-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VdQFB5iCXeQwjy/YgHFBwrnFVaM2e8iWXnWb58VxaVfdepqssny2yy3HMVV8oGHj cJeG/tS0ExiGge3TYhKx6w== 0000891618-99-002272.txt : 19990518 0000891618-99-002272.hdr.sgml : 19990518 ACCESSION NUMBER: 0000891618-99-002272 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENDOSONICS CORP CENTRAL INDEX KEY: 0000883420 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 680028500 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19880 FILM NUMBER: 99624797 BUSINESS ADDRESS: STREET 1: 2870 KILGORE ROAD CITY: RANCHO CORDOVA STATE: CA ZIP: 95670 BUSINESS PHONE: 9166388008 MAIL ADDRESS: STREET 1: 2870 KILGORD ROAD CITY: RANCHO CORDOVA STATE: CA ZIP: 95670 10-Q 1 FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ---------------- FORM 10-Q [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the Quarter Ended March 31, 1999 [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from __________ to _____________ Commission file number 0-19880 ENDOSONICS CORPORATION (Exact name of registrant as specified in its charter) Delaware 68-0028500 (State or other jurisdiction of (I.R.S. Employer incorporated or organization) Identification No.) 2870 Kilgore Road, Rancho Cordova, California 95670 (Address of principal executive offices) Registrant's telephone number, including area code (916) 638-8008 Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] On May 7, 1999, the registrant had outstanding 17,471,501 shares of Common Stock of $.001 par value, which is the registrant's only class of Common Stock. This report on Form 10-Q including all exhibits, contains 16 pages. 2 ENDOSONICS CORPORATION FORM 10-Q FIRST QUARTER TABLE OF CONTENTS
Page ---- Part I. Financial Information Item 1. Condensed Consolidated Financial Statements Condensed consolidated balance sheets at March 31, 1999 and December 31, 1998 ......................................... 3 Condensed consolidated statements of operations for the three months ended March 31, 1999 and 1998 ............................. 4 Condensed consolidated statements of cash flows for the three months ended March 31, 1999 and 1998 ................ 5 Notes to condensed consolidated financial statements ............... 6 Item 2. Management's discussion and analysis of financial condition and results of operations .......................................... 10 Part II. Other Information Information Item 1 through 3. Not Applicable Item 4. Submission of Matters to a Vote of Security Holders ....................... 15 Item 5. Not Applicable Item 6 Exhibits and Reports on Form 8K ........................................... 15 (a) Exhibits: Exhibit 27 - Financial Data Schedule .................................. 15 Signatures ........................................................................ 16
2 3 ENDOSONICS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands, except share and per share amounts)
March 31, December 31, 1999 1998 --------- ------------ ASSETS Current assets: Cash and cash equivalents $ 2,147 $ 8,749 Short-term investments 21,152 16,269 Trade accounts receivable, net 16,430 13,725 Inventories 7,860 6,834 Accrued interest receivable and other current assets 1,071 560 --------- --------- Total current assets 48,660 46,137 Property and equipment, net 4,969 4,064 Investment in Radiance Medical Systems, Inc. 5,571 4,137 Intangible assets, net 11,931 12,392 --------- --------- $ 71,131 $ 66,730 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 8,949 $ 8,200 Accrued restructuring and integration expenses 3,374 3,674 --------- --------- Total current liabilities 12,323 11,874 Other liabilities 584 604 --------- --------- Total liabilities 12,907 12,478 STOCKHOLDERS' EQUITY Convertible preferred stock, $.001 par value 5,000,000 shares authorized, no shares issued and outstanding -- -- Common stock, $.001 par value; 25,000,000 shares authorized, and 17,765,903 and 17,590,120 shares issued and outstanding as of March 31, 1999 and December 31, 1998 respectively 19 18 Additional paid-in capital 178,574 176,433 Common stock in treasury, at cost, 941,480 shares (5,580) (4,839) Accumulated other comprehensive gain (loss) 47 (1,305) Accumulated deficit (114,836) (116,055) --------- --------- Total stockholders' equity 58,224 54,252 --------- --------- $ 71,131 $ 66,730 ========= =========
See accompanying notes. 3 4 ENDOSONICS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except share and per share amounts)
Three Months Ended March 31, 1999 1998 ------------ ------------ Revenues: Product sales $ 11,500 $ 8,725 Contract revenue 561 300 ------------ ------------ Total revenue 12,061 9,025 Cost of sales 5,864 5,000 ------------ ------------ Gross margin 6,197 4,025 Operating expenses: Research, development and clinical 1,550 1,845 Marketing and sales 2,277 2,094 General and administrative 935 1,579 Amortization of intangibles 461 267 ------------ ------------ Total operating expenses 5,223 5,785 Income (loss) from operations 974 (1,760) Equity in net loss of Radiance Medical Systems, Inc. -- (158) Other income: Interest income 314 227 Gain realized on sale of Radiance Medical Systems, Inc., common stock -- 610 ------------ ------------ Total other income 314 837 ------------ ------------ Net income (loss) before provision for income taxes 1,288 (1,081) Provision for income taxes 52 -- ------------ ------------ Net income (loss) $ 1,236 $ (1,081) ============ ============ Basic net income (loss) per share $ 0.07 $ (0.07) ============ ============ Diluted net income (loss) per share $ 0.07 $ (0.07) ============ ============ Shares used in computing net income (loss) per share: Basic 17,576,127 16,174,407 ------------ ------------ Effect of dilutive common stock options 707,399 -- ------------ ------------ Diluted 18,283,526 16,174,407 ============ ============
