of its common shares from time to time, in open
market transactions. This additional repurchase authorization expires in July
2004. The purpose of this program is to offset dilution from current equity
incentive programs.
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). Although the 1992 Plan remains in effect for options
outstanding, no new options may be granted under this plan.
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, all 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 is 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, 2003, there were 2,761,253 shares reserved for outstanding
options under all plans and 627,586 shares were available for granting of
options under the 1999 Plan.
In fiscal 2003, 2002 and 2001, the Company granted 11,648, 7,915 and 40,289
compensatory options, respectively, to its outside directors in lieu of cash
payments for directors fees. 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 was approximately $104,000,
$67,000 and $89,000 for the years ended July 31, 2003, 2002 and 2001,
respectively.
In fiscal 2002 and 2001, the Company granted 1,000 and 13,000 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 Emerging Issues Task
Force guidance. 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 $16,000, $50,000 and $81,000 for the years ended July 31, 2003,
2002 and 2001, respectively.
A summary of changes in outstanding options for each of the three years
ended July 31, 2003 follows:
2003 2002 2001
Shares under option at
beginning of year.............................. 2,941,974 3,246,061 1,969,236
Options granted................................... 441,698 295,045 1,800,865
Options exercised................................. (538,199) (379,884) (72,127)
Options canceled.................................. (84,220) (219,248) (451,913)
Shares under option at end of year................ 2,761,253 2,941,974 3,246,061
Shares exercisable at end of year................. 1,903,952 1,878,695 1,009,283
Stock option weighted-average exercise prices during fiscal 2003, 2002 and
2001 are summarized below:
2003 2002 2001
Outstanding at beginning of year..................... $ 8.43 $ 7.54 $10.43
Granted ........................................ 12.81 16.45 5.19
Exercised ........................................ 7.37 7.38 6.33
Canceled ........................................ 10.51 9.09 10.27
Outstanding at end of year........................... 9.36 8.43 7.54
The following table summarizes information concerning options outstanding
and exercisable options as of July 31, 2003:
Weighted-
Average
Range of Remaining Weighted- Weighted-
Exercise Shares Contractual Life Average Shares Average
Price Outstanding in Years Exercise Price Exercisable Exercise Price
$ 1 - 6 822,232 7.00 $ 4.43 913,850 $ 4.59
6 - 12 940,544 6.43 7.63 562,299 7.77
2 - 17 643,177 6.75 13.46 297,428 14.49
17 - 21 355,300 6.87 17.93 130,375 18.22
In fiscal 1999, the Company granted 1,250 shares of restricted stock to
employees under the terms of the 1992 Plan, which vest in fiscal 2001.
Approximately $4,000 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 $10,125 was
recorded at the date of grant and was recognized over the vesting period.
In fiscal 2000, the Company granted 1,500 shares of restricted stock to an
employee under the terms of the 1992 Plan, which vested in fiscal 2001 and 2,000
shares of restricted stock to an employee under the terms of the 1999 Plan which
vested in fiscal 2001. Approximately $15,000 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 $43,000 was recorded at the date of grant and was 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 vested 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 was recognized over the vesting period.
In fiscal 2002, the Company granted 2,124 shares of restricted stock to the
Board of Directors under the terms of the 1999 Plan, which vested in 2002. 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 was
recognized over the vesting period.
In fiscal 2003, the Company granted 2,010 shares of restricted stock to the
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 $34,000
as of July 31, 2003. 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 2003, 2002 and 2001, total compensation expense of approximately
$40,000, $40,000 and $26,000, respectively, were recognized on these restricted
stock grants.
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, 2003. 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 common 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 are exercisable into common stock at $11.43
and $11.69, respectively. During fiscal 2003 and 2002, 101,278 and 19,150 of
these warrants were exercised, respectively. The remaining unexercised warrants
of 3,750 expired in May 2003.
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
2003 and 2002, 83,046 and 13,984 of these warrants were exercised. As of July
31, 2003, the remaining 221,780 warrants were outstanding and unexercised.
A summary of changes in outstanding warrants for each of the three years
ended July 31 follows:
2003 2002 2001
Warrants outstanding at beginning of year.................... 436,254 580,028 580,028
Warrants issued.............................................. -- -- --
Warrants exercised........................................... (184,324) (33,134) --
Warrants expired............................................. (3,750) (110,640) --
Warrants outstanding at end of year.......................... 248,180 436,254 580,028
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 25,267 shares in
fiscal 2003, 63,242 shares in fiscal 2002, and 52,493 shares in fiscal 2001
under this Plan.
6. ACCRUED WARRANTY COSTS
The Company estimates the amount of warranty claims on sold product that
may be incurred based on current and historical data. The actual warranty
expense could differ from the estimates made by the Company based on product
performance. A summary of changes in the Company's product warranty liability of
each of the three years ended July 31 follows:
2003 2002 2001
Accrued warranty costs at beginning of year.................................... $123,000 $123,000 $114,000
Payments made for warranty costs............................................... (226,200) (130,700) (223,600)
Accrual for product costs...................................................... 249,700 130,700 232,600
Accrued warranty costs at end of year.......................................... $146,500 $123,000 $123,000
7. 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, 2003, 2002 and 2001 were $303,766, $276,196 and
$250,179, respectively.
