<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________________
to ________________
Commission File Number: 0-27605
-------------------------------
VASCULAR SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1859679
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2495 Xenium Lane North
Minneapolis, Minnesota 55441
(Address of principal executive offices) (Zip Code)
(763) 656-4300
(Registrant's telephone number, including area code)
----------------------------------------------------
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
The Registrant had 13,093,148 shares of Common Stock, $0.01 par value per share,
outstanding as of November 1, 2000.
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VASCULAR SOLUTIONS, INC.
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets as of September 30, 2000 and
December 31, 1999 2
Statements of Operations for the three months ended
September 30, 2000 and 1999 and for the nine months
ended September 30, 2000 and 1999 3
Statements of Cash Flows for the three months ended
September 30, 2000 and 1999 and for the nine months
ended September 30, 2000 and 1999 4
Notes to Unaudited Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosure About
Market Risks 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities and Use of Proceeds 12
Item 3. Defaults upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
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VASCULAR SOLUTIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
(unaudited) (Note)
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 45,909,710 $10,529,191
Accounts receivable, net of allowance of
$50,000 at September 30, 2000.............................. 1,754,269 374,978
Inventories....................................................... 1,485,522 612,569
Prepaid expenses.................................................. 270,610 93,177
------------- ------------
Total current assets......................................... 49,420,111 11,609,915
Property and equipment, net............................................ 884,949 684,952
------------- ------------
Total assets................................................. $ 50,305,060 $12,294,867
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................. $ 1,030,115 $ 1,019,715
Accrued compensation.............................................. 777,187 85,441
Accrued expenses.................................................. 70,558 17,513
------------- ------------
Total current liabilities.................................... 1,877,860 1,122,669
Commitments and contingencies
Shareholders' equity:
Series A preferred stock, $.01 par value;
Shares authorized - 2000 - 0; 1999 - 2,000,000
Issued and outstanding - 2000 - 0; 1999 - 2,000,000............ -- 20,000
Series B preferred stock, $.01 par value;
Shares authorized - 2000 - 0; 1999 - 1,777,777
Issued and outstanding - 2000 - 0; 1999 - 1,777,777............ -- 17,778
Common stock, $.01 par value;
Shares authorized - 2000 - 40,000,000; 1999 - 16,222,223
Issued and outstanding - 2000 - 13,088,948;
1999 - 5,250,291...................................... 130,890 52,503
Additional paid-in capital............................................. 69,872,856 25,828,309
Deferred compensation.................................................. (71,330) (90,931)
Accumulated deficit.................................................... (21,505,216) (14,655,461)
------------- ------------
Total shareholders' equity........................................ 48,427,200 11,172,198
------------- ------------
Total liabilities and shareholders' equity................... $ 50,305,060 $12,294,867
============= ============
</TABLE>
See accompanying notes.
Note: The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
2
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VASCULAR SOLUTIONS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
------------- ------------ ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales................................... $ 2,037,251 $ 404,814 $3,388,046 $ 919,314
Cost of goods sold.......................... 875,822 285,566 1,578,379 727,903
------------- ------------ ------------ ------------
Gross profit................................ 1,161,429 119,248 1,809,667 191,411
Operating expenses:
Research and development............... 913,545 666,703 2,460,031 2,313,681
Clinical and regulatory................ 246,330 232,665 772,937 1,114,968
Sales and marketing.................... 2,107,292 618,371 4,418,204 1,467,800
General and administrative............. 524,674 438,422 1,753,353 847,882
------------- ------------ ------------ ------------
Total operating expenses.......... 3,791,841 1,956,161 9,404,525 5,744,331
------------- ------------ ------------ ------------
Operating loss.................... (2,630,412) (1,836,913) (7,594,858) (5,552,920)
Interest income............................. 530,756 102,352 745,103 285,388
------------- ------------ ------------ ------------
Net loss.................................... $ (2,099,656) $(1,734,561) $(6,849,755) $(5,267,532)
============= ============ ============ ============
Basic and diluted net loss per share........ $ (.19) $ (.40) $ (.96) $ (1.22)
============= ============ ============ ============
Shares used in computing basic and
diluted net loss per share............... 10,907,770 4,319,608 7,144,711 4,315,241
============= ============ ============ ============
</TABLE>
See accompanying notes.
