[Vascular Solutions Letterhead]
April 21, 2005
VIA EDGAR SUBMISSION
- --------------------
Ms. Kate Tillan
Securities and Exchange Commission
Division of Corporation Finance
Judiciary Plaza, Mail Stop 0306
450 Fifth Street NW
Washington DC, 20549
Re: Vascular Solutions, Inc.
Form 10-K for the fiscal year ended December 31, 2004,
filed February 10, 2005
File No. 0-27605
Dear Ms. Tillan:
Under cover of this letter, Dorsey & Whitney LLP, counsel to Vascular
Solutions, Inc. (the "Company"), is transmitting a letter responding to the
comments received by the Company from you on behalf of the Division of
Corporation Finance of the Securities and Exchange Commission (the
"Commission"), in a letter dated March 23, 2005 (the "Comment Letter"). As
requested in the Comment Letter, the Company hereby acknowledges the following
statements:
o The Company is responsible for the adequacy and accuracy of
the disclosure in its filings;
o Staff comments, and changes made to the Company's disclosure
in its filings in response to Staff comments, do not foreclose
the Commission from taking any action with respect to the
Company's filings; and
o The Company may not assert Staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
If you have any questions regarding the above, please contact the
undersigned at (763) 656-4352.
Very truly yours,
/s/ James Hennen
James Hennen
Chief Financial Officer
[Dorsey & Whitney Letterhead]
TIMOTHY S. HEARN
Partner
(612) 340-7802
FAX (612) 340-8738
hearn.tim@dorsey.com
April 21, 2005
VIA EDGAR SUBMISSION
- --------------------
Ms. Kate Tillan
Securities and Exchange Commission
Division of Corporation Finance
Judiciary Plaza, Mail Stop 0306
450 Fifth Street NW
Washington DC, 20549
Re: Vascular Solutions, Inc.
Form 10-K for the fiscal year ended December 31, 2004,
filed February 10, 2005
File No. 0-27605
Dear Ms. Tillan:
On behalf of Vascular Solutions, Inc., a Minnesota corporation (the
"Company"), this letter responds to the comments received from you on behalf of
the Division of Corporation Finance of the Securities and Exchange Commission
(the "Commission"), in a letter dated March 23, 2005 (the "Comment Letter"). For
ease of reference in this letter, the Commission's comments contained in the
Comment Letter appear directly above the Company's response.
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004
Item 9A. Controls and Procedures - Page 32
- ------------------------------------------
Evaluation of Disclosure Controls and Procedures - Page 32
- ----------------------------------------------------------
1. Comment:
WE NOTE YOUR DISCLOSURE THAT YOUR "THE CHIEF EXECUTIVE OFFICER AND
CHIEF FINANCIAL OFFICER CONCLUDED THAT, AS OF THE END OF THE PERIOD COVERED BY
THIS REPORT, [YOUR] DISCLOSURE CONTROLS AND PROCEDURES WERE EFFECTIVE IN TIMELY
ALERTING THEM TO THE MATERIAL INFORMATION RELATING TO [THE COMPANY] (OR [YOUR]
CONSOLIDATED SUBSIDIARIES) REQUIRED TO BE INCLUDED IN THE REPORTS [YOU] FILE OR
SUBMIT UNDER THE EXCHANGE ACT." THE LANGUAGE THAT IS CURRENTLY INCLUDED
FOLLOWING YOUR CONCLUSION THAT YOUR DISCLOSURE CONTROLS AND PROCEDURES ARE
EFFECTIVE APPEARS TO BE SUPERFLUOUS, SINCE THE MEANING OF "DISCLOSURE CONTROLS
AND PROCEDURES" IS ESTABLISHED BY RULE 13A-15(E) OF THE EXCHANGE ACT. HOWEVER,
IF YOU WISH TO INCLUDE THE DEFINITION OF DISCLOSURE CONTROLS AND PROCEDURES,
PLEASE REVISE FUTURE FILINGS TO CLARIFY, IF TRUE, THAT YOUR OFFICERS HAVE
CONCLUDED THAT YOUR DISCLOSURE CONTROLS AND PROCEDURES ARE EFFECTIVE TO ENSURE
THAT INFORMATION REQUIRED TO BE DISCLOSED BY THE ISSUER IN THE REPORTS THAT IT
FILES OR SUBMITS UNDER THE ACT IS RECORDED, PROCESSED, SUMMARIZED AND REPORTED,
WITHIN THE TIME PERIODS SPECIFIED IN THE COMMISSION'S RULES AND FORMS AND TO
ENSURE THAT INFORMATION
Securities and Exchange Commission
April 21, 2005
Page 2
REQUIRED TO BE DISCLOSED IN THE REPORTS THAT YOU FILE OR SUBMIT UNDER THE
EXCHANGE ACT IS ACCUMULATED AND COMMUNICATED TO YOUR MANAGEMENT, INCLUDING YOUR
CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER, TO ALLOW TIMELY DECISIONS
REGARDING REQUIRED DISCLOSURE. REFER TO RULE 13A-15(E) OF THE EXCHANGE ACT.