See accompanying notes. 4 5 ENDOSONICS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)
Three months ended March 31, ---------------------------- 1999 1998 -------- -------- Cash flows from operating activities Net income (loss) $ 1,236 $ (1,081) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 745 775 Gain on sale of Radiance Medical Systems, Inc. common stock -- (610) Equity in net loss Radiance Medical Systems, Inc. -- 158 Net changes in : Operating assets (4,571) 3,601 Operating liabilities 943 (861) -------- -------- Net cash provided by (used in) operating activities (1,647) 1,982 -------- -------- Cash flows from investing activities: Purchase of short-term investments (10,169) (3,944) Proceeds from sale of Radiance Medical Systems, Inc. common stock -- 3,552 Maturities of short-term investments 5,285 7,129 Capital expenditures for property and equipment (1,194) (612) -------- -------- Net cash provided by (used in) investing activities (6,078) 6,125 -------- -------- Cash flows from financing activities: Purchase of treasury stock (938) -- Proceeds from exercise of stock options 2,142 72 -------- -------- Net cash provided by financing activities 1,204 72 -------- -------- Effect of exchange rate changes on cash and cash equivalents (81) 5 -------- -------- Net increase (decrease) in cash and equivalents (6,602) 8,184 Cash and equivalents, beginning of period 8,749 13,889 ======== ======== Cash and equivalents, end of period $ 2,147 $ 20,073 ======== ========
See accompanying notes. 5 6 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1999 (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The interim financial information is unaudited. In the opinion of management of EndoSonics Corporation ("EndoSonics" or the "Company"), the condensed consolidated financial statements included in this report reflect all adjustments necessary, consisting only of normal recurring adjustments, to present fairly the Company's consolidated financial position at March 31, 1999 and the consolidated results of its operations and cash flows for the three month periods ended March 31, 1999 and 1998. Results for the interim periods are not necessarily indicative of consolidated results to be expected for the entire fiscal year. These financial statements should be read in conjunction with the Company's audited financial statements for the year ended December 31, 1998, contained in the Company's Annual Report on Form 10-K. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of EndoSonics and its subsidiaries. (EndoSonics and its subsidiaries are collectively referred to hereinafter as "the Company"). All significant intercompany accounts and transactions have been eliminated. Investments in unconsolidated subsidiaries, and other investments in which the Company has a 20% to 50% interest or otherwise has the ability to exercise significant influence, are accounted for under the equity method. RECLASSIFICATIONS Certain reclassifications have been made to the prior period balances to conform with current period presentations. INVESTMENTS In accordance with SFAS 115, the Company has classified its investment portfolio as available-for-sale. Unrealized gains (losses) on available-for-sale securities are recorded as a separate component of other comprehensive income. 2. INVENTORIES Inventories are stated at the lower of cost, determined on a first in, first out (FIFO) cost basis, or market value. Inventories consist of the following: 6 7
March 31, December 31, 1999 1998 ------ ------ Raw materials $2,686 $3,206 Work-in-process 2,596 1,354 Finished goods 2,578 2,274 ------ ------ Total $7,860 $6,834 ====== ======
3. COMPUTATION OF NET INCOME (LOSS) PER SHARE Net income (loss) per share is computed using the weighted average number of shares of common stock outstanding. Common equivalent shares from stock options and warrants are excluded from the computation of net loss per share because their effect is antidilutive. Conversely, common equivalent shares from stock options are included in the computation of net income per share to the extent that the impact is dilutive. At March 31, 1999 and December 31, 1998, the Company had outstanding options to purchase 3,564,714 and 3,744,030 shares of common stock, respectively (with exercise prices ranging from $0.32 to $16.50) and outstanding warrants to purchase 12,304 shares of common stock (with exercise prices from $11.76 to $12.55). If exercised, these options could potentially dilute basic earnings per share in future periods. 4. COMPREHENSIVE INCOME (LOSS) The following table sets forth the computation of comprehensive income:
Three months ended March 31, 1999 1998 ------- ------- Net income (loss) $ 1,236 $(1,081) Other comprehensive income: Unrealized gain on available for sale securities (net of tax of $390 and $678 in 1999 and 1998, respectively) 725 1,260 Foreign currency translation (net of tax of $20 and $2 in 1999 and 1998, respectively) 36 3 ------- ------- Comprehensive income $ 1,997 $ 182 ======= =======
5. RESTRUCTURING AND OTHER CHARGES The elements of the accrual for restructuring and integration charges as of March 31, 1999 are as follows: 7 8
Accrual as of Accrual as of December 31, Cost March 31, 1998 Incurred 1999 ------------- -------- ------------- Corporate reorganization $3,674 $ 300 $3,374 ====== ====== ======
6. STOCK REPURCHASE The Board of Directors has authorized a stock repurchase program whereby the Company may repurchase up to 1.7 million shares of its common stock from time-to-time in the open market or private transactions. As of December 31, 1998, the Company had repurchased 860,000 shares of its common stock on the open market at an aggregate cost of approximately $4,839. During the quarter ended March 31, 1999, the Company repurchased an additional 110,000 shares of its common stock on the open market at an aggregate cost of approximately $938. Also, during the quarter ended March 31, 1999, 28,520 shares of common stock held in treasury were re-issued to participants of the Company's Employee Stock Purchase Plan at prices ranging from $4.0375 to $7.3313 per share. As a result, a total of 941,480 shares were held in treasury at March 31, 1999 at an aggregate cost of approximately $5,580. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Quarterly Report on Form 10-Q contains forward looking statements. The Company's business is subject to risks and uncertainties and the Company's actual results may differ significantly from the results discussed in the forward looking statements. Factors that might cause such a difference include, but are not limited to, the Company's ability to transition to new distribution arrangements in Europe and North America, the introduction of new products, FDA approval of new products and changes in regulatory requirements and third-party reimbursement policies. For a discussion of these and other factors, please see "Risk Factors" in the Company's Annual Report on Form 10-K (starting at page 20) for the fiscal year ended December 31, 1998. INTRODUCTION Since its inception in 1984, EndoSonics has been engaged primarily in the research and development of products for the diagnosis and treatment of cardiovascular disease. Since 1991, a majority of the Company's net revenue has been derived from sales of its IVUS imaging systems and catheters. The Company markets and distributes its IVUS imaging products in the United States, Europe and Japan through relationships with strategic partners, certain other distributors and, to a lesser extent, through a direct sales force. In February 1996, EndoSonics and Cordis entered into the Exclusive Distribution Agreement pursuant to which Cordis was granted the exclusive right 8 9 to distribute EndoSonics' IVUS imaging products for coronary applications in North America, Europe, Africa and the Middle East. Cordis was obligated during each year of the Exclusive Distribution Agreement to use reasonable efforts to purchase certain minimum annual amounts of products from EndoSonics. In connection with the execution of the Exclusive Distribution Agreement, the Company issued 350,877 shares of its Common Stock to Cordis in a private placement transaction for an aggregate purchase price of approximately $5.0 million. The Company has since registered the shares of Common Stock issued to Cordis. The exclusive Distribution Agreement was terminated in April, 1998. EndoSonics and Cordis entered into a Transition Agreement in April, 1998 which provided for Cordis to maintain significantly reduced distribution rights. These distribution rights terminated in March, 1999. In March 1997, the Company and Johnson & Johnson Medical K.K. ("JJMKK"), entered into a distribution agreement whereby JJMKK was granted exclusive right to distribute EndoSonics IVUS imaging products for coronary applications in Japan. The agreement contained similar terms as the Exclusive Distribution Agreement between Cordis and EndoSonics. The agreement was amended in December 1998 to extend the agreement through December 1999. In April 1997, the Company and Johnson & Johnson, Professional Group - Latin America ("J & J Medical-LA"), entered into a distribution agreement whereby J & J Medical-LA was granted exclusive rights to distribute EndoSonics IVUS imaging products for coronary applications in certain countries of Latin America. The agreement contained similar terms as the Exclusive Distribution Agreement between Cordis and EndoSonics. The agreement was amended in December 1998 to extend the agreement through December 2000. In July, 1998, the Company announced that it has