3
<PAGE> 5
VASCULAR SOLUTIONS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
------------- ------------ ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss....................................... $(2,099,656) $(1,734,561) $(6,849,755) $(5,267,532)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization............. 96,967 64,266 261,027 177,737
Value of options granted for services..... -- -- -- 13,360
Value of warrant granted related
to supply agreement..................... -- -- -- 257,000
Deferred compensation expense............. 18,210 18,312 54,351 31,382
Changes in operating assets and liabilities:
Accounts receivable..................... (1,000,719) (79,180) (1,379,291) (237,180)
Inventories............................. (341,625) (95,220) (872,953) (251,955)
Prepaid expenses........................ 54,028 (316,626) (177,433) (328,282)
Accounts payable........................ (97,443) 342,228 10,400 333,245
Accrued compensation and expenses....... 306,415 19,187 744,791 (88,605)
------------- ------------ ------------ ------------
Net cash used in operating activities (3,063,823) (1,781,594) (8,208,863) (5,360,830)
INVESTING ACTIVITIES
Purchase of property and equipment............. (110,395) (106,999) (461,024) (257,279)
------------- ------------ ------------ ------------
Net cash used in investing activities (110,395) (106,999) (461,024) (257,279)
FINANCING ACTIVITIES
Proceeds from exercise of stock options........ 19,920 27,880 74,920 3,061,750
Net proceeds from sale of common stock......... 43,975,486 -- 43,975,486 --
------------- ------------ ------------ ------------
Net cash provided by financing
Activities................ 43,995,406 27,880 44,050,406 3,061,750
------------- ------------ ------------ ------------
Increase (decrease) in cash
and cash equivalents............... 40,821,188 (1,860,713) 35,380,519 (2,556,359)
Cash and cash equivalents at beginning of
Period 5,088,522 9,201,407 10,529,191 9,897,053
------------- ------------ ------------ ------------
Cash and cash equivalents at end of period........ $ 45,909,710 $ 7,340,694 $45,909,710 $ 7,340,694
============= ============ ============ ============
</TABLE>
See accompanying notes.
4
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VASCULAR SOLUTIONS, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The accompanying unaudited financial statements of Vascular Solutions,
Inc. (the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all normal, recurring
adjustments considered necessary for a fair presentation have been
included. The financial statements should be read in conjunction with
the audited financial statements for the year ended December 31, 1999
included in the Registration Statement on Form S-1 of the Company, as
amended, filed with the Securities and Exchange Commission (File No.
333-84089). Interim results of operations are not necessarily
indicative of the results to be expected for the full year or any other
interim periods.
(2) COMPUTATION OF NET LOSS PER SHARE
In accordance with Statement of Financial Accounting Standards No. 128,
Earnings Per Share, (SFAS 128), basic net loss per share for the three
months and nine months ended September 30, 2000 and 1999 is computed by
dividing net loss by the weighted average common shares outstanding
during the periods presented. Diluted net loss per share is computed by
dividing net loss by the weighted average common and dilutive potential
common shares outstanding computed in accordance with the treasury
stock method. For all periods presented, diluted loss per share is the
same as basic loss per share, because the effect of outstanding
options, warrants and convertible preferred stock is antidilutive.
(3) REVENUE RECOGNITION
In the United States, the Company sells its products directly to
hospitals and clinics. Revenue is recognized upon shipment of products
to customers.
In international markets, the Company sells its products to
international distributors which subsequently resell the products to
hospitals and clinics. The Company has agreements with each of its
distributors which provide that title and risk of loss pass to the
distributor upon shipment of the products to the distributor. The
Company warrants that its products are free from manufacturing defects
at the time of shipment to the distributor. Revenue is recognized upon
shipment of products to distributors following the receipt and
acceptance of a distributor's purchase order. Allowances are provided
for estimated warranty costs at the time of shipment. To date, warranty
costs have been insignificant.
