-----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, HW3udYRW9fp4f6TokjsX8p21CExWXZtCf8JDRlQeHMotLbz5FJRh/HCuUy0NDru+ ftrQP3kLiG75HojS0XoeTA== 0000891618-98-004511.txt : 19981020 0000891618-98-004511.hdr.sgml : 19981020 ACCESSION NUMBER: 0000891618-98-004511 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980805 ITEM INFORMATION: FILED AS OF DATE: 19981019 SROS: NASD 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: 8-K/A SEC ACT: SEC FILE NUMBER: 000-19880 FILM NUMBER: 98727574 BUSINESS ADDRESS: STREET 1: 6616 OWENS DRIVE CITY: PLEASANTON STATE: CA ZIP: 94508 BUSINESS PHONE: 9166388008 MAIL ADDRESS: STREET 1: 6616 OWENS DR CITY: PLEASANTON STATE: CA ZIP: 94508 8-K/A 1 FORM 8-K/A DATED AUGUST 5, 1998 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A Amendment No. 1 to the Current Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): August 5, 1998 ENDOSONICS CORPORATION (Exact name of Registrant as specified in its charter) DELAWARE 0-19880 68-0028500 (State or other jurisdiction of (Commission File Number) (I.R.S. Employer incorporation or organization) Identification No.)
2870 KILGORE ROAD RANCHO CORDOVA, CALIFORNIA 95670 (Address of principal executive offices) (Zip code) (916) 638-8008 (Registrant's telephone number, including area code) (Former name or former address, if changed since last report) AMENDMENT NO.1 The undersigned Registrant hereby amends Item 7 of its Current Report on Form 8-K dated August 5, 1998, and files such amended Item 7 herewith. 2 ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED. The financial statements required by this item are attached to this amended report. (b) PRO FORMA FINANCIAL INFORMATION. The pro forma financial information required by this item are attached to this amended report. 3 INDEPENDENT AUDITORS' REPORT The Board of Directors Navius Corporation: We have audited the accompanying balance sheets of Navius Corporation as of June 30, 1997 and 1996, and the related statements of operations, shareholders' equity (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion of these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Navius Corporation as of June 30, 1997 and 1996, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. July 25, 1997 /s/ KPMG Peat Marwick LLP 4 NAVIUS CORPORATION Balance Sheets June 30, 1997 and 1996
ASSETS (NOTE 4) 1997 1996 ----------- ----------- Current assets: Cash and cash equivalents (note 3) $ 201,243 $ 192,716 Accounts receivable (note 3) 10,399 20,956 Income tax receivable -- 82,563 Inventory 117,192 17,677 Prepaid expenses and other current assets 39,924 10,882 ----------- ----------- Total current assets 368,758 324,794 ----------- ----------- Property and equipment: Machinery and equipment 406,473 272,240 Furniture and fixtures 55,431 37,169 ----------- ----------- 461,904 309,409 Less accumulated depreciation and amortization (243,375) (201,231) ----------- ----------- Net property and equipment 218,529 108,178 Other assets 12,252 11,385 ----------- ----------- Total assets $ 599,539 $ 444,357 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable $ 132,832 $ 44,614 Accrued expenses 65,442 22,000 Deferred contract revenue (note 7) 1,053,333 320,000 Line of credit from bank (note 3) -- 135,000 Note payable to shareholder (note 9) 122,000 122,000 Current portion of long-term debt (note 4) 24,083 56,250 ----------- ----------- Total current liabilities 1,397,690 699,864 Long-term debt, net of current portion (note 4) 66,350 75,521 ----------- ----------- Total liabilities 1,464,040 775,385 ----------- ----------- Shareholders' equity (deficit) (notes 6, 9 and 10): Series A convertible preferred stock, no par value, 1,000,000 shares authorized, issued and outstanding 11,111 11,111 Series B convertible preferred stock, no par value, 210,526 shares authorized, none issued or outstanding -- -- Series C convertible preferred stock, no par value, 700,000 shares authorized, 520,273 issued and outstanding in 1997 1,277,100 -- Non-designated convertible preferred stock, no par value, 3,089,474 shares authorized, none issued and outstanding -- -- Common stock, no par value, 10,000,000 shares authorized, 1,650,000 shares issued and outstanding in 1997 and 1996 49,889 49,889 Subscription receivable (note 9) (36,000) (36,000) Accumulated deficit (2,166,601) (356,028) ----------- ----------- Total shareholders' deficit (864,501) (331,028) ----------- ----------- Commitments and contingencies (notes 8 and 10) Total liabilities and shareholders' equity (deficit) $ 599,539 $ 444,357 =========== ===========