RESPONSE:
As requested, the Company will revise its "Controls and Procedures"
disclosure in future filings to reflect the Staff's comment.
Consolidated Financial Statements - Page 38
- -------------------------------------------
Note 10 - Stock Options and Warrants - Page 55
- ----------------------------------------------
Warrants - Page 56
- ------------------
2. Comment:
WE NOTE YOUR DISCLOSURE SHOWING THE OUTSTANDING WARRANTS AND THEIR
RESPECTIVE EXPIRATION DATES. TELL US WHEN AND WHY THESE WARRANTS WERE ISSUED.
ALSO, TELL US HOW YOU HAVE ACCOUNTED FOR THESE WARRANTS IN YOUR FINANCIAL
STATEMENTS. PLEASE ALSO REVISE FUTURE FILINGS AS APPROPRIATE TO ADDRESS OUR
COMMENT.
RESPONSE:
In January and February 1997, the Company issued 1,500,000 shares of
common stock at $1.50 per share, from which the Company received net proceeds of
approximately $2,079,000. In connection with the sale of common stock, the
Company granted warrants to the placement agent to purchase a total of 100,000
shares of common stock at an exercise price of $1.50 per share. The warrants
expire in January and February 2007. As of December 31, 2004, 94,900 of these
warrants remained outstanding. The warrants granted to the placement agent were
valued as part of the common stock issuance and the value of the warrants was
included in additional paid in capital.
In December 1997, the Company issued 680,000 shares of common stock at
$3.00 per share, from which the Company received net proceeds of approximately
$1,790,000. In connection with the sale of common stock, the Company granted
warrants to the placement agent to purchase a total of 68,000 share of common
stock at an exercise price of $3.00 per share. The warrants expire in December
2007. As of December 31, 2004, 68,000 of these warrants remained outstanding.
The warrants granted to the placement agent were valued as part of the common
stock issuance and the value of the warrants was included in additional paid in
capital.
Securities and Exchange Commission
April 21, 2005
Page 3
As requested, the Company will revise its future filings to include
information regarding how and why these warrants were issued and how they have
been accounted for in the financial statements.
FORM 8-K DATED JANUARY 27, 2005
Exhibit 99.1
- ------------
3. Comment:
WE DO NOT BELIEVE THAT THE PRESENTATION OF A NON-GAAP STATEMENT OF
OPERATIONS IS APPROPRIATE UNLESS ALL DISCLOSURES REQUIRED BY ITEM 10(E)(1)(I) OF
REGULATION S-K ARE INCLUDED FOR EACH SEPARATE NON-GAAP MEASURE. PLEASE DELETE
THIS PRESENTATION FROM ALL FUTURE FORMS 8-K. IF YOU CONTINUE TO PRESENT NON-GAAP
INFORMATION, ITEM 2.02 OF FORM 8-K REQUIRES THAT DISCLOSURES "FURNISHED" INCLUDE
INFORMATION THAT COMPLIES WITH THE DISCLOSURE REQUIREMENTS OF ITEM 10(E)(1)(I)
OF REGULATION S-K. ACCORDINGLY, IN ADDITION TO THE RECONCILIATION FOR EACH
NON-GAAP MEASURE, YOU MUST ALSO PROVIDE STATEMENTS DISCLOSING THE REASONS WHY
MANAGEMENT BELIEVES PRESENTATION OF THE INDIVIDUAL NON-GAAP MEASURES PROVIDE
USEFUL INFORMATION TO INVESTORS REGARDING YOUR FINANCIAL CONDITION AND RESULTS
OF OPERATIONS. THOSE DISCLOSURES SHOULD BE SPECIFIC AND SUBSTANTIVE TO EACH
INDIVIDUAL MEASURE. PLEASE CONFIRM THAT YOU WILL REVISE YOUR FORMS 8-K IN FUTURE
PERIODS TO PROVIDE ALL OF THE DISCLOSURES REQUIRED BY ITEM 10(E)(1)(I) FOR EACH
NON-GAAP MEASURE PRESENTED. PROVIDE US WITH A FULL SAMPLE OF YOUR PROPOSED
DISCLOSURE.
RESPONSE:
In response to this comment and comment no. 4 below, the Company will
revise its Forms 8-K in future periods to include all of the disclosures
required by Item 10(e)(1)(i) of Regulation S-K for each non-GAAP measure
provided. On Thursday, April 14, 2005 the Company filed a Form 8-K which
furnished pursuant to Item 2.02 the Company's earnings release for the quarter
ended March 31, 2005. The Company's new approach to the presentation of non-GAAP
measures is reflected in that release. More specifically, the Company's latest
press release reflects three principle changes from its prior practice:
o First, the non-GAAP measure is identified in the second
paragraph of the press release (see below) as "adjusted net
income:"
"The company's net loss for the first quarter was $289,000 or
$0.02 per share, improving from a net loss of $1,499,000 or
$0.11 per share in the first quarter of 2004. During the first
quarter the company incurred $486,000 in expenses related to
the development and qualification of a new supply of thrombin,
a primary component of its hemostatic products. The thrombin
Securities and Exchange Commission
April 21, 2005
Page 4
qualification work and expenses are expected to be completed
by the end of 2006. Excluding these thrombin qualification
expenses, the company achieved adjusted net income of $197,000
in the first quarter.