5
<PAGE> 7
VASCULAR SOLUTIONS, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS-CONTINUED
(4) INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out
method) or market and are comprised of the following at:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
---- ----
(unaudited)
<S> <C> <C>
Raw materials.................................... $ 912,912 $451,955
Work-in process.................................. 484,205 103,285
Finished goods................................... 88,405 57,329
---------- ---------
$1,485,522 $612,569
========== ========
</TABLE>
(5) CONCENTRATIONS OF CREDIT AND OTHER RISKS
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash
equivalents and accounts receivables. The Company maintains its
accounts for cash and cash equivalents principally at one major bank
and two investment firms in the United States. The Company has a formal
written investment policy that restricts the placement of investments
to issuers evaluated as creditworthy. The Company has not experienced
any losses on its deposits of its cash and cash equivalents.
With respect to accounts receivable, the Company performs credit
evaluations of its customers and does not require collateral. Three
customers accounted for 38% of total accounts receivable as of
September 30, 2000. Two customers accounted for 51% of total accounts
receivable as of December 31, 1999. There have been no material losses
on customer receivables.
The Company operates in a single industry segment and sells its product
directly to hospitals and clinics in the United States and to
distributors who, in turn, sell to medical clinics in international
markets. The Company sells its product in foreign countries through
independent distributors denominated in United States dollars. Loss,
termination or ineffectiveness of distributors to effectively promote
the Company's product would have a material adverse effect on the
Company's financial condition and results of operations.
Sales by geographic destination as a percentage of total net sales for
the nine months ended September 30, 2000 was 51% in the United States
and 49% in international markets.
Sales to significant customers as a percentage of total net sales are
as follows for the nine months ended September 30, 2000 and 1999:
2000 1999
------ ------
German distributor.......................... 13.8% 26.3%
Norwegian distributor....................... 15.4% 18.5%
Italian distributor......................... 9.0% 15.3%
6
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(6) INITIAL PUBLIC OFFERING
On July 25, 2000, the Company completed the initial public offering of
its common stock. Upon the closing of the initial public offering, the
Company issued 3,500,000 shares of its common stock at an offering
price of $12.00 per share and all of the Company's Series A and Series
B preferred stock automatically converted into 3,777,777 shares of
common stock. On August 15, 2000, the underwriters exercised in full
their over-allotment option to purchase an additional 525,000 shares of
common stock at $12.00 per share. Cash proceeds from the sale of the
4,025,000 shares of common stock, net of underwriters' discount and
offering expenses, totaled approximately $44.0 million. Upon closing of
the Company's initial public offering, the authorized capital stock of
the Company consisted of 40,000,000 shares of common stock, par value
$.01 per share, with no shares of preferred stock outstanding or
designated.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Since commencing operations in February 1997, we have been engaged in the
design, development, clinical testing and, more recently, the manufacture and
sale of the Vascular Solutions DuettTM sealing device. Our Duett sealing device
is designed to seal the entire puncture site following catheterization
procedures such as angiography, angioplasty and stenting. Beginning in 1998, we
received regulatory approvals to market the Duett sealing device in several
international markets, principally in Europe. On June 22, 2000, we received
approval from the United States Food and Drug Administration or FDA of our
premarket approval or PMA application for the sale of our Duett sealing device
in the United States. As a result, during the quarter ended September 30, 2000
we commenced sales of our product in the United States with a direct sales
force.
We have a limited history of operations and have experienced significant
operating losses since inception. As of September 30, 2000, we had an
accumulated deficit of $21.5 million. Although we have experienced revenue
growth in recent periods, this growth may not be sustainable and, therefore,
these recent periods should not be considered indicative of future performance.