agreed in principal to enter into a strategic relationship with Fukuda which includes an equity investment and research and development funding totaling $13 million in EndoSonics by Fukuda. Approximately $8.4 million of Fukuda's investment was for the purchase of newly issued EndoSonics common stock. The balance of the investment will fund certain research and development/technical assistance programs for products intended for the Japanese market which will be distributed by Fukuda. The funding will occur over a two-year period commencing in August, 1998. In December 1998, the Company and JOMED N.V., ("JOMED") entered into an agreement for exclusive distribution of certain EndoSonics products into specified European and Middle Eastern countries. Also in December, EndoSonics and JOMED entered into an IVUS-guided stent delivery system agreement which calls for the development of a JOMED balloon and stent incorporated into a modular EndoSonics IVUS catheter. Under the agreement, EndoSonics will supply subassemblies to JOMED who will complete the manufacturing process and distribute the resulting product in the territory which is defined as certain European and Middle Eastern countries. In certain countries within the territory, EndoSonics may distribute exclusively or jointly with JOMED. Radiance Medical Systems, Inc., formerly a majority-owned subsidiary of the Company, designs, develops, manufactures and markets catheters used to treat certain vascular diseases. Radiance's catheters are used in conjunction with angioplasty and other interventional procedures such as vascular stenting and drug delivery. Radiance completed its initial public offering in June of 1996 and, as a result, its assets, liabilities and results of operations are no longer included in the Company's 9 10 consolidated financial statements. At March 31, 1999, the Company held approximately 15% of the outstanding shares of the Common Stock of Radiance and accounted for its investment on the cost method. The Company's business strategy includes acquiring related businesses, products or technologies. On July 23, 1997, the Company acquired Cardiometrics through the merger of a wholly owned subsidiary of the Company with and into Cardiometrics, with Cardiometrics surviving as a wholly owned subsidiary of the Company. Cardiometrics develops, manufactures, and markets intravascular medical devices to measure blood flow impairment caused by coronary artery disease. Cardiometrics' initial products, the FloWire(TM) Doppler guide wire and FloMap ultrasound instrument, represent an advance in functional testing of blood flow impairment, enabling cardiologists to evaluate the appropriateness of angioplasty interventions and assess post-procedural results directly in the cardiac catheterization laboratory. Clinical experience demonstrates that the measurement of blood flow impairment downstream from (distal to) an obstruction, which Cardiometrics calls functional angiometry, provides information to improve the quality of patient care and procedure outcomes in the diagnosis and treatment of cardiovascular disease. The FloWire(TM)/FloMap(TM) systems has received clearance from the FDA and many corresponding European and Pacific Rim regulatory agencies. Cardiometrics has also developed the WaveWire(TM)/WaveMap intracoronary blood pressure measurement system, which was first used in a clinical case in Europe in December 1996. Cardiometrics received a 510(k) approval in August 1997 for the WaveWire(TM)/WaveMap(TM) System, and commenced shipment to United States customers in 1998. On August 5, 1998, the Company acquired Navius Corporation, a San Diego based, privately-held developer of angioplasty balloons, stents, intravascular radiation devices and other medical products. Navius' results of operations are combined with those of the Company since the date of the acquisition. The Company expects that it may pursue additional acquisitions in the future. Any future acquisitions may result in potentially dilutive issuances of equity securities, the write-off of in-process research and development, the incurrence of debt and contingent liabilities and amortization expenses related to intangible assets acquired, any of which could materially adversely affect the Company's business financial condition and results of operations. In particular, if the Company is unable to use the "pooling of interests" method of accounting, the Company will be required to amortize any intangible assets acquired in connection with any additional acquisitions over the useful lives of such assets. Additionally, unanticipated expenses may be incurred relating to the integration of technologies and research and development, and administrative functions. Any acquisition will involve numerous risks, including difficulties in the assimilation of the acquired company's employees, operations and products, uncertainties associated with operating in new markets and working with new customers, the potential loss of the acquired company's key employees as well as the costs associated with completing the acquisition and integrating the acquired company. RESULTS