8. RELATED PARTY TRANSACTIONS
A Director of the Company at times performs outside legal services for the
Company. During fiscal 2002 and 2001, the amount of these services was
approximately $2,000 and $74,000, respectively.
9. 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 $16,000 per year through 2005.
Total rental expense charged to operations was approximately $262,000,
$261,000, and $258,000 for the years ended July 31, 2003, 2002, and 2001,
respectively.
Future minimum payments under the non-cancelable operating leases at July
31, 2003 were:
Year Ended
July 31 Amount
2004 $258,000
2005 258,000
2006 242,000
Total minimum lease payments $758,000
10. 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, 2003, 2002 and 2001 are as
follows:
2003 2002 2001
United States................. $56,212,396 $42,032,901 $29,628,777
Outside the United States..... 1,215,313 437,792 371,770
Total revenues................ $57,427,709 $42,470,693 $30,000,547
In fiscal 2003, 2002, and 2001 there were no individual customers with
sales exceeding 10% of total revenues.
11. SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
Fiscal Year Ended July 31, 2003
First Second Third Fourth
Quarter Quarter Quarter Quarter
Products sales.............................................. $12,681,903 $14,321,660 $14,625,124 $15,799,022
Gross profit................................................ 9,293,205 10,467,899 11,044,344 12,112,197
Income-before income taxes.................................. 2,439,654 3,418,166 2,921,530 3,233,410
Income tax (provision) benefit.............................. (915,000) (1,282,000) (1,097,000) 7,849,000
Net income-after income taxes............................... 1,524,654 2,136,166 1,824,530 11,082,410(1)
Income per common share-before income taxes
Basic.............................................. $0.14 $0.20 $0.17 $0.18
Diluted............................................ 0.13 0.18 0.15 0.17
Income tax (provision) benefit
Basic.............................................. $(0.05) $(0.08) $(0.07) $0.44
Diluted............................................ (0.05) (0.07) (0.05) 0.41
Net income per common share-after income taxes
Basic.............................................. $ 0.09 $ 0.12 $ 0.10 $0.62
Diluted............................................ 0.08 0.11 0.10 0.58
(1) Fourth Quarter 2003 Net Income reflects a reduction of valuation
allowance of $9,778,000.
Fiscal Year Ended July 31, 2002
First Second Third Fourth
Quarter Quarter Quarter Quarter
Products 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
Income-before income taxes.................................. 938,528 1,625,349 1,686,922 2,004,924
Income tax benefit.......................................... -- -- -- 11,526,000
Net income-after income taxes............................... 938,528 1,625,349 1,686,922 13,530,924(2)
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
Income tax benefit
Basic.............................................. $ -- $ -- $ -- $0.66
Diluted............................................ -- -- -- 0.63
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
(2) Fourth quarter 2002 Net Income reflects a reduction of valuation
allowance of $13,713,000.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure:
During fiscal 2003 and 2002, there were no changes in or disagreements with
the Company's independent certified public accountants on accounting procedures
or accounting and financial disclosures.
Item 9A. Controls and Procedures
Evaluation of disclosure controls and procedures
Under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, we evaluated
the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934 (the "Exchange Act")). Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that, as of the
end of the period covered by this report, our disclosure controls and procedures
are adequately designed to ensure that information required to be disclosed by
us in the reports we file or submit under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in
applicable rules and forms.
Changes in internal control over financial reporting
During the fiscal quarter ended July 31, 2003, there has been no change in
our internal control over financial reporting (as defined in Rule 13a-15(f) or
15d-15(f) under the Exchange Act) that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
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."
Code of Ethics
The Company has adopted a Code of Ethics that applies to its principal
executive officer, principal financial officer, principal accounting officer or
controller, as well as all other employees and the directors of the Company. The
Code of Ethics, which the Company calls its Code of Business Conduct and Ethics,
is posted on the Company' s website: www.possis.com on the Company page. The
Company intends to satisfy the disclosure requirements under Item 10 of Form 8-K
regarding an amendment to, or a waiver from, a provision of its Code of Business
Conduct and by posting such information on the aforementioned website.
Audit Committee Financial Expert
The Company's Board of Directors has determined that the Company has one
"financial expert," as defined under Item 401 of Regulation S-K of the
Securities Exchange Act of 1934, currently serving on its Audit Committee.
Whitney A. McFarlin, the member of the Company's Audit Committee deemed to be a
financial expert, has served as the Chief Executive Officer and director of two
public companies and one private company. Mr. McFarlin is independent from
management as defined by Item 7(d)(3), of Schedule 14A.