We may never achieve significant revenues or profitability, or if we achieve
significant revenues they may not be sustained in future periods.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999
Net sales increased 403% to $2,037,251 for the three months ended September
30, 2000 from $404,814 for the three months ended September 30, 1999. This
increase in net sales was attributable to the United States market launch of our
Duett sealing device which began in July 2000. As a result, 82% of net sales for
the three months ended September 30, 2000 were to customers in the United States
while 18% of the net sales were to our independent distributors in international
markets. During the three months ended September 30, 2000, we began the process
of transitioning from utilizing an independent distributor in Germany to
organizing Vascular Solutions GmbH as a wholly owned subsidiary for direct sales
in Germany. This transition negatively impacted our third quarter international
sales. During the fourth quarter of 2000 we have commenced direct shipments
through Vascular Solutions GmbH to customers in Germany.
Gross profit as a percentage of net sales increased to 57% for the three
months ended September 30, 2000 from 29% for the three months ended September
30, 1999. This increase as a percentage of net
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sales resulted from the United States sales of the Duett sealing device and
improved manufacturing processes. Cost of goods sold consists primarily of
direct material component costs, personnel expenses and manufacturing equipment
and overhead related to the production of our Duett sealing device. We expect
gross profit as a percentage of net sales to continue to increase as we increase
our manufacturing volume, improve our manufacturing processes, and continue the
United States market launch.
Research and development expenses increased 37% to $913,545 for the three
months ended September 30, 2000 from $666,703 for the three months ended
September 30, 1999. This increase was attributable to hiring additional
development personnel, continued work on product improvements and exploring new
product opportunities. We expect our research and development expenses to
increase through the remainder of 2000 as we continue work on product
improvements and explore new product opportunities.
Clinical and regulatory expenses increased 6% to $246,330 for the three
months ended September 30, 2000 from $232,665 for the three months ended
September 30, 1999. These expenses consist primarily of payments to clinics for
participation in clinical studies, company personnel related to clinical study
administration and payments to regulatory agencies as part of the product
approval process. The increase was primarily the result of costs associated with
completion and follow-up in the 300-patient multi-center FDA clinical study of
the Duett Model 2000. We expect our clinical and regulatory expenses to increase
slightly during the remainder of 2000 compared to the quarter ended September
30, 2000.
Sales and marketing expenses increased 241% to $2,107,292 for the three
months ended September 30, 2000 from $618,371 for the three months ended
September 30, 1999. This increase was due primarily to additional personnel and
travel for the United States launch of our Duett sealing device. We currently
anticipate that sales and marketing expenses will increase for the foreseeable
future as we continue to hire, train and deploy a direct sales force in the
United States. These expenses will be principally related to hiring additional
sales personnel, expanding marketing efforts, travel and training physicians in
the United States.
General and administrative expenses increased 20% to $524,674 for the three
months ended September 30, 2000 from $438,422 for the three months ended
September 30, 1999. This increase was primarily attributable to an increase in
legal fees associated with litigation items (See "Legal Proceedings" in Item 1
of Part II of this Form 10-Q) and increase in personnel costs to support
increased operations. We anticipate that general and administrative expenses
will increase by modest amounts for the foreseeable future as we continue to
incur substantial litigation expenses related to the existing patent
infringement claims.
Interest income increased to $530,756 for the three months ended September
30, 2000 from $102,352 for the three months ended September 30, 1999 primarily
as a result of higher cash balances from the cash proceeds received upon the
closing of our initial public offering in July 2000.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999
Net sales increased 269% to $3,388,046 for the nine months ended September
30, 2000 from $919,314 for the nine months ended September 30, 1999. The
increase in net sales was the result of increased market penetration in
international markets as well as United States approval of our Duett sealing
device on June 22, 2000 and the commencement of our formal United States market
launch in July 2000. International sales of our Duett sealing device commenced
in February 1998. Sales to our Norwegian, German and Italian distributors
accounted for approximately 15%, 14% and 9% of net sales for the nine months
ended September 30, 2000. Sales to our Norwegian, German and Italian
distributors
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accounted for approximately 19%, 26% and 15% of net sales for the nine months
ended September 30, 1999.