See accompanying notes to financial statements. 3 5 NAVIUS CORPORATION Statements of Operations For the years ended June 30, 1997 and 1996
1997 1996 ----------- ----------- Revenue: Sales revenue $ 76,538 $ 313,920 Contract revenue (note 7) 1,056,937 -- ----------- ----------- Total revenue 1,133,475 313,920 ----------- ----------- Costs and operating expenses: Cost of goods sold 64,838 65,305 Research and development 1,834,579 521,313 General and administrative 1,062,484 342,175 ----------- ----------- Total operating expenses 2,961,901 928,793 ----------- ----------- Loss from operations (1,828,426) (614,873) Other income: Royalty -- 73,000 Other 18,653 55,544 ----------- ----------- Loss before income taxes (1,809,773) (486,329) Income tax expense (benefit) (note 5) 800 (85,583) ----------- ----------- Net loss $(1,810,573) $ (400,746) =========== =========== Basic earnings per share $ (1.10) $ (.32) =========== =========== Weighted average shares used to compute basic earnings per share 1,650,000 1,270,000 =========== ===========
See accompanying notes to financial statements. 4 6 NAVIUS CORPORATION Statements of Shareholders' Equity (Deficit) For the years ended June 30, 1997 and 1996
SERIES A SERIES C PREFERRED STOCK PREFERRED STOCK COMMON STOCK --------------------------- --------------------------- --------------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ----------- ----------- ----------- ----------- ----------- ----------- Balance as of June 30, 1995 -- $ -- -- $ -- 2,500 $ 25,000 Reorganization (note 6) 1,000,000 11,111 -- -- 1,247,500 (11,111) Issuance of common stock (note 9) -- -- -- -- 400,000 36,000 Net loss -- -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- Balance as of June 30, 1996 1,000,000 11,111 -- -- 1,650,000 49,889 Issuance of preferred stock (note 6) -- -- 520,273 1,277,100 -- -- Net loss -- -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- Balance as of June 30, 1997 1,000,000 $ 11,111 520,273 $ 1,277,100 1,650,000 $ 49,889 =========== =========== =========== =========== =========== ===========
RETAINED TOTAL EARNINGS SHAREHOLDERS' SUBSCRIPTION (ACCUMULATED EQUITY RECEIVABLE DEFICIT) (DEFICIT) ----------- ----------- ------------- Balance as of June 30, 1995 $ -- $ 44,718 $ 69,718 Reorganization (note 6) -- -- -- Issuance of common stock (note 9) (36,000) -- -- Net loss -- (400,746) (400,746) ----------- ----------- ----------- Balance as of June 30, 1996 (36,000) (356,028) (331,028) Issuance of preferred stock (note 6) -- -- 1,277,100 Net loss -- (1,810,573) (1,810,573) ----------- ----------- ----------- Balance as of June 30, 1997 $ (36,000) $(2,166,601) $ (864,501) =========== =========== ===========
See accompanying notes to financial statements. 5 7 NAVIUS CORPORATION Statements of Cash Flows For the years ended June 30, 1997 and 1996
1997 1996 ----------- ----------- Cash flows from operating activities: Net loss $(1,810,573) $ (400,746) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 42,144 34,057 Changes in assets and liabilities: Decrease in accounts receivable 10,557 52,992 (Increase) decrease in income tax receivable 82,563 (82,563) Increase in inventory (99,515) (15,050) Increase in prepaid expenses, other current assets and other assets (29,909) (4,779) Increase in accounts payable 88,218 18,069 Increase (decrease) in accrued expenses 43,442 (70,461) Increase in deferred contract revenue 733,333 320,000 ----------- ----------- Net cash used in operating activities (939,740) (148,481) ----------- ----------- Cash flows from investing activities - purchase of property and equipment (134,151) (40,403) ----------- ----------- Cash flows from financing activities: Borrowings (payments) on line of credit (135,000) 135,000 Borrowings (payments) on long-term debt (59,682) 81,771 Issuance of note payable to shareholder -- 122,000 Issuance of preferred stock, net of issuance costs 1,277,100 -- ----------- ----------- Net cash provided by financing activities 1,082,418 338,771 ----------- ----------- Net increase in cash and cash equivalents 8,527 149,887 Cash and cash equivalents at beginning of year 192,716 42,829 ----------- ----------- Cash and cash equivalents at end of year $ 201,243 $ 192,716 =========== =========== Supplemental disclosure of cash flow information: Cash paid during the year for: Interest $ 30,653 $ 19,341 Income taxes $ 800 $ 78,651 Supplemental disclosure of noncash transactions: Acquisition of equipment through capital lease totaling $18,344 during the year ended June 30, 1997 (note 8) Issued 400,000 shares of common stock for a subscription receivable of $36,000 during the year ended June 30, 1996 (note 9)