Item 11. Executive Compensation:
Information regarding compensation of directors and officers for the fiscal
year ended July 31, 2003 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 plans" and is
incorporated 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. Principal Accountant Fees and Services:
Pursuant to SEC Release No. 33-8183 (as corrected by SEC Release No.
33-8183A), the disclosure requirements of this item are not currently effective
for the Company.
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, 2003 and 2002
Consolidated Statements of Operations and Comprehensive Income (Loss) for
each of the three years in the period ended July 31, 2003
Consolidated Statements of Cash Flows for each of the three years in the
period ended July 31, 2003
Consolidated Statements of Changes in Shareholders' Equity for each of the
three years in the period ended July 31, 2003
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 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, 1996 Rights Agreement, dated December 12,
1996, between the Company and
Norwest Bank Minnesota N.A., as
rights agent
4.2 10-K November 23, 1996 Debenture Agreement with St. Paul
Fire and Marine Company and
Western Life Insurance Company
and form of debenture rates and
warrants
4.3 8-K March 14, 2000 Private placement Purchase Agreement
dated March 6, 2000 between the Company
and the investors listed therein
4.4 8-K March 14, 2000 Registration Rights Agreement between the
Company and the investors in the Purchase
Agreement dated March 6, 2000
4.5 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 S-8 June 16, 1998 1992 Stock Compensation Plan
*10.3 10-K Fiscal year ended Form of nonqualified stock option
July 31, 1993 agreement for officers (1992 Plan)
*10.4 10-K Fiscal year ended Form of incentive stock option
July 31, 1993 agreement for officers (1992 Plan)
*10.5 10-K Fiscal year ended Form of nonqualified stock option
July 31, 1993 agreement for 1992 directors' fees
(1992 Plan)
10.6 10-Q Quarter ended Lease agreement for corporate
January 31, 1996 headquarters and manufacturing
facility dated December 15, 1995
*10.7 10-K Fiscal year ended Change in Control Termination
July 31, 2001 Pay Plan - Amended effective April 3,
2001
Exhibit Form Date Filed Description
*10.8 10-K Fiscal year ended 1999 Stock Compensation Plan
July 31, 1999
*10.9 10-K Fiscal year ended Form of nonqualified stock option
July 31, 2002 agreement(1999 Plan)
*10.10 10-K Fiscal year ended Form of incentive stock option agreement
July 31, 2002 (1999 Plan)
21 10-K Fiscal year ended Subsidiaries of registrant
July 31, 2003
23 10-K Fiscal year ended Consent of independent certified
July 31, 2003 public accountants
31.1 10-K Fiscal year ended Certification of Chief Executive Officer
July 31, 2003 pursuant to Section 302 of the
Sarbanes-Oxley Act
31.2 10-K Fiscal year ended Certification of Chief Financial Officer
July 31, 2003 pursuant to Section 302 of the
Sarbanes-Oxley Act
32.1 10-K Fiscal year ended Certification of Chief Executive Officer
July 31, 2003 pursuant to Section 906 of the
Sarbanes-Oxley Act
32.2 10-K Fiscal year ended Certification of Chief Financial Officer
July 31, 2003 pursuant to Section 906 of the
Sarbanes-Oxley Act
99.1 10-K Fiscal year ended Risk Factors
July 31, 2003
* Indicates management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
During the quarter ended July 31, 2003, the Company filed a Report on Form
8-K on May 13, 2003 under Item 9 reporting third quarter earnings.
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
Chief Financial Officer and
Vice President of Finance
Dated: October 29, 2003
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, 2003
Robert G. Dutcher Chief Executive Officer
(Principal Executive Officer)
/s/ Eapen Chacko Chief Financial Officer October 29, 2003
Eapen Chacko Vice President of Finance
(Principal Financial and
Principal Accounting Officer)
/s/ Mary K. Brainerd Director October 29, 2003
Mary K. Brainerd
/s/ Seymour J. Mansfield Director October 29, 2003
Seymour J. Mansfield
/s/ William C. Mattison, Jr. Director October 29, 2003
William C. Mattison, Jr.
/s/ Whitney A. McFarlin Director October 29, 2003
Whitney A. McFarlin
/s/ Donald C. Wegmiller Director October 29, 2003
Donald C. Wegmiller
/s/ Rodney A. Young Director October 29, 2003
Rodney A. Young
SCHEDULE II
POSSIS MEDICAL, INC.
VALUATION ACCOUNTS
YEARS ENDED JULY 31, 2003, 2002 AND 2001
Column A Column B Column C Column D Column E
Additions
Balance at Charged to
Beginning (Reversal of) 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, 2003 $ 582,000 $ 845,000 $ 920,000 $ 507,000
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
Valuation allowance on
deferred tax asset:
Year ended July 31, 2003 $10,518,000 $ (9,778,000) $ -- $ 740,000
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
POSSIS MEDICAL, INC.
FORM 10-K - ITEM 15(a)3
EXHIBIT INDEX
Exhibit
Number Description
21 Subsidiaries of Possis Medical, Inc.
23 Independent Auditors Consent
31.1 Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
99.1 Risk Factors