OF OPERATIONS FIRST QUARTER OF 1999 COMPARED TO THE SAME PERIOD IN 1998 10 11 Total Revenue. Total revenue increased 34% to $12.1 million for the first quarter of 1999, from $9.0 million in the first quarter of 1998. Revenues for the IVUS business increased by 47%, or $2.7 million due primarily to an increase in sales in Europe over 1998 levels due in part to the Company's strategic alliance with JOMED BV. Revenues for the Cardiometrics business decreased by 14% or $0.4 million due to a decline in shipments of FloMap and WaveMap products. This decline was not fully offset by the increase in FloWire and WaveWire shipments. Export sales comprised approximately 68% of total revenues in first quarter of 1999 as compared to 73% in the first quarter of 1998. The Company expects that export sales will continue to represent a substantial portion of the Company's revenue in future periods. Cost of Sales. Cost of sales as a percentage of total revenues decreased to 49% for the first quarter of 1999 from 55% for the first quarter of 1998. Cost of sales as a percentage of total revenues decreased due in part to higher average selling prices of IVUS products resulting from an improved geographical mix as well as the Company's decision to transition from distribution relationships to a direct sales approach in certain geographical regions. In addition, in 1998 cost of sales included certain start-up costs related to the ramp up of manufacturing of Company's WaveWire catheter. These costs were not present in 1999. Due to the uncertainty associated with continued improvements in the efficiency of the Company's manufacturing process and the impact of increasingly competitive pricing, there can be no assurance that the Company's gross profit margin will be maintained or continue to improve in future periods. Research, Development, and Clinical. Research, development and clinical expenses decreased by $0.2 million to $1.6 million for the first quarter of 1999 from $1.8 million for the first quarter of 1998. As part of a strategic alliance with Fukuda, the Company recognized approximately $0.5 million in research and development funding, which offset certain first quarter expenditures. Excluding the reimbursement from Fukuda research and development expenses totaled approximately $2.1 million, which represents an increase of $0.3 million or 17% from the first quarter of 1998. The increase is due primarily to Navius' research and development expenses which are included in the first quarter 1999 operating results as a consequence of the Company's August 1998 acquisition of Navius. Marketing and Sales. Marketing and sales expenses increased to $2.3 million in the first quarter of 1999 from $2.1 million in the first quarter of 1998. The increase is due to increased staffing and marketing programs related to staffing a direct sales force in the United States and Germany. The increased expense was offset by a 34% increase in revenues. As a result marketing and sales expense as a percentage of revenues decreased to 19% in the first quarter of 1999 as compared to 23% for the same period in 1998. General and Administrative. General and administrative expenses decreased by $0.6 million dollars or 41% to $0.9 million dollars for the first quarter of 1999 compared to $1.6 million dollars for the first quarter of 1998. The reduction is due primarily to a reduction in legal expenses related to patent litigation which was ongoing in the first quarter of 1998. Amortization of Intangibles. Amortization of intangibles increased to $0.5 million in the first quarter of 1999 from $0.3 million in the first quarter of 1998. The amortization relates to goodwill and other intangible assets acquired in the acquisition of Navius in August 1998 and 11 12 Cardiometrics in July 1997. Goodwill and other intangibles are being amortized over periods ranging from three-to-nine years. Equity in Loss of Radiance Medical Systems, Inc. There was no equity in net loss of Radiance Medical Systems, Inc. (RADX) in the first quarter of 1999, as compared to $0.2 million in the first quarter of 1998. Since February 1998, the Company's ownership in RADX has been less than 20%. Other Income. Other income decreased to $0.3 million in the first quarter of 1999 as compared to $0.8 million in the first quarter of 1998. In the first quarter of 1998 the Company recognized a gain of $0.6 million from the sale or Radiance Medical Systems, Inc. (RADX) common stock. The Company did not sell any RADX common stock in the first quarter of 1999. Net Income (Loss). Net income was $1.2 million , or $0.07 per share, in the first quarter of 1999 as compared to a net loss of ($1.1) , or ($0.07) per share, in the first quarter of 1998. LIQUIDITY AND CAPITAL RESOURCES On March 31, 1999, the Company had cash and equivalents of $2.1 million, short-term investments of $21.2 million and no borrowings or credit facilities. Net cash provided by (used in) operations was ($1.6) million in the first quarter of 1999 as compared to $2.0 million in the first quarter of 1998. The deterioration is due primarily to an increase in accounts receivables and other current