Gross profit as a percentage of net sales increased to 53% for the nine
months ended September 30, 2000 from 21% for the nine months ended September 30,
1999. This increase as a percentage of net sales resulted from the United States
sales of the Duett sealing device, a decrease in cost of goods sold due to the
conversion to the Duett Model 2000 for international sales in the fourth quarter
of 1999, increased volume and improved manufacturing processes. The Duett Model
2000 incorporates minor modifications to the procoagulant components and
different vendors for certain components, resulting in lower cost of goods
compared to the original Duett Model 1000. The approval we received from the FDA
in June applies to the Duett Model 1000. We will not be able to sell the Duett
Model 2000 in the United States until we receive approval of a PMA supplement.
We do not expect to receive FDA approval of a PMA supplement for the Duett Model
2000 prior to the second half of 2001.
Research and development expenses increased 6% to $2,460,031 for the nine
months ended September 30, 2000 from $2,313,681 for the nine months ended
September 30, 1999. This increase was attributable to hiring additional
development personnel, continued work on product improvements and exploring new
product opportunities offset by increased absorption of additional capacity by
manufacturing.
Clinical and regulatory expenses decreased 31% to $772,937 for the nine
months ended September 30, 2000 from $1,114,968 for the nine months ended
September 30, 1999. The decrease was primarily the result of costs associated
with the patient enrollment portion of the 695-patient multi-center clinical
study of our Duett sealing device which commenced in August 1998 and was
completed in March 1999. In addition to the payments to the clinical centers for
patient enrollment and data collection, we contracted with a third party to
perform data analysis and computation for the study. We also contracted with a
third party to perform a cost outcomes study of the patient data from this
multi-center study.
Sales and marketing expenses increased 201% to $4,418,204 for the nine
months ended September 30, 2000 from $1,467,800 for the nine months ended
September 30, 1999. This increase was due primarily to $1,878,000 in increased
personnel costs with hiring, training and deploying a direct sales force and
$720,000 associated with travel, marketing and physician training for the
domestic and international distribution of our Duett sealing device.
General and administrative expenses increased 107% to $1,753,353 for the
nine months ended September 30, 2000 from $847,882 for the nine months ended
September 30, 1999. This increase was primarily attributable to a $603,000
increase in legal fees associated with litigation items and a $319,000 increase
in personnel costs.
Interest income increased to $745,103 for nine months ended September 30,
2000 from $285,388 for the nine months ended September 30, 1999 primarily as a
result of higher cash and cash equivalent balances from the cash proceeds
received upon the closing of our initial public offering in July 2000.
INCOME TAXES
We have not generated any pre-tax income to date and therefore have not
paid any federal income taxes since inception in December 1996. No provision or
benefit for federal and state income taxes has been recorded for net operating
losses incurred in any period since our inception.
As of September 30, 2000, we had approximately $19,185,000 of federal net
operating loss carryforwards available to offset future taxable income which
begin to expire in the year 2013. As of
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September 30, 2000, we also had federal and state research and development tax
credit carryforwards of approximately $339,000 which begin to expire in the year
2013. Under the Tax Reform Act of 1986, the amounts of and benefits from net
operating loss carryforwards may be impaired or limited in certain
circumstances, including significant changes in ownership interests. Future use
of our existing net operating loss carryforwards may be restricted due to
changes in ownership or from future tax legislation.
We have established a valuation allowance against the entire amount of our
deferred tax asset because we have not been able to conclude that it is more
likely than not that we will be able to realize the deferred tax asset, due
primarily to our history of operating losses.
LIQUIDITY AND CAPITAL RESOURCES
We have financed all of our operations since inception through the issuance
of equity securities. Through June 30, 2000, we had sold common stock and
preferred stock generating aggregate net proceeds of $25.4 million. On August
15, 2000, we completed the initial public offering of our common stock. Upon the
closing of the initial public offering, we received cash proceeds, net of
underwriters' discount and offering expenses, of approximately $44.0 million,
including the exercise of the underwriters' over-allotment option.