See accompanying notes to financial statements. 6 8 NAVIUS CORPORATION Notes to Financial Statements June 30, 1997 and 1996 (1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS ACTIVITY Navius Corporation (the "Company") is a product development firm in the medical device field, specializing in angioplasty catheters, stents and radiation catheters used in the treatment of coronary artery disease. The Company was incorporated in the state of California in August 1990, and is currently headquartered in San Diego. The Company began as a contract engineering firm, designing, developing, and producing percutaneous transluminal coronary angioplasty (PTCA) catheters. Its initial project was the design of a balloon catheter for a European company for the European market. Navius subsequently designed and produced three successful balloon catheters for that European company. The Company designed and developed other cardiovascular interventional products for a number of U.S. and international companies during the years 1992-1994. In 1995, Navius made the strategic decision to develop proprietary products for the interventional cardiology market beginning with a family of PTCA catheters. The Company followed this initiative with the development and patenting of a coronary stent possessing the dual advantages of a thin construction and exceptional radial strength due to its stainless steel construction and its patented mechanical racheting lockout system. The Company is currently developing with the Cleveland Clinic Foundation, a radiation delivery system for the treatment and prevention of restenosis in coronary arteries. The radiation system includes a specially designed radiation catheter, a new radiation source and an integrated backloading system. CASH EQUIVALENTS For purposes of the statement of cash flows, the Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. INVENTORY Inventory is stated at the lower of weighted-average cost or market. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation is recorded using either the straight-line or an accelerated depreciation method based on the estimated useful lives of the assets, generally five to seven years. Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. CONTRACT REVENUE Contract research revenue is recognized at the time research and development activities are performed under the terms of the contracts. Contract payments received in excess of amounts earned are recorded as deferred contract revenue. Revenue from milestone payments is recognized when the events stipulated in the contract have been achieved. 7 9 RESEARCH AND DEVELOPMENT COSTS Research and development costs, including costs associated with the filing of patents and licenses, are expensed in the period incurred. INCOME TAXES Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. STOCK OPTION PLAN Prior to January 1, 1996, the Company accounted for its stock option plan in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. On January 1, 1996, the Company adopted SFAS No. 123, Accounting for Stock-Based Compensation, which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123. USE OF ESTIMATES The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates. (2) FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107, Disclosures About Fair Value of Financial Instruments, requires that fair values be disclosed for the Company's financial instruments. The carrying amount of cash and cash equivalents, accounts receivable, income tax receivable, accounts payable, accrued expenses, line of credit from bank, and notes payable are considered to be representative of their respective fair values because of the short-term nature of these financial instruments. The carrying amount of the long-term debt is a reasonable estimate of fair value as the loan bears interest based on market rates currently available for debt with similar terms. 