Actionable news
0
All posts from Actionable news
Actionable news in VASC: Vascular Solutions, Inc.,

Quarterly report [Sections 13 or 15(d)]

FORM 10-Q

OR

For the transition period from _______ to ________

VASCULAR SOLUTIONS, INC.

(Exact name of registrant as specified in its charter)

Minneapolis, Minnesota 55369

(Address of principal executive offices, including zip code)

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former

fiscal year, if changed since last report)

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.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☒
Non-accelerated filer ☐ Smaller Reporting Company ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The registrant had 17,371,153 shares of common stock, $.01 par value per share, outstanding as of April 21, 2016.

VASCULAR SOLUTIONS, INC.

Page
PART 1. FINANCIAL INFORMATION 2
Item 1. Unaudited Financial Statements 2
Consolidated Balance Sheets 2
Consolidated Statements of Earnings (Loss) 3
Consolidated Statements of Comprehensive Earnings (Loss) 4
Consolidated Statements of Cash Flows 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk 19
Item 4. Controls and Procedures 20
PART II. OTHER INFORMATION 20
Item 1. Legal Proceedings 20
Item 1A. Risk Factors 20
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 26
Item 3. Defaults Upon Senior Securities 26
Item 4. Mine Safety Disclosures 26
Item 5. Other Information 27
Item 6. Exhibits 27

PART 1. FINANCIAL INFORMATION

VASCULAR SOLUTIONS, INC.

Consolidated Balance Sheets

March 31, 2016 December 31, 2015
(unaudited) (see note)
Assets
Current assets:
Cash and cash equivalents $ 30,958 $ 41,491
Accounts receivable, net of reserves of $315 and $360 in 2016 and 2015, respectively 21,485 19,121
Inventories 22,629 22,105
Prepaid expenses and other 4,848 4,361
Total current assets 79,920 87,078
Property, plant and equipment, net 36,254 34,508
Goodwill 10,089 10,045
Intangible assets, net 8,060 8,445
Deferred tax assets, net of liabilities 5,434 4,797
Total assets $ 139,757 $ 144,873
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable $ 4,550 $ 5,830
Accrued compensation 6,031 6,702
Accrued expenses 2,765 4,125
Total current liabilities 13,346 16,657
Long-term deferred tax liabilities 74 72
Total long-term liabilities 74 72
Shareholders’ equity:
Common stock, $0.01 per share par value:Authorized shares – 40,000,000 Issued and outstanding shares – 17,371,153 – 2016; 17,386,853 – 2015 174 174
Additional paid-in capital 100,511 102,123
Other (1,126 ) (1,186 )
Accumulated earnings 26,778 27,033
Total shareholders’ equity 126,337 128,144
Total liabilities and shareholders’ equity $ 139,757 $ 144,873

Note: The balance sheet at December 31, 2015 has been derived from the audited financial statements at that date.

Consolidated Statements of Earnings (Loss)

Three Months Ended March 31,
2016 2015
(unaudited)
Net revenue:
Product revenue $ 39,242 $ 34,441
License, royalty and collaboration revenue 136 170
Total revenue 39,378 34,611
Product costs and operating expenses:
Cost of goods sold 13,571 11,296
Collaboration expenses 27 54
Research and development 5,026 4,067
Clinical and regulatory 1,997 1,481
Sales and marketing 9,599 8,732
General and administrative 9,644 4,777
Medical device excise taxes 376
Amortization of purchased technology and intangibles 404 405
Total product costs and operating expenses 40,268 31,188
Operating earnings (loss) (890 ) 3,423
Other earnings 16 28
Earnings (loss) before income taxes (874 ) 3,451
Income tax benefit (expense) 619 (1,244 )
Net earnings (loss) $ (255 ) $ 2,207
Net earnings (loss) per share – basic $ (0.01 ) $ 0.13
Net earnings (loss) per share – diluted $ (0.01 ) $ 0.12

Consolidated Statements of Comprehensive Earnings (Loss)

Three Months Ended March 31,
2016 2015
(unaudited)
Net earnings (loss) $ (255 ) $ 2,207
Other comprehensive earnings (loss), net of tax of $0:Foreign currency translation adjustments 60 (712 )
Comprehensive earnings (loss) $ (195 ) $ 1,495

Consolidated Statements of Cash Flows

Three Months Ended March 31,
2016 2015
(unaudited)
Operating activities
Net earnings (loss) $ (255 ) $ 2,207
Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities:
Depreciation 1,186 1,048
Amortization 404 405
Stock-based compensation 1,653 1,511
Deferred taxes, net (637 ) 638
Tax benefit from stock-based awards (248 )
Change in accounts receivable allowance (45 ) 55
Changes in operating assets and liabilities:
Accounts receivable (2,311 ) (1,102 )
Inventories (524 ) (2,089 )
Prepaid expenses and other (484 ) 128
Accounts payable (1,286 ) 1,482
Accrued expenses (2,036 ) 865
Net cash provided by (used in) operating activities (4,335 ) 4,900
Investing activities
Purchase of property and equipment (2,914 ) (2,661 )
Purchase of building and land (2,748 )
Net cash used in investing activities (2,914 ) (5,409 )
Financing activities
Repurchase of common shares (3,344 ) (1,951 )
Tax benefit from stock-based awards 248
Proceeds from the exercise of stock options 79 162
Net cash used in financing activities (3,265 ) (1,541 )
Decrease in cash and cash equivalents (10,514 ) (2,050 )
Effect of exchange rate changes on cash and cash equivalents (19 ) (244 )
Cash and cash equivalents at beginning of period 41,491 36,461
Cash and cash equivalents at end of period $ 30,958 $ 34,167
Supplemental disclosure of cash flow
Cash paid for taxes $ 94 $ 256

The accompanying unaudited consolidated 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 consolidated financial statements should be read in conjunction with the audited consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 filed with the Securities and Exchange Commission. Interim results of operations are not necessarily indicative of the results to be expected for the full year or any other interim periods.

In accordance with Accounting Standards Codification (ASC) Topic 260, Earnings Per Share , basic net loss per share for the three months ended March 31, 2016 and basic net earnings per share for the three months ended March 31, 2015 are computed by dividing net earnings (loss) by the weighted average common shares outstanding during the periods presented. For the three months ended March 31, 2016, diluted loss per common share is the same as basic loss per common share because the effect of outstanding restricted stock, options and warrants is antidilutive. For the three months ended March 31, 2015, diluted net earnings per common share is computed by dividing net earnings by the weighted average common shares outstanding during the period, increased to include dilutive potential common shares issuable upon the exercise of stock options and restricted stock awards that were outstanding during the period.