At September 30, 2000, we had $45.9 million in cash and cash equivalents
on-hand. During the three months ended September 30, 2000, we used $3.1 million
of cash and cash equivalents in operating activities. The cash used in operating
activities was primarily used to fund our net loss for the period of $2.1
million and increases in accounts receivable and inventories to support our
increased operations. For the nine months ended September 30, 2000, we used $8.2
million of cash in operating activities. This was primarily used to fund our net
loss for the period of $6.8 million and increases in accounts receivable and
inventories. For the nine months ended September 30, 2000, cash used in
operating activities was partially offset by an increase of $755,000 in accounts
payable and accrued expenses. Our other use of cash in each of these periods was
investing activities to acquire manufacturing and office equipment. Our
equipment acquisitions totaled $110,000 during the three months ended September
30, 2000 and $461,000 during the nine months ended September 30, 2000.
We do not have any significant cash commitments related to supply
agreements, nor do we have any commitments for capital expenditures.
We currently anticipate that we will continue to experience significant
growth in our expenses for the foreseeable future and our expenses will be a
material use of our cash resources. We anticipate that our operating losses will
continue through at least December 31, 2000, because we plan to spend
substantial amounts hiring and training a direct United States sales force,
funding sales and marketing activities and creating and expanding research and
development initiatives. We believe that current cash balances along with cash
generated from the future sales of products will be sufficient to meet our
operating and capital requirements through at least the end of 2001. Our
liquidity and capital requirements beyond 2001 will depend on numerous factors,
including the extent to which our Duett sealing device gains market acceptance
and competitive developments.
CAUTIONARY STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a
"safe harbor" for forward-looking statements to encourage companies to provide
prospective information about their business, so long as those statements are
identified as forward-looking and are accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ
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materially from those discussed in the statement. Vascular Solutions, Inc.
desires to take advantage of the safe harbor provisions with respect to any
forward-looking statements it may make in this filing, other filings with the
Securities and Exchange Commission and any public oral statements or written
releases. The words or phrases "will likely," "is expected," "will continue,"
"is anticipated," "estimate," "projected," "forecast," or similar expressions
are intended to identify forward-looking statements within the meaning of the
Act. Such statements are subject to certain risks and uncertainties that could
cause actual results to differ materially from those projected. The Company
cautions readers not to place undue reliance on any such forward-looking
statements, which speak only as of the date made. In accordance with the Act,
the Company identifies the following important general factors which if altered
from the current status could cause the Company's actual results to differ from
those described in any forward-looking statements: risks associated with our
limited operating history, defense of patent infringement lawsuits, adoption of
our new sealing methodology, reliance on a sole product, lack of profitability,
lack of experience with a direct sales force, exposure to possible product
liability claims, the development of new products by others, dependence on third
party distributors in international markets, doing business in international
markets, limited manufacturing experience, the availability of third party
reimbursement, actions by the FDA related to the Duett sealing device, the loss
of key vendors and those factors set forth under the heading "Factors Affecting
Future Operating Results" in the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2000. This list is not exhaustive, and the Company may
supplement this list in any future filing with the Securities and Exchange
Commission or in connection with the making of any specific forward-looking
statement.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
Financial instruments that potentially subject us to concentrations of
credit risk consist primarily of cash and cash equivalents and accounts
receivables. We maintain our accounts for cash and cash equivalents principally
at one major bank and two investment firms in the United States. We have a
formal written investment policy that restricts the placement of investments to
issuers evaluated as creditworthy. We have not experienced any losses on our
deposits of our cash and cash equivalents.
With respect to accounts receivable, we perform credit evaluations of our
customers and do not require collateral. There have been no material losses on
customer receivables.
In the United States, we sell our products directly to hospitals and
clinics. Revenue is recognized upon shipment of products to customers.