o Second, the "Special Charges" and "As Adjusted" columns have
been deleted from the income statement presented in the press
release.
o Third, a new paragraph under the heading "Use of Non-GAAP
Measures" (see below) has been added to the press release
which includes the additional disclosures requested by the
Staff in comments no. 3 and 4:
USE OF NON-GAAP MEASURES
------------------------
Management uses non-GAAP measures to establish operational
goals, and believes that non-GAAP measures may assist
investors in analyzing the underlying trends in the Company's
business over time. Investors should consider these non-GAAP
measures in addition to, not as a substitute for or as
superior to, financial reporting measures prepared in
accordance with GAAP. In this press release, the Company has
reported a non-GAAP measure called adjusted net income which
excludes certain expenses relating to the qualification of a
new supply of thrombin. On October 18, 2004, the Company
entered into a supply agreement with Sigma-Aldrich Fine
Chemicals for the development, manufacture and supply of bulk
thrombin for use in the Company's hemostatic products. The
Company estimates that the development and qualification of
this new supply of thrombin will take approximately two years
to complete, with estimated expenditures through the end of
2006 expected to be approximately $3.7 million in operating
expenses, $3.0 million in inventory purchases (in addition to
inventory purchased from the current supplier of thrombin) and
$0.4 million in capital equipment purchases. Management
believes that although the qualification expenses are a
recurring cost it is useful to exclude them from net income
given the short duration of these expenses and the expectation
that similar expenses will not need to be incurred for the
foreseeable future. Management uses the adjusted net income
measure in its internal analysis and review of operational
performance. Management includes the thrombin qualification
expenses as well as the related inventory and capital
equipment purchases in its cash projections. Management
believes that this adjusted net income measure provides
investors with useful information in comparing
Securities and Exchange Commission
April 21, 2005
Page 5
the Company's performance over different periods, particularly
when comparing this period to periods in which the Company did
not incur any expenses relating to the qualification of its
new thrombin supply. By using this non-GAAP measure management
believes that investors get a better picture of the
performance of the Company's underlying business. Management
encourages investors to review the Company's net income
prepared in accordance with GAAP to understand the Company's
performance taking into account all relevant factors,
including those that may only occur from time to time but have
a material impact on the Company's financial results.
4. Comment:
YOUR REVISED DISCLOSURES RELATED TO THE NON-GAAP MEASURES INCLUDED IN
FORM 8-K/A FILED ON JANUARY 27, 2005 DO NOT INCLUDE ALL OF THE DISCLOSURES
REQUIRED BY PARAGRAPH (E)(1)(I) OF ITEM 10 OF REGULATION S-K AND QUESTION 8 OF
THE FAQ REGARDING THE USE OF NON-GAAP FINANCIAL MEASURES DATED JUNE 13, 2003.
PLEASE REVISE TO SPECIFICALLY INCLUDE A DISCUSSION, IN SUFFICIENT DETAIL, OF THE
FOLLOWING FOR EACH NON-GAAP MEASURE:
o THE SUBSTANTIVE REASONS WHY MANAGEMENT BELIEVES EACH NON-GAAP
MEASURE PROVIDES USEFUL INFORMATION TO INVESTORS;
o THE SPECIFIC MANNER IN WHICH MANAGEMENT USES EACH NON-GAAP
MEASURE TO CONDUCT OR EVALUATE ITS BUSINESS;
o THE ECONOMIC SUBSTANCE BEHIND MANAGEMENT'S DECISION TO USE
EACH MEASURE; AND
o THE MATERIAL LIMITATIONS ASSOCIATED WITH THE USE OF EACH
NON-GAAP MEASURE AS COMPARED TO THE USE OF THE MOST DIRECTLY
COMPARABLE GAAP MEASURE AND THE MANNER IN WHICH MANAGEMENT
COMPENSATES FOR THESE LIMITATIONS WHEN USING THE NON-GAAP
MEASURE.
YOUR CURRENT DISCLOSURES ARE GENERIC AND VAGUE AND DO NOT PROVIDE THE
READER SUFFICIENT INFORMATION TO UNDERSTAND EACH NON-GAAP MEASURE. YOUR REVISED
DISCLOSURE SHOULD ALSO ADDRESS WHY YOU BELIEVE A MEASURE THAT EXCLUDES THROMBIN
EXPENSES, WHICH YOU HAVE DISCLOSED WILL BE RECURRING OVER THE NEXT TWO YEARS, IS
USEFUL TO INVESTORS.
RESPONSE:
See response to comment no. 3 above.
Securities and Exchange Commission
April 21, 2005
Page 6
For your convenience, we are sending to your attention three courtesy
copies of this letter. If you have any questions regarding this letter, please
feel free to contact me at (612) 340-7802, or, in my absence, Amy Schneider at
(612) 340-2971.
Very truly yours,
/s/ Timothy S. Hearn
Timothy S. Hearn
cc: James Hennen, Vascular Solutions, Inc.