Weighted average common shares outstanding for the three months ended March 31, 2016 and 2015 were as follows:

Three Months Ended March 31,
2016 2015
Weighted average shares outstanding – basic 17,105,000 16,939,000
Weighted average shares outstanding – diluted 17,105,000 17,940,000

In the United States, the Company sells its products and services directly to hospitals and clinics. Revenue is recognized in accordance with generally accepted accounting principles as outlined in ASC Topic 605-10-S99, Revenue Recognition , which requires that four basic criteria be met before revenue can be recognized: (i) persuasive evidence of an arrangement exists; (ii) the price is fixed or determinable; (iii) collectability is reasonably assured; and (iv) product delivery has occurred or services have been rendered. The Company recognizes revenue as products are shipped and title passes to customers based on FOB shipping point terms. The Company negotiates credit terms on a customer-by-customer basis and products are shipped at an agreed-upon price.

In all 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 and is reported on a gross basis. Allowances are provided for estimated returns and costs at the time of shipment. Sales and use taxes are reported on a net basis, excluding them from revenue.

The Company’s revenues from license agreements and research collaborations are recognized when earned. In accordance with ASC Topic 605, for revenues which contain multiple deliverables, the Company separates the deliverables into separate accounting units if they meet the following criteria: (i) the delivered items have a stand-alone value to the customer; (ii) the fair value of any undelivered items can be reliably determined; and (iii) if the arrangement includes a general right of return, delivery of the undelivered items is probable and substantially controlled by the seller. Deliverables that do not meet these criteria are combined with one or more other deliverables into one accounting unit. Revenue from each accounting unit is recognized based on the applicable accounting literature, primarily ASC Topic 605.

The Company currently has a license agreement with King Pharmaceuticals, Inc. (King), now a subsidiary of Pfizer, Inc., under which the Company licensed the exclusive rights of Thrombi-Pad TM , Thrombi-Gel ® and Thrombi-Paste TM products to King in exchange for a license fee. The Company is amortizing the license fees on a straight-line basis over the projected 10 year economic life of the products. The Company determines the economic life of the products under its license agreements by evaluating similar products the Company has launched or other similar products in the medical industry.

Starting in January 2012, the Company began to generate revenue from selling a reprocessing service for ClosureFAST ® radiofrequency catheters. In accordance with ASC Topic 605-45, the Company recognizes this revenue gross, with the amount paid to the supplier of the reprocessing service reflected as cost of goods sold.

In addition, the Company has reviewed the provisions of ASC Topic 808, Collaborative Arrangements , and the adoption of this ASC has had no impact on the amounts recorded under these agreements.

In accordance with ASC Topic 605-45-45, the Company includes shipping and handling revenues in net revenue, and shipping and handling costs in cost of goods sold.

Inventories are stated at the lower of cost (weighted average first-in, first-out method) or market. Appropriate consideration is given to deterioration, obsolescence and other factors in evaluating net realizable value. Inventories are comprised of the following:

March 31, 2016 December 31, 2015
(dollars in thousands)
Raw materials $ 11,430 $ 10,760
Work-in-process 2,494 1,789
Finished goods 8,705 9,556
$ 22,629 $ 22,105

The changes in the carrying amount of goodwill and acquired intangible assets for the three months ended March 31, 2016 are as follows:

Goodwill Acquired Intangibles
(dollars in thousands)
Balance at December 31, 2015 $ 10,045 $ 8,445
Amortization (404 )
Foreign currency translation adjustments 44 19
Balance at March 31, 2016 $ 10,089 $ 8,060

The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. This allowance is regularly evaluated by the Company for adequacy by taking into consideration factors such as past experience, credit quality of the customer base, age of the receivable balances, both individually and in the aggregate, and current economic conditions that may affect a customer’s ability to pay. Accounts receivable over 30 days past due are considered past due. The Company does not accrue interest on past due accounts receivable. Receivables are written off only after all collection attempts have failed and are based on individual credit evaluation and the specific circumstances of the customer. At March 31, 2016 and December 31, 2015, the allowance for doubtful accounts was $235,000 and $285,000, respectively.

All product returns must be pre-approved and, if approved, customers are subject to a 20% restocking charge. The Company analyzes the rate of historical returns when evaluating the adequacy of the allowance for sales returns, which is included with the allowance for doubtful accounts on its balance sheet. At March 31, 2016 and December 31, 2015, the sales and return allowance was $80,000 and $75,000, respectively.

Accounts receivable are shown net of the combined total of the allowance for doubtful accounts and allowance for sales returns of $315,000 and $360,000 at March 31, 2016 and December 31, 2015, respectively.

In the United States, the Company sells its products directly to hospitals and clinics. In all international markets, the Company sells its products to distributors who, in turn, sell to hospitals and clinics. Loss or termination of distributors, or their inability to effectively promote the Company’s products, could have a material adverse effect on the Company’s financial condition and results of operations.

With respect to accounts receivable, the Company performs credit evaluations of its customers and does not require collateral to extend credit to an account. No customer represented more than 10% of gross accounts receivable at March 31, 2016 or December 31, 2015. There have been no material losses on customer receivables.

Sales by geographic location are based on the location of the customer. Product revenue by geographic destination as a percentage of total product revenues for the three months ended March 31, 2016 and 2015 was 80% and 78% in the United States and 20% and 22% in international markets, respectively. No single customer represented greater than 10% of the total net revenue for the three months ended March 31, 2016 or 2015.

The Company purchases certain key components from single-source suppliers. Any significant component delay or interruption could require the Company to qualify new sources of supply, if available, and could have a material adverse effect on the Company’s financial condition and results of operations.

The Company purchases its requirements for thrombin (a component in the Hemostat products) under a Thrombin-JMI Supply Agreement entered into with King on January 9, 2007. Under the terms of the Thrombin-JMI Supply Agreement, King agrees to manufacture and supply thrombin to the Company on a non-exclusive basis. The Thrombin-JMI Supply Agreement does not contain any minimum purchase requirements. King agrees to supply the Company with such quantity of thrombin as the Company may order at a fixed price throughout the term of the Thrombin-JMI Supply Agreement as adjusted for inflation, variations in potency and other factors. The Thrombin-JMI Supply Agreement has an initial term of 10 years, followed by successive automatic one-year extensions, subject to termination by the parties under certain circumstances, including: (i) termination by King without cause any time after the fifth anniversary of the date of the Thrombin-JMI Supply Agreement upon five years prior written notice to the Company, and (ii) termination by the Company without cause any time after the fifth anniversary of the date of the Thrombin-JMI Supply Agreement upon five years prior written notice to King provided that the Device Supply Agreement, which the Company also entered into with King on January 9, 2007, has expired on its terms or the parties have agreed to terminate it.

From time to time, the Company is involved in legal proceedings arising in the normal course of business. As of the date of this report, the Company is not a party to any legal proceeding in which an adverse outcome would reasonably be expected to have a material adverse effect on the Company’s results of operations or financial condition.

The Company is subject to income tax in numerous jurisdictions and at various rates and the use of estimates is required in determining the provision for income taxes. For the three months ended March 31, 2016, the Company recorded an income tax benefit of $619,000 on a loss before tax of $874,000, resulting in an effective tax benefit rate of 70.8%. For the three months ended March 31, 2015, the Company recorded a provision for taxes of $1,244,000 on earnings before tax of $3,451,000 resulting in an effective income tax rate of 36%. The effective tax benefit rate of 70.8% for the three months ended March 31, 2016 is higher than the Company’s effective tax rate of 33.5% due to the first quarter adoption of Accounting Standards Update (ASU) No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting . Upon adoption, the Company is required to recognize all excess tax benefits in the statement of earnings. The Company recognized excess tax benefits of $326,000 in the first quarter. The effective income tax rate of 36% for the three months ended March 31, 2015 consists of a graduated federal rate slightly higher than 34% and state taxes.

The Company regularly assesses the likelihood that the deferred tax assets will be recovered from future taxable earnings. The Company considers projected future taxable earnings and ongoing tax planning strategies, and then records a valuation allowance to reduce the carrying value of the net deferred taxes to an amount that is more likely than not to be realized. If the Company’s actual results and updated projections vary significantly from the projections used as a basis for determining its valuation allowance, the Company may need to increase or decrease the valuation allowance against the gross deferred tax assets. The Company will adjust earnings for the deferred tax in the period in which any such determination is made.

The Company applies ASC Topic 740, Income Taxes , which clarifies the accounting for uncertainty in tax positions recognized in the financial statements. These provisions create a single model to address uncertainty in tax positions and clarify the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. ASC Topic 740 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company had an unrecognized tax asset of $379,000 as of both March 31, 2016 and December 31, 2015. The impact of tax related interest and penalties is recorded as a component of income tax expense. As of March 31, 2016, the Company has recorded $-0- for the payment of tax related interest and there were no tax penalties or interest recognized in the statements of earnings.

The Company is subject to income tax examinations in the U.S. Federal jurisdiction, as well as in the Republic of Ireland and various state jurisdictions. U.S. Federal and state tax years that remain open to examination at March 31, 2016 are 2013 through 2015.

In May 2014, the Financial Accounting Standards Board (FASB) issued guidance creating ASC Topic 606, Revenue from Contracts with Customers . The new section will replace ASC Topic 605, “Revenue Recognition” and creates modifications to various other revenue accounting standards for specialized transactions and industries. The new ASC is intended to conform United States revenue accounting principles with concurrently issued International Financial Reporting Standards. Prior to the guidance, revenue recognition differed between United States practice and those of much of the rest of the world. The guidance also is intended to enhance disclosures related to disaggregated revenue information. The updated guidance is effective for annual reporting periods beginning on or after December 15, 2017, and interim periods within those annual periods. The Company will adopt the new provisions of this accounting standard at the beginning of fiscal year 2018. The Company does not expect adoption will have an impact on the consolidated financial statements.

In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330) Related to Simplifying the Measurement of Inventory, which applies to all inventory except inventory that is measured using last-in, first-out (“LIFO”) or the retail inventory method. Inventory measured using first-in, first-out (“FIFO”) or average cost is covered by the new amendments. Inventory within the scope of the new guidance should be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. The amendments will take effect for public business entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The new guidance should be applied prospectively, and earlier application is permitted as of the beginning of an interim or annual reporting period. The Company will adopt the new provisions of this accounting standard at the beginning of fiscal year 2017. The Company does not expect adoption will have an impact on the consolidated financial statements.

In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740) Related to the Balance Sheet Classification of Deferred Taxes , which will require entities to present deferred tax assets (DTAs) and deferred tax liabilities (DTLs) as noncurrent in a classified balance sheet. The ASU simplifies the current guidance (ASC Topic 740-10-45-4), which requires entities to separately present DTAs and DTLs as current and noncurrent in a classified balance sheet. The ASU is effective for annual reporting periods beginning on or after December 15, 2016, and interim periods within those annual periods. The Board decided to allow all entities to early adopt the ASU for financial statements that had not been issued. Therefore, the Company has adopted this ASU at December 31, 2015, and has reclassified all prior periods to be consistent with the requirements outlined in the ASU. There was no impact to the balance sheet as presented.

In February 2016, the FASB issued ASU 2016-02, Leases, to increase transparency and comparability among organizations by recognizing all lease transactions (with terms in excess of 12 months) on the balance sheet as a lease liability and a right-of-use asset (as defined). The ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with earlier application permitted. Upon adoption, the lessee will apply the new standard retrospectively to all periods presented or retrospectively using a cumulative effect adjustment in the year of adoption. The Company is currently assessing the effect that adoption will have on the consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting , which will reduce complexity in accounting standards related to share-based payment transactions, including, among others, (1) accounting for income taxes, (2) classification of excess tax benefits on the statement of cash flow, (3) forfeitures, and (4) statutory tax withholding requirements. The ASU is effective for annual reporting periods beginning on or after December 15, 2016, and interim periods within those annual periods. The Board decided to allow all entities to early adopt the ASU for financial statements that had not been issued. The Company adopted this ASU at March 31, 2016. With respect to the Company, adoption is prospective, there was no impact to prior period financial information.