8 10 (3) LINE OF CREDIT FROM BANK In June 1996, the Company entered into a $135,000 line of credit agreement with a bank. Amounts borrowed under the credit facility were due on demand and bear interest at the bank's prime rate plus 2% (10.25% at June 30, 1996). Amounts were secured by the Company's cash accounts with the lender and the Company's accounts receivable. The Company's majority shareholder personally guaranteed repayment. The credit agreement expired and was paid in full in November 1996. (4) LONG-TERM DEBT At June 30, 1997 and 1996, long-term debt consists of two promissory notes payable to a bank and a note payable to a vendor for the phone system as follows:
1997 1996 --------- --------- Note payable to bank dated June 9, 1992 due June 15, 1997. Interest at bank's prime rate plus 1.25% (9.75% and 9.5% at June 30, 1997 and 1996, respectively). Paid in full at June 30, 1997 $ -- $ 25,000 Note payable to bank dated October 24, 1995 due October 15, 1999. Interest at bank's prime rate plus 2% (10.5% and 10.25% at June 30, 1997 and 1996, respectively) 75,520 106,771 Obligations under capital leases dated September 23, 1996 due September 23, 1999 with interest at 10.7%, secured by telephone system (note 8) 14,913 -- --------- --------- 90,433 131,771 Less current portion (24,083) (56,250) --------- --------- Long-term debt, net of current portion $ 66,350 $ 75,521 ========= =========
Each of the notes payable to banks is secured by all of the Company's assets, and repayment is personally guaranteed by the Company's majority shareholder. 9 11 Maturities of long-term debt, are as follows:
FISCAL YEAR ENDING JUNE 30, -------------------------------- 1998 $24,083 1999 26,792 2000 23,936 2001 15,622 ------- Total $90,433 =======
(5) INCOME TAXES The income tax expense (benefit) for the year ended June 30, 1996 consists of the following:
1997 1996 -------- -------- Current: Federal $ -- $(82,563) State 800 -- -------- -------- Total current tax expense (benefit) 800 (82,563) -------- -------- Deferred: Federal -- (2,504) State -- (516) -------- -------- Total deferred tax expense (benefit) -- (3,020) -------- -------- Total income tax expense (benefit) $ 800 $(85,583) ======== ========
The Company has net operating loss carryforwards for federal and state purposes of approximately $2,048,000 and $1,443,597, respectively, at June 30, 1997. Federal net operating loss carryforwards begin to expire in 2010, and state operating loss carryforwards begin to expire in 2000. The Company has deferred tax assets of approximately $988,000 and $174,000 as of June 30, 1997 and 1996, respectively, primarily from net operating loss carryforwards. A valuation allowance has been established for the deferred tax assets for each year due to uncertainty of recoverability by the Company. 10 12 (6) SHAREHOLDERS' EQUITY (DEFICIT) During fiscal year 1996, the Company reorganized its capital structure by increasing the number of authorized common stock shares from 10,000 to 5,000,000 and changing the par value to zero. In addition, there were 5,000,000 shares of preferred stock authorized, with a zero par value, 1,000,000 of which were designated as Series A Convertible Preferred Stock. Each share of Series A Convertible Preferred Stock is convertible, at the option of the holder, into one share of common stock. In June 1996, the Company effected a stock split, in which each of the outstanding shares of common stock was converted into a combination of common stock and Series A Convertible Preferred Stock. All share amounts have been restated to reflect the stock split. On October 17, 1996, the Company amended and restated its articles of incorporation increasing the number of authorized shares of common stock to 10,000,000 and designating 210,526 shares of preferred stock to Series B Convertible Preferred Stock and 700,000 shares of preferred stock to Series C Convertible Preferred Stock. On October 25, 1996, the Company sold 496,926 shares of Series C Convertible Preferred Stock for $1,277,100. In addition, a non-cash commission of 23,347 shares was granted in Series C Convertible Preferred Stock to an individual for raising the funds. These shares are convertible at the option of the holders into shares of common stock at 1:1 conversion rate subject to anti-dilution privileges if additional shares of common