In international markets, we sell our products to independent distributors
who, in turn, sell to medical clinics. We sell our product in foreign countries
through independent distributors denominated in United States dollars. Loss,
termination or ineffectiveness of distributors to effectively promote our
product would have a material adverse effect on our financial condition and
results of operations.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 23, 1999, we were named as the defendant in a patent infringement
lawsuit brought by Datascope Corp. in the United States District Court for the
District of Minnesota. The complaint requested a judgment that our Duett sealing
device infringes and, following FDA approval, will infringe a United States
patent held by Datascope and asks for relief in the form of an injunction that
would
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prevent us from selling our product in the United States as well as an award of
attorneys' fees, costs and disbursements. On March 15, 2000, the court granted
summary judgment dismissing all of Datascope's claims, subject to the right of
Datascope to recommence the litigation after our receipt of FDA approval of our
Duett sealing device. On July 12, 2000, after our receipt of FDA approval,
Datascope recommenced this litigation, alleging that the Duett sealing device
infringes a United States patent held by Datascope and requesting relief in the
form of an injunction that would prevent us from selling our product in the
United States, damages caused by our alleged infringement, and other costs,
disbursements and attorneys' fees. It is not possible to predict the timing or
outcome of this lawsuit, including whether we will be prohibited from selling
our Duett sealing device in the United States or internationally, or to estimate
the amount or range of potential loss, if any.
On September 22, 1999, we received a letter from the Daig division of St.
Jude Medical, Inc. claiming that the manufacture, use, marketing and sale of our
Duett sealing device infringes upon certain United States patents licensed by
Daig. The letter referenced a prior letter dated August 18, 1998 from us to the
prior licensee of those patents in which we made a proposal intended to avoid
the anticipated litigation over those patents. The proposed license was
rejected. On July 3, 2000, we were named as the defendant in a patent
infringement lawsuit brought by St. Jude Medical and Daig Corporation in the
United States District Court for the District of Minnesota. The complaint
requests a judgment that our Duett sealing device infringes a series of four
patents held by St. Jude Medical and asks for relief in the form of an
injunction that would prevent us from selling our product in the United States,
damages caused by the manufacture and sale of our product, and other costs,
disbursements and attorneys' fees. It is not possible to predict the timing or
outcome of this lawsuit, including whether we will be prohibited from selling
our Duett sealing device in the United States or internationally, or to estimate
the amount or range of potential loss, if any.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Not applicable
(b) Not applicable
(c) Exercises of Stock Options
During the three-month period ended September 30, 2000, we issued
and sold an aggregate of 8,080 shares of our common stock to
employees and former employees for aggregate consideration of
$19,920 pursuant to exercises of options under our Stock Option
Plan. These sales were made in reliance upon an exemption from the
registration provisions of the Securities Act set forth in Rule
701 of the Securities Act.
(d) Initial Public Offering
On July 25, 2000, we sold 3,500,000 shares of our common stock, at
an initial public offering price of $12.00 per share, pursuant to
a Registration Statement on Form S-1 (Registration No. 333-84089),
which was declared effective by the Securities and Exchange
Commission on July 19, 2000. The managing underwriters of our
initial public offering were Salomon Smith Barney Inc., Stephens
Inc. and William Blair & Company, L.L.C. The underwriters
exercised in full their over-allotment option to purchase an
additional 525,000 shares at $12.00 per share on August 15, 2000.
The aggregate gross proceeds raised in the
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offering were approximately $48.3 million. Our net proceeds from
the offering were approximately $44.0 million. To date, we have
spent approximately $2.7 of the net proceeds to hire, train and
deploy a direct sales force in the United States, and $2.3 for
general corporate purposes.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
3.1 -- Amended and Restated Articles of Incorporation of
Vascular Solutions, Inc.
27.1 -- Financial Data Schedule for the three months ended
September 30, 2000.
27.2 -- Financial Data Schedule for the nine months ended
September 30, 2000.
(b) Reports on Form 8-K:
The Company did not file any Current Report on Form 8-K during
the quarter ended September 30, 2000.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VASCULAR SOLUTIONS, INC.
Date: November 8, 2000 By: /s/ Jerry Johnson
------------------------------------
Jerry S. Johnson
Chief Financial Officer
(Duly authorized officer and principal
financial and accounting officer)
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EXHIBIT INDEX
3.1 -- Amended and Restated Articles of Incorporation of Vascular Solutions,
Inc.
27.1 -- Financial Data Schedule for the three months ended September 30, 2000.
27.2 -- Financial Data Schedule for the nine months ended September 30, 2000.
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