In order to present a more detailed product-specific revenue analysis, in the first quarter of 2015, the Company began reporting net revenue for each of its top products in each of its primary markets. The following table sets forth, for the periods indicated, net revenue by product along with the percent change from the previous year’s corresponding period for each of the Company’s top eight products by net revenue:

Three months ended March 31,
2016 2015
Product Primary Market Net Revenue Percent Change Net Revenue
(dollars in thousands)
GuideLiner ® catheters Interventional cardiology $ 11,658 13 % $ 10,340
Micro-introducer kits Interventional radiology 3,569 25 % 2,854
Pronto ® catheters Interventional cardiology 3,403 (22 %) 4,382
Vein catheter reprocessing Phlebology 2,989 10 % 2,712
Hemostatic patches Interventional cardiology 2,845 (6 %) 3,022
Turnpike ® catheters Interventional cardiology 2,297 1392 % 154
Radial access products Interventional cardiology 2,099 28 % 1,638
Langston ® catheters Interventional cardiology 1,882 19 % 1,578

The Company sells its products into four primary clinical markets: interventional cardiology, interventional radiology, electrophysiology, and phlebology (vein treatment). The following table sets forth, for the periods indicated, net revenue percentage by primary clinical market:

Three months ended March 31,
2016 2015
Primary Market Revenue Percentage Revenue Percentage
Interventional cardiology 74 % 73 %
Phlebology 13 % 13 %
Interventional radiology 9 % 10 %
Electrophysiology 4 % 4 %
100 % 100 %

Vascular Solutions, Inc. (we, us or Vascular) is an innovative medical device company focused on bringing clinically advanced solutions to the market for treating coronary and peripheral vascular disease. As a vertically-integrated medical device company, we generate ideas, create new minimally invasive medical devices, and then deliver these products and related services to physicians who treat vascular disease.

During the past few years, the number of catheterization procedures performed worldwide has been declining gradually due to a number of factors – among them, the effects of weak economies on overall health care utilization rates, efforts by third-party payers to lower costs associated with medical procedures, investigations by government agencies into potential over-utilization of procedures, the implementation by hospitals of policies designed to reduce the incidence of unnecessary procedures in the wake of these outside investigations, and new diagnostic imaging and functional assessment modalities that more effectively screen patients to determine the need for treatment. Although worldwide demographic factors, including the growing incidence of cardiovascular disease, seem to favor long-term growth in the number of interventional procedures, we believe that the recent structural pressures on utilization rates are likely to continue and to result in relatively flat catheterization volumes for the foreseeable future. We intend to continue to develop and market a vast array of products that serve the needs of interventional physicians. Currently, we have a particular focus in our R&D and corporate development programs on three areas: complex interventions, radial artery catheterizations, and embolization procedures. We believe these three segments of the vascular interventions market have the greatest need for new specialized products and also represent some of the best opportunities for growth. One of our highest-priority R&D programs is a collaboration with the United States Army to develop freeze-dried plasma for the treatment of battlefield trauma. The product we have developed, RePlas™ freeze-dried plasma, is the result of our long-standing expertise in the lyophilization (freeze-drying) of biologic materials. The U.S. Army has agreed to sponsor, conduct, and fund the clinical development of RePlas, and we will retain all rights to market the product after FDA approval.

Our product portfolio includes a broad spectrum of more than 90 products consisting of over 900 stock keeping units (SKUs) covering a wide array of hemostat devices, extraction catheters, vascular access devices, guide catheters, guidewires, retrieval devices and a reprocessing service for radiofrequency catheters used in the treatment of varicose veins. Our management, including our chief executive officer who is our chief operating decision maker, report and manage our operations based on product sales into our four clinical target markets. We have corporate infrastructure and direct sales capabilities in the United States and have established distribution relationships in most major international markets. In order to drive sales growth, we have invested not only in the expansion of our global distribution system, but also in new product development and efforts to obtain additional regulatory approvals. A significant portion of our net revenue historically has been, and we expect to continue to be, attributable to new and enhanced products and services. We expect to continue to further validate the clinical and competitive benefits of our technology platforms to drive utilization of our current products and the development of new and enhanced products and services.

The interventional medical device industry is characterized by intense competition, rapidly evolving technology, and a high degree of government regulation. Looking ahead, we expect our business may be impacted by the following trends and opportunities:

· The future regulatory approval of newly-developed products . Any new product that we develop must be approved by the Food and Drug Administration (FDA) in the United States and by similar regulatory bodies in other countries before it can be sold. The requirements for obtaining product approval have undergone change, and the FDA frequently implements changes to the product approval process. We monitor the changing regulatory landscape and modify our regulatory submissions as necessary to obtain product approvals.
· Successfully integrating acquired and distributed products and services into our existing operations . The acquisition of products, product distribution rights and services complementary to our existing product portfolio and customer call points provides an additional business opportunity, but is dependent on the successful integration of the acquired or distributed products into our existing business structure. Since 2010, we have acquired or licensed more than 10 products and services.
· Managing intellectual property . The interventional medical device industry is characterized by numerous patent filings and litigation claims made to protect new and evolving product ideas. To maximize the profitability of new product ideas, we seek patent protection for those product design and method concepts which we believe have the potential to provide substantial product revenue. Managing intellectual property assets and claims is a significant challenge for our business.
· Managing greater government regulation and scrutiny. Our products and business activities are subject to rigorous regulation, including by the U.S. FDA, Department of Justice, and numerous other federal, state, and foreign governmental authorities. These authorities have been increasing scrutiny of our industry and enforcement actions related to companies in it. Managing compliance with existing and future regulation of our industry and fulfilling regulatory disclosure requirements is a significant challenge for our business.

Results of Operations

The following table sets forth, for the periods indicated, certain items from our statements of earnings expressed as a percentage of net revenue:

Three Months Ended March 31,
2016 2015
Net revenue:
Product revenue 100 % 99 %
License, royalty and collaboration revenue - 1 %
Total revenue 100 % 100 %
Product costs and operating expenses:
Cost of goods sold 34 % 33 %
Collaboration expenses - -
Research and development 13 % 12 %
Clinical and regulatory 5 % 4 %
Sales and marketing 24 % 25 %
General and administrative 25 % 14 %
Medical device excise taxes - 1 %
Amortization of purchased technology and intangibles 1 % 1 %
Total product costs and operating expenses 102 % 90 %
Operating earnings (loss) (2 %) 10 %
Other earnings - -
Earnings (loss) before income taxes (2 %) 10 %
Income tax benefit (expense) 1 % (4 %)
Net earnings (loss) (1 %) 6 %

Three months ended March 31, 2016, compared to three months ended March 31, 2015

Net revenue increased 14% to $39,378,000 for the quarter ended March 31, 2016 from $34,611,000 for the quarter ended March 31, 2015. The increase in revenue is comprised of the following components:

% Change
Volume of existing products and services sold (including sales of new versions of existing products and services) 14 %
Pricing of existing products and services sold (1 %)
Revenue from new products or services, defined as products and services that had no revenue in the first quarter of 2015 1 %
14 %

Approximately 80% and 78% of our net revenue was earned in the United States and 20% and 22% of our net revenue was earned in international markets for the three months ended March 31, 2016 and March 31, 2015, respectively.

We recognized $136,000 and $170,000 of license, royalty and collaboration revenue during the three months ended March 31, 2016 and 2015, respectively, due to our license and device supply agreements and our royalty agreement with a third party. Collaboration expense of $27,000 and $54,000 was recognized during the three months ended March 31, 2016 and 2015, respectively, as a result of an agreement we entered into in April 2013 to develop a new hemostatic device for a third party. License, royalty and collaboration revenue is expected to be approximately $500,000 to $550,000 for the full year 2016.

Gross margin decreased to 65.5% for the quarter ended March 31, 2016, compared to 67.4% for the quarter ended March 31, 2015. The decrease in gross margin was primarily due to an increase in product sales of lower margin products such as micro-introducer kits and vein catheter reprocessing, combined with inefficiencies incurred in production of recently introduced products during the renovation of our manufacturing facility. We expect gross margin to be between 66.0% and 67.0% for the full year 2016 as we improve our efficiencies of the new products, subject to variations in our selling mix between United States and international markets and between our lower margin products and our higher margin products such as the D-Stat Dry and GuideLiner.

Research and development expense for the first quarter of 2016 totaled $5,026,000, or 13% of revenue, compared to $4,067,000, or 12% of revenue, for the first quarter of 2015. Research and development expenses have increased on both a percentage and dollar basis compared to the three months ended March 31, 2015, due to headcount additions during the first half of 2015 and additional testing required to meet increasing regulatory requirements for new products. We expect research and development expenses to be approximately 12.0% to 13.0% of revenue for the full year 2016.

Clinical and regulatory expense for the first quarter of 2016 totaled $1,997,000, or 5% of revenue, compared to $1,481,000, or 4% of revenue, for the first quarter of 2015. Clinical and regulatory expenses have increased on both a percentage and dollar basis compared to the three months ended March 31, 2015, due to headcount additions in the second half of 2015 as a result of the increasing regulatory requirements. We expect clinical and regulatory expenses to be approximately 4.5% to 5.0% for the full year 2016.

Sales and marketing expense for the first quarter of 2016 totaled $9,599,000, or 24% of revenue, compared to $8,732,000, or 25% of revenue, for the first quarter of 2015. The decrease in sales and marketing expense as a percentage of revenue for the three months ended March 31, 2016, was due to increasing sales in the U.S. with only minor increases in the size of our U.S. field sales organization. In addition, we have continued to increase sales in international markets through independent distributors. We expect our sales and marketing expenses as a percentage of revenue to be approximately 22.0% to 23.0% of revenue for the full year 2016.

General and administrative expense for the first quarter of 2016 totaled $9,644,000, or 25% of revenue, compared to $4,777,000, or 14% of revenue, for the first quarter of 2015. General and administrative expense increased for the three months ended March 31, 2016 compared to the three months ended March 31, 2015 as a result of a $4,500,000 increase in legal expenses related to the defense of the criminal indictment issued in the United States District Court for the Western District of Texas against us and our Chief Executive Officer regarding the alleged off-label promotion of the Vari-Lase Short Kit. Total legal expenses related to the Short Kit litigation were $6,900,000 in the first quarter of 2016. Upon completion of the criminal trial in San Antonio on February 26, 2016, a unanimous not guilty verdict was returned by the jury on all charges, a decision which is final and not subject to appeal. As a result of the completion of this matter in first quarter of 2016, we expect legal expenses to return to normal business levels starting in the second quarter. As a result, we expect general and administrative expense to be approximately 5.5% to 6.5% of revenue in each quarter for the remainder of 2016.

Medical device excise taxes for the first quarter of 2016 totaled $0, compared to $376,000, or 1.1% of revenue, for the first quarter of 2015. In December 2015, the medical device excise tax was suspended for fiscal years 2016 and 2017.

Amortization of purchased technology and other intangibles was $404,000 and $405,000 for the three months ended March 31, 2016 and 2015, respectively. The amortization resulted from our product and license acquisitions. As part of these asset purchases and licensing agreements, we allocated an aggregate of $16,000,000 to purchased technology and other intangibles that are being amortized over a period of 9 to 11 years. We expect amortization expense to be approximately $400,000 in each quarter for the remainder of 2016.

Income tax benefit was $619,000 for the three months ended March 31, 2016, on a loss before tax of $874,000, resulting in an effective income tax benefit rate of 70.8%. The effective tax benefit rate for the three months ended March 31, 2016, is higher than our effective tax rate of 33.5% due to the adoption in the first quarter of 2016 of Accounting Standards Update (ASU) No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting . Upon adoption, we recognized first quarter excess tax benefits in our earnings. Excess tax benefits totaled $326,000 in the first quarter. We expect our effective income tax rate to be approximately 33.0% to 33.5% of revenue in each quarter for the remainder of 2016, subject to variations as a result of excess tax benefits recognized related to equity compensation.

Our cash and cash equivalents totaled $30,958,000 at March 31, 2016 compared to $41,491,000 at December 31, 2015, a decrease of $10,533,000. A small portion of our cash is maintained in operating accounts, with the majority invested in a money market fund invested in high quality, short-term money market instruments denominated in U.S. dollars such as debt instruments guaranteed by the governments of the United States, Western Europe, Australia, Japan and Canada, high quality corporate issuers and bank obligations. The money market fund’s assets are rated in the highest short-term category by nationally recognized rating agencies, such as Moody’s or Standard & Poor’s.

Cash used in operations. We used $4,335,000 of cash in operations during the three months ended March 31, 2016. The primary sources and uses of cash from operations were:

· $255,000 as a result of our net loss, primarily as the result of legal expenses, and offset by sources of cash from non-cash expenses of: depreciation and amortization expense of $1,590,000; stock-based compensation expense of $1,653,000; and non-cash taxes of $637,000.
· $6,641,000 as a result of the net change in operating assets and liabilities primarily due to: a decrease of $3,322,000 in accounts payable and accruals as a result of our payments of legal expense accruals relating to the Short Kit litigation incurred in 2015; an increase of $2,356,000 of accounts receivable, primarily due to increase in sales demand and the timing of international receivable collections; an increase of $524,000 of inventory, primarily due to expected increased sales demand; and an increase of $484,000 in prepaid expenses, primarily due to an increase in taxes receivable.