stock are issued at a price less than the original purchase price of the Series C Convertible Preferred Stock ($2.57 per share). In addition, the shares of Series C Convertible Preferred Stock will automatically convert into common stock upon the closing of a public offering of common stock of the Company of not less than $10,000,000. The Series C Convertible Preferred Stock shareholders shall be entitled to receive noncumulative dividends at 8% of the original purchase price per annum when and if declared by the Board of Directors. The Series C Convertible Preferred Stock will also participate pro rata on dividends paid on common stock. The holders of the Series C Convertible Preferred Stock shall have the right to nominate a member of the Company's Board of Directors. The Company has entered into a development agreement with the holders of Series C Convertible Preferred Stock (Note 7). Options to purchase 1,350,000 shares of common stock were authorized under the Company's stock option plans in accordance with Sections 25102(f) and 25102(o) of the Internal Revenue Code. A total of 1,042,000 net shares (1,162,000 gross less 120,000 canceled) were granted in the current year by the Company at an exercise price of $0.09 - $0.26 per share vesting over four years, of which 141,250 were vested at June 30, 1997. None were granted prior to fiscal year 1997. Had the Company recorded compensation cost based on the fair value at the date of grant for these under SFAS No. 123, the effect would not have been material to the Company's net loss for 1996 and 1995. The Company has also authorized options to purchase 850,000 shares of common stock in accordance with Section 25152(d) of the Internal Revenue Code. No options had been granted under this plan as of June 30, 1997 and 1996. 11 13 (7) CONTRACT REVENUE On July 31, 1996, the Company entered into a development agreement, whereby the Company is to design and develop prototype versions of a rapid exchange PTCA catheter and develop custom equipment required for pilot production. Under the terms of the agreement, the Company is to earn a total of $1,250,000 in milestone payments from the customer subject to the achievement of certain milestones. The Company received $562,500 in initial deposits and milestone payments during the fiscal year ended June 30, 1997, of which approximately $460,000 was recorded as contract revenue. The agreement provides for all Japanese rights in the work product to reside with the customer, with the Company retaining the worldwide rights, excluding Japan. On September 10, 1996, the Company entered into an agreement to develop and produce custom equipment for the manufacture and testing of an over-the-wire PTCA catheter. Under the terms of the agreement, the Company shall earn a total of $800,000 over the project development term. Of this total, $320,000 was received and recorded as a deposit as of June 30, 1996 and an additional $213,300 was received during the fiscal year ended June 30, 1997. The Company recognized approximately $530,000 in contract revenue for the fiscal year ended June 30, 1997 in conjunction with this agreement. On March 10, 1997, the Company entered into a master distributor agreement, whereby it is to develop a new PTCA catheter and grant certain rights for distribution of this product in Japan. Under the terms of the agreement, the Company received a distribution fee of $1,000,000 during the fiscal year ended June 30, 1997 of which the Company recorded approximately $50,000 in contract revenue for the fiscal year ended June 30, 1997. The Company is to earn an additional $1,500,000 in milestone payments from the customer subject to the achievement of certain milestones. The cash already received from this agreement is being recognized over 60 months, the initial term of the agreement, as costs are incurred. The contracted party is a shareholder of Series D Convertible Preferred Stock (Note 10). An additional distribution agreement was entered into June 28, 1997, whereby Navius granted distribution rights in Japan for a period of five years for its existing PTCA catheter, stent and radiation catheter according to a pricing schedule set forth in the agreement. (8) LEASE COMMITMENTS During fiscal 1997, the Company entered into a capital lease for a phone system that expires in September 1999. At June 30, 1997, the gross amount of property and equipment and related accumulated amortization recorded under capital leases were as follows: Machinery and equipment $ 18,344 Less accumulated amortization (3,431) -------- $ 14,913 ========