assets. Net cash provided by (used in) investing activities was ($6.0) million in the first quarter of 1999 as compared to $6.1 million in the first quarter of 1998. The decrease is due primarily to the purchase of $10 million in short-term investments and the acquisition of $1.2 million in property, plant and equipment in the first quarter of 1999. Net cash provided by financing activities was $1.2 million in the first quarter of 1999 as compared to $0.1 in the first quarter of 1998. The increase is due primarily to the $2.1 million in proceeds from the exercise of common stock options, offset partially by the acquisition of $0.9 million in treasury stock. The Company anticipates using cash resources primarily for capital expenditures, product development, sales and marketing efforts and working capital purposes. The Company believes that its existing cash, cash equivalents, and short-term investments as of March 31, 1999 will be sufficient to meet the Company's operating expenses and capital requirements through 1999. However, there can be no assurance that the Company will not be required to seek other financing or that such financing, if required, will be available on terms satisfactory to the Company. IMPACT OF YEAR 2000 The Year 2000 Issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. 12 13 This could result in a system failure or miscalculations causing disruptions to operations, including, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. Should any of these disruptions occur, the financial impact on the Company is unknown. The Company has completed an assessment and will have to modify or replace certain portions of its existing software in order for its computer systems to function properly with respect to dates in the year 2000 and thereafter. However, independent of the Year 2000 Issue, the Company has plans to replace the majority of its existing computer programs with an integrated, enterprise-wide software platform. The Company has identified a software program which meets the Company's operational needs and is also Year 2000 compliant. The Company believes that the new software can be installed and tested with regards to the Year 2000 Issue by September, 1999. It is expected that the cost of the new software, installation, and testing will be between $0.5 million and $1.0 million, the majority of which would be capitalized. In the event that the new software does not function properly with regard to the Year 2000, and an adequate solution is not readily available, the Company's believes that it can make the necessary modifications, (consisting primarily of software version upgrades), to its current computer programs in order to make them Year 2000 compliant. It is anticipated that the Year 2000 project will be completed not later than September, 1999, which is prior to any anticipated impact on the Company's operating systems. The Company believes that with the planned software conversion or with modifications to the existing software, the Year 2000 Issue will not pose a significant operational problem. However, if such modifications are not completed timely, the Year 2000 Issue could have a material impact on the operations of the Company. Likewise, if any of the Company's key suppliers, vendors or customers experience a prolonged business interruption as a result of the Year 2000 Issue, it could have a material impact on the operations of the Company. The costs of the project and the date on which the Company believes it will complete the Year 2000 modifications are based on management's best estimates, which assume certain future events, including the continued availability of certain resources. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those anticipated. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of personnel trained in this area, the effectiveness of the new software and, if necessary, the upgrades received from the Company's software vendors at addressing the Year 2000 Issue and similar uncertainties. 13 14 Part II. OTHER INFORMATION ITEMS 1 through 3. Not applicable. ITEM 4. None. ITEM 5. Not applicable. ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit 27 Financial Data Schedule (b) No reports of Form 8-K were filed during the period. 14 15 SIGNATURES 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. ENDOSONICS CORPORATION /s/ REINHARD J. WARNKING -------------------------------- Reinhard J. Warnking President and Chief Executive Officer Date: May 14, 1999 /s/ RICHARD L. FISCHER -------------------------------- Richard L. Fischer Vice President, Finance and Chief Financial Officer Date: May 14, 1999 /s/ KATHLEEN E. REDD -------------------------------- Kathleen E. Redd Corporate Controller and Principal Accounting Officer Date: May 14, 1999 15 16 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------ ----------- EXHIBIT 27 FINANCIAL DATA SCHEDULE
16 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 2,147 21,152 16,430 0 7,860 48,660 4,969 0 71,131 12,323 0 0 0 19 58,205 71,131 12,061 12,061 5,864 5,223 0 0 0 1,288 52 1,236 0 0 0 1,236 0.07 0.07
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