The table below presents the change in receivables and inventory in relative terms, through the presentation of financial ratios. Days sales outstanding are calculated by dividing the ending accounts receivable balance, net of reserves for sales returns and doubtful accounts, by the average daily sales for the quarter. The increase in days sales outstanding for the three months ended March 31, 2016 was primarily due to an increase in our receivables from slower-paying international distributors. Days inventory on hand is calculated by dividing 365 by the annualized cost of sales for the quarter divided by inventory. The decrease in days inventory on hand for the three months ended March 31, 2016 was due to sales demand increasing slightly more than our inventory balance and was relatively consistent with the December 31, 2015 days inventory on hand.

March 31, 2016 December 31, 2015
Days Sales Outstanding 50 46
Days Inventory on Hand 152 157

Cash used in investing activities. We used $2,914,000 of cash in investing activities for the three months ended March 31, 2016, consisting of capital expenditures related to building renovations, and computer and research and development equipment. The cash used in investing activities for building improvements is primarily due to ongoing renovation and expansion of our manufacturing facilities.

Cash used in financing activities. We used $3,265,000 of cash in financing activities for the three months ended March 31, 2016. The cash usage consisted of: $1,809,000 of cash used to repurchase 64,199 shares of our common stock as part of our share purchase program; and $1,535,000 of cash used to repurchase 56,814 shares of our common stock to satisfy income tax withholding obligations on restricted stock awards vesting and a stock options exercise, partially offset by the receipt of $79,000 upon the exercise of outstanding stock options.

We currently anticipate that we will experience positive cash flow from our normal operating activities for the foreseeable future. We believe that our working capital of $66.6 million at March 31, 2016 will be sufficient to meet all of our operating and capital requirements for the foreseeable future.

We did not have any off-balance sheet arrangements as of March 31, 2016.

Contractual Obligations

The following table summarizes our contractual cash commitments as of March 31, 2016:

Payments Due by Period
Contractual Obligations Total Less than 1 year 1 - 3 years 3 - 5 years More than 5 years
(dollars in thousands)
Facility operating leases $ 1,190 $ 418 $ 434 $ 338 $ -
Product license rights 400 400 - - -
Total $ 1,590 $ 818 $ 434 $ 338 $ -

We do not have any other significant cash commitments related to supply agreements, nor do we have any other significant commitments for capital expenditures.

Management’s Discussion and Analysis of Financial Condition and Results of Operations addresses our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. The preparation of our financial statements requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities, the 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. On an on-going basis, we evaluate these estimates and judgments. We base our estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

The material accounting policies that we believe are most critical to an investor’s understanding of our financial results and condition and which require complex management judgment are discussed in our Annual Report on Form 10-K for the year ended December 31, 2015 under the caption “Critical Accounting Policies.”

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 materially from those discussed in the statement. We desire to take advantage of the safe harbor provisions with respect to any forward-looking statements we 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,” “believe,” “estimate,” “projected,” “forecast,” or similar expressions are intended to identify forward-looking statements within the meaning of the Act. Forward-looking statements such as these are based on management’s current expectations as of the date of this report but involve risks, uncertainties and other factors which may cause actual results to differ materially from those contemplated by such forward-looking statements. We caution 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, we identify the following important general factors which, if altered from the current status, could cause our actual results to differ from those described in any forward-looking statements: risks associated with adoption of our new products, exposure to governmental enforcement actions, exposure to potential shareholder litigation, exposure to potential patent infringement lawsuits, significant variability in quarterly results, 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, the availability of third party reimbursement, actions by the FDA related to our products, the loss of key vendors, information technology risks and those factors set forth under the heading “Risk Factors” in Item 1A of Part II of this Quarterly Annual Report on Form 10-Q. This list is not exhaustive, and we 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. We undertake no obligation to, and do not intend to, revise or update publicly any forward-looking statement for any reason.

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 in the United States and one major bank in Ireland. We have a formal written investment policy that limits our investments to investments in 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 accounts receivables.

In the United States, we sell our products directly to hospitals and clinics. In international markets, we sell our products to independent distributors who, in turn, sell to hospitals and clinics. We sell our products in these countries through independent distributors denominated in United States dollars, with the exception of sales from our subsidiary in Ireland and sales to our distributor in Germany, where sales are denominated in Euros.

We distribute certain products on behalf of certain U.S. and international manufacturers. With the exception of one item, we pay for all distributed products in United States dollars.

We do not believe our operations are currently subject to significant market risks for interest rates, foreign currency exchange rates, commodity prices or other relevant market price risks of a material nature. A change of 0.1 in the Euro exchange rate would result in an increase or decrease of approximately $71,000 in the amount of United States dollars we receive in payment on the accounts receivable denominated in Euros by our subsidiary in Ireland and our German distributor, Nicolai GmbH. Under our current policies, we do not use foreign currency derivative instruments to manage exposure to fluctuations in the Euro exchange rate.

We are exposed to declines in the interest rates paid on deposited funds. A 0.1% decline in the current market interest rates paid on deposits would result in interest earnings being reduced by approximately $31,000 on an annual basis.

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) under 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 were effective.

Changes in internal control over financial reporting.

During the fiscal quarter ended March 31, 2016, there has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

On November 13, 2014, a criminal indictment was issued in the United States District Court for the Western District of Texas that alleged we and our Chief Executive Officer introduced adulterated and misbranded medical devices into interstate commerce and conspired to introduce adulterated and misbranded medical devices into interstate commerce through the alleged off-label promotion of the Vari-Lase Short Kit. On December 2, 2015, a superseding indictment was issued that eliminated the allegations related to introducing adulterated medical devices. A jury trial was conducted during the month of February 2016 in San Antonio, Texas. On February 26, 2016, the jury returned a unanimous verdict of not guilty on all charges. The jury’s verdict is final and not subject to appeal.

From time to time, we are involved in additional legal proceedings arising in the normal course of business. As of the date of this report we are not a party to any legal proceeding in which an adverse outcome would reasonably be expected to have a material adverse effect on our results of operations or financial condition.

The risks and uncertainties described below are not the only ones facing our company. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. If any of the following risks occur, our business, financial condition or results of operations could be seriously harmed.

We will not be successful if the interventional medical device community does not adopt our new products or services.

We have launched over 100 new products or services since 2003, and currently sell over 90 different medical devices. Our success will depend on the continued launch of new products and services and the medical community’s acceptance of our new products and services. We cannot predict how quickly, if at all, the medical community will accept our new products and services, or, if accepted, the continuation or extent of their use. Our potential customers must:

Because we are often selling a new technology, we have limited ability to predict the level of growth or timing of sales of these products or services. If we encounter difficulties in growing our sales of our new medical devices or services, our business will be seriously harmed.

We are subject to rigorous and costly U.S. and foreign laws and governmental regulation, and any governmental enforcement action may materially adversely affect our financial condition and business operations.

The products and business activities of medical device companies are subject to rigorous regulation by the FDA and other federal, state and international governmental authorities under statutes and regulations governing health care fraud. The U.S. Attorney’s Offices have increased their scrutiny over the medical device industry in recent years. The U.S. Congress, Department of Justice, Office of Inspector General of the Department of Health and Human Services, and Department of Defense have all issued subpoenas and other requests for information to conduct investigations of, and commenced civil and criminal litigation against, medical device manufacturers, primarily related to financial arrangements with health care providers, regulatory compliance and product promotional practices. In addition, the U.S. False Claims Act has led to whistleblowers filing numerous qui tam civil lawsuits against medical device companies, in part, because a whistleblower can receive a portion of amounts obtained by the government through such a lawsuit.

Governmental enforcement action or qui tam civil litigation against us may result in material costs and occupy significant management resources, even if we ultimately prevail. In addition, governmental enforcement action may result in substantial fines, penalties or administrative remedies, including exclusion from government reimbursement programs and entry into corporate integrity agreements with governmental agencies, which would entail significant obligations and costs.

We may face intellectual property litigation, which could prevent us from manufacturing and selling our products or services or result in us incurring substantial costs and liabilities.

The interventional medical device industry is characterized by numerous patent filings. As a result, participants in the industry frequently experience substantial intellectual property litigation. While we are not currently involved in any intellectual property litigation, in the recent past we have been involved in litigation concerning multiple products.

Some companies in the interventional medical device industry have employed intellectual property litigation in an attempt to gain a competitive advantage. In addition, non-practicing patent assertion entities have accumulated patent rights related to the medical device industry and are asserting them against operating companies to attempt to collect settlements or licensing fees. Intellectual property litigation has proven to be very complex, and the outcome of such litigation is difficult to predict. While we do not believe that any of our products or services infringe any existing patent or other intellectual property right, we previously have been involved in substantial intellectual property litigation and expect to continue to become subject to intellectual property claims with respect to our new or existing products or services.

An adverse determination in any intellectual property litigation or interference proceedings against us could prohibit us from selling a product or service, subject us to significant immediate payments to third parties and require us to seek licenses from third parties. The costs associated with these license arrangements may be substantial and could include substantial up-front payments and ongoing royalties. Furthermore, the necessary licenses may not be available to us on satisfactory terms, if at all. Adverse determinations in a judicial or administrative proceeding or failure to obtain necessary licenses could prevent us from manufacturing and selling a product or service.

Our involvement in any future intellectual property claims, regardless of the merits of any asserted claim against us, could divert the attention of our technical and management personnel away from the development and marketing of our products and services for significant periods of time. Furthermore, the penalties involved with an adverse outcome may be severe, and the costs incurred related to defending such claims could have a material adverse effect on our results of operations or financial condition, even if we ultimately prevail in them.

Our future operating results are difficult to predict and may vary significantly from quarter to quarter, which may adversely affect the price of our common stock.

The ongoing introduction of new products and services that affect our overall product mix make the prediction of future operating results difficult. You should not rely on our past revenue growth as any indication of future growth rates or operating results. The price of our common stock will likely fall in the event that our operating results do not meet the expectations of analysts and investors. Comparisons of our operating results between quarters are an unreliable indication of our future performance because they are likely to vary significantly based on many factors, including:

We may face product liability claims that could result in costly litigation and significant liabilities.

The manufacture and sale of medical products entail significant risk of product liability claims. Any product liability claims, with or without merit, could result in costly litigation, reduced sales, cause us to incur significant liabilities and divert our management’s time, attention and resources. We cannot be sure that our product liability insurance coverage is adequate or that it will continue to be available to us on acceptable terms, if at all.

The market for interventional medical devices and services is highly competitive and will likely become more competitive, and our competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements that may render our products or services obsolete.

The existing market for interventional medical devices and services is intensely competitive. We expect competition to increase further as companies develop new products and services or modify their existing products and services to compete directly with ours. Each of our products and services encounters competition from several medical device companies, including Medtronic plc., Boston Scientific Corporation, Terumo Corporation, Cook Medical Inc., the Abbott Vascular division of Abbott laboratories, and Asahi Intecc Co., Ltd. Each of these companies has:

We may not be able to effectively compete with these companies. In addition, broad product lines may allow our competitors to negotiate exclusive, long-term supply contracts and offer comprehensive pricing for their products or services. Broader product lines may also provide our competitors with a significant advantage in marketing competing products or services to group purchasing organizations and other managed care organizations that are increasingly seeking to reduce costs through centralized purchasing. Greater financial resources and product development capabilities may allow our competitors to respond more quickly to new or emerging technologies and changes in customer requirements that may render our products or services obsolete.

We rely on continued development and improvement of our products and services, which if not successful, may have an adverse effect on our financial condition and results of operations.

We are continually engaged in developing new products and services and improving our existing products and services. New or improved products and services represent a significant component of our sales growth. We dedicate significant financial and managerial resources to product and services development and improvement. We may not achieve our development objectives within our schedule and budget, or at all, due to technical or operational challenges. Failure to achieve our development objectives on schedule may increase our development expenses and adversely impact our revenues. If we do achieve our development objectives, we may not be able to obtain regulatory approval for new or improved products or services, and we may not be successful in marketing and selling such products or services. Failure to obtain regulatory approval or successfully market and sell new or improved products and services could adversely impact our revenues and results of operations.

Constraints or interruption in production from any of our key suppliers may have a material adverse effect on our business, financial condition and results of operations.

In the interest of operational efficiency and due to quality considerations, we obtain some of the components for the products that we manufacture from a sole source. If the availability of components from a sole source of supply is constrained or interrupted, there is no assurance that we could find an alternative source of supply quickly and cost effectively, if at all. In addition, due to the stringent regulations and requirements of the FDA and equivalent regulatory entities regarding the manufacture of our products, we may not be able to quickly establish additional or replacement sources for some components or materials. Unavailability of components could have a material adverse effect on our ability to manufacture and sell products and our results of operations.

We also distribute finished products that are available only from their manufacturer. In addition, the reprocessing services that we offer are performed by a single provider. Operational, quality or regulatory issues of the manufacturers of the products we distribute, or the provider of our reprocessing services, could constrain or interrupt the availability of those products or services. Any constraint or interruption in supply of finished products that we distribute, or the reprocessing services that we offer, could have a material adverse effect on our ability to sell products and services to customers, our financial condition and our results of operations.

Our international sales are subject to a number of risks that could seriously harm our ability to successfully commercialize our products and services in any international market.

Our international sales are subject to several risks, including:

The occurrence of any of these events could seriously harm our future international sales and our ability to successfully commercialize our products and services in any international market.

We depend on information technology and communications systems to operate our business and unauthorized access to, or breaches or other failures of, these systems could have a material adverse effect on our business.

We rely on information technology systems to process, transmit and store electronic information in our day-to-day operations and for communication with our direct domestic sales force. Our information technology systems require an ongoing commitment of significant resources to maintain and protect the integrity and confidentiality of our proprietary data. Third-party cyber-attacks against public companies are becoming more sophisticated and frequent. Any successful cyber-attack against us could result in the theft of intellectual property, misappropriation of employee or customer information or our other assets or disruption of our communication with our direct domestic sales force, or otherwise compromise our confidential or proprietary information and disrupt our operations. If we fail to maintain or protect our information technology systems and data integrity effectively or fail to anticipate, plan for or manage significant disruptions to these systems, we could have increases in operating expenses, incur expenses or lose revenues as a result of a data privacy breach or theft of intellectual property, lose existing customers, have difficulty preventing, detecting, and controlling fraud, be subject to regulatory sanctions or penalties, or suffer other adverse consequences, any of which could have a material adverse effect on our business, results of operations, financial condition and cash flows.

Our business and results of operations may be seriously harmed by changes in third-party reimbursement policies.

We could be seriously harmed by changes in reimbursement policies of governmental or private healthcare payors, particularly to the extent any changes affect reimbursement for catheterization procedures in which our products or services are used. Failure by physicians, hospitals and other users of our products or services to obtain sufficient reimbursement from healthcare payors for procedures in which our products or services are used, or adverse changes in governmental and private third-party payors’ policies toward reimbursement for such procedures, would seriously harm our business.

In the United States, healthcare providers, including hospitals and clinics that purchase medical devices or services such as our products and services, generally rely on third-party payors, principally federal Medicare, state Medicaid and private health insurance plans, to reimburse all, or part of, the cost of catheterization procedures. Any changes in this reimbursement system could seriously harm our business.

In international markets, acceptance of our products and services is dependent in part upon the availability of reimbursement within prevailing healthcare payment systems. Reimbursement and healthcare payment systems in international markets vary significantly by country. Our failure to receive international reimbursement approvals could have a negative impact on market acceptance of our products and services in the markets in which these approvals are sought.

Our products and services and our manufacturing activities are subject to extensive governmental regulation that could prevent us from selling our products or services in the United States or introducing new and improved products or services.

Our products and services and our manufacturing activities are subject to extensive regulation by a number of governmental agencies, including the FDA and comparable international agencies. We are required to:

Compliance with the regulations of these agencies may delay or prevent us from introducing any new model of our existing products or other new products or services. Furthermore, we may be subject to sanctions, including temporary or permanent suspension of operations, product recalls, civil lawsuits, criminal indictments and marketing restrictions if we fail to comply with the laws and regulations pertaining to our business.

We are also required to demonstrate compliance with the FDA’s quality system regulations. The FDA enforces its quality system regulations through pre-approval and periodic post-approval inspections. These regulations relate to product testing, vendor qualification, design control and quality assurance, as well as the maintenance of records and documentation. If we are unable to conform to these regulations, the FDA may take actions which could seriously harm our business. In addition, government regulation may be established that could prevent, delay, modify or rescind regulatory clearance or approval of our products or services.

Purchase of Equity Securities by the Issuer and Affiliated Purchasers:

Period Total Number of Shares Purchased (1) Average Price Paid per Share Total Number of Shares Purchased as Part of a Publicly Announced Plans or Programs Maximum Value of Shares that May Yet be Purchased Under the Plans or Programs (2)
January 1 – 31, 2016 94,305 $ 26.81 53,389 $ 17,640,454
February 1 – 29, 2016 26,708 $ 27.56 10,810 $ 17,372,009
March 1 – 31, 2016 - - - $ 17,372,009
Total 121,013 $ 27.02 64,199 $ 17,372,009

(1) At the election of recipients and pursuant to the terms of their Stock Option and Restricted Stock Awards and the Stock Option and Stock Award Plan, we purchased 40,916 shares of common stock in January 2016 and 15,898 shares of common stock in February 2016 at the fair market value of the common stock on the day of purchase to satisfy income tax withholding obligations for the recipients.

(2) On November 13, 2014, we announced that our Board of Directors had approved a common stock repurchase plan, under which we may repurchase up to $20 million of our common stock on the open market at market prices through September 30, 2016.

Not applicable.

Exhibit Number Description
3.1 Amended and Restated Articles of Incorporation of Vascular Solutions, Inc. (incorporated by reference to Exhibit 3.1 to Vascular Solutions’ Form 10-Q for the quarter ended March 31, 2000 (File No. 0-27605)).
3.2 Amended and Restated Bylaws of Vascular Solutions, Inc. (incorporated by reference to Exhibit 3.1 of Vascular Solutions’ Form 8-K dated October 19, 2007 (File No. 0-27605)).
4.1 Specimen of Common Stock certificate (incorporated by reference to Exhibit 4.1 of Vascular Solutions’ Registration Statement on Form S-1 (File No. 333-84089)).
10.1 Consulting Agreement, dated March 28, 2016, between Vascular Solutions, Inc. and Charmaine Sutton (incorporated by reference to Exhibit 10.1 of Vascular Solutions’ Form 8-K dated March 28, 2016 (File No. 0-27605)).
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.
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema
101.CAL XBRL Taxonomy Extension Calculation Linkbase
101.DEF XBRL Taxonomy Extension Definition Linkbase
101.LAB XBRL Taxonomy Extension Label Linkbase
101.PRE XBRL Taxonomy Extension Presentation Linkbase

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.