12 14 Amortization of assets held under capital leases is included with depreciation expense. The Company also has several noncancelable operating leases, primarily for office space. The leases expire on November 1, 1997 and August 31, 1998. Under the terms of the operating leases, the Company is required to pay all taxes, insurance and maintenance. Rental expense under the leases was $131,942 and $64,414 in 1997 and 1996, respectively. Future minimum lease payments under noncancelable operating leases (with initial or remaining lease terms in excess of one year) and future minimum capital lease payments as of June 30, 1997 are:
CAPITAL OPERATING YEAR ENDING JUNE 30, LEASES LEASES -------------------------------- -------- -------- 1998 $ 7,536 $120,972 1999 7,536 19,348 2000 1,884 -- -------- -------- Total minimum lease payments 16,956 $140,320 ======== Less amount representing interest (at 12%) (2,043) -------- Obligations under capital lease (note 4) $ 14,913 ========
(9) RELATED PARTY TRANSACTIONS On various dates, the Company was advanced funds totaling $122,000 from the majority shareholder in exchange for notes payable. The notes are unsecured and are payable on demand. Interest accrues on the notes at 10.25%. On June 12, 1996, the Company issued 400,000 shares of common stock to an officer of the Company in exchange for a $36,000 unsecured non-interest bearing note receivable. (10) SUBSEQUENT EVENTS On July 18, 1997, the Company sold 350,000 shares of Series D Convertible Preferred Stock for $2,800,000. In addition, a non-cash commission of 17,500 shares was granted to an individual for raising the funds. These shares are convertible, at the option of the holders, into shares of common stock at a 1:1 conversion rate subject to anti-dilution privileges if additional shares of common stock are issued at a price less than the original purchase price of the Series D Convertible Preferred shares ($8.00 per share). In addition, the shares of Series D Convertible Preferred Stock will automatically convert into common stock upon the closing of a public offering of common stock of the Company of not less than $10,000,000. The Series D Convertible Preferred Stock shareholders shall be entitled to receive noncumulative dividends at 8% of the original purchase price per annum when and if 13 15 declared by the Board of Directors. The Series D Convertible Preferred Stock will also participate pro rata on dividends paid on common stock. The holders of the Series D Convertible Preferred Stock shall have the right to nominate a member of the Company's Board of Directors. The Company had previously entered into a distribution agreement with the purchaser of Series D Convertible Preferred Stock (Note 7). In July 1997, the Company paid in full the notes payable to shareholder and note payable to bank dated October 24, 1995. 14 16 NAVIUS CORPORATION CONDENSED BALANCE SHEET March 31, 1998 (Unaudited) (in thousands)
ASSETS Current assets: Cash and cash equivalents $ 1,827 Accounts receivable, net of allowances 60 Inventories 106 Other current assets 51 ------- Total current assets 2,044 Property, plant, and equipment, net 420 Deferred income taxes 3 Other non-current assets 9 ------- $ 2,476 ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable, current portion $ 7 Accounts payable 137 Other accrued expenses 159 Deferred revenue, current portion 200 ------- Total current liabilities 503 Note payable, less current portion 7 Deferred revenue, less current portion 616 STOCKHOLDERS' EQUITY Common stock 70 Preferred stock 4,088 Subscription receivable (36) Accumulated deficit (2,772) ------- Total stockholders' equity 1,350 ------- $ 2,476 =======
See accompanying notes. 1 17 NAVIUS CORPORATION CONDENSED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except share and per share amounts)
NINE MONTHS ENDED MARCH 31, 1998 1997 ------------------------------- REVENUES: Product sales $ 2,730 $ 616 ------------------------------- Total revenues 2,730 616 COSTS AND EXPENSES: Costs of goods sold 364 105 Research and development 1,753 1,097 General and administrative 1,291 729 ------------------------------- Total costs