Cardiovascular Systems, Inc. has a market cap of $127.4 million; its shares were traded at around $8.49 with and P/S ratio of 1.9. CSII is in the portfolios of Lee Ainslie of Maverick Capital, Stanley Druckenmiller of Duquesne Capital Management, LLC, George Soros of Soros Fund Management LLC.
Highlight of Business Operations:Revenues. Revenues increased by $3.0 million, or 19.5%, from $15.2 million for the three months ended September 30, 2009 to $18.2 million for the three months ended September 30, 2010. This increase was attributable to a $2.4 million, or 17.8%, increase in sales of Diamondback Systems and a $544,000, or 34.9%, increase in sales of supplemental products and other revenue. Supplemental products include our Viper product line and distribution partner products. Currently, all of our revenues are in the United States; however, we may potentially sell internationally in the future. We expect our revenue to increase as we continue to increase the number of physicians using the devices, increase the usage per physician, introduce new and improved products, and generate clinical data.
Cost of Goods Sold. Cost of goods sold increased by $653,000, or 18.7%, from $3.5 million for the three months ended September 30, 2009 to $4.1 million for the three months ended September 30, 2010. Cost of goods sold represents the cost of materials, labor and overhead for single-use catheters, guidewires, control units, and other ancillary products. Cost of goods sold for the three months ended September 30, 2010 and 2009 includes $277,000 and $129,000, respectively, for stock-based compensation. We expect that the gross margin will stay fairly consistent in the future as sales volumes increase, although quarterly fluctuations could occur based on timing of new product introductions, sales mix, pricing changes, or other unanticipated circumstances.
Research and Development Expenses. Research and development expenses decreased by $359,000, or 12.9%, from $2.8 million for the three months ended September 30, 2009 to $2.4 million for the three months ended September 30, 2010. Research and development expenses relate to specific projects to improve our product or expand into new markets, such as the development of new versions of the Diamondback Systems, shaft designs, crown designs, and PAD and coronary clinical trials. The reduction in these expenses related to the decreased numbers and sizes of development projects, as well as the timing of those projects. Research and development expenses for the three months ended September 30, 2010 and 2009 includes $315,000 and $281,000, respectively, for stock-based compensation. As we continue to expand our product portfolio within the market for the treatment of peripheral arteries and leverage our core technology into the coronary market, we generally expect to incur research and development expenses at amounts similar to the three months ended September 30, 2010. Fluctuations could occur based on the number of projects and studies and the timing of expenditures.
Under the agreement, PFG provided us with an initial loan of $1.5 million on April 15, 2010. In addition, for a period of one year until April 14, 2011, we may request up to $2.5 million of additional proceeds from time to time, in minimum increments of $250,000. After this period, we may only request additional proceeds (in increments of not less than $250,000) equal to the aggregate principal amount converted into our common stock through an optional conversion or mandatory conversion. At any time prior to the maturity date, PFG may at its option convert any amount into our common stock at the conversion price set forth in each note, which conversion price will be subject to adjustment upon certain events as provided in such note. The initial agreement has a conversion price of $5.43, which equaled the ten-day volume weighted average price per share of our common stock prior to the date of the agreement. We may also effect at any time a mandatory conversion of amounts, subject to certain terms, conditions and limitations provided in the agreement, including a requirement that the ten-day volume weighted average price of our common stock prior to the date of conversion is at least 15% greater than the conversion price. We also may reduce the conversion price to a price that represents a 15% discount to the ten-day volume weighted average price of our common stock to satisfy this condition and effect a mandatory conversion.
Operating Activities. Net cash used in operating activities improved 30% to $1.4 million from $2.0 million for the three months ended September 30, 2010 and, 2009, respectively. For the three months ended September 30, 2010 and 2009, we had a net loss of $4.3 million and $6.2 million, respectively. Changes in working capital accounts had a favorable effect on the net cash used in both periods. Significant changes in working capital during these periods included:
Investing Activities. Net cash (used in) investing activities was $(320,000) and $(80,000) for the three months ended September 30, 2010 and 2009, respectively. For the three months ended September 30, 2009, we sold investments in the amount of $100,000. The balance of cash (used in) investing activities related to the purchase of property and equipment and patents. Purchases of property and equipment and patents used cash of $(320,000) and $(180,000) for the three months ended September 30, 2010 and 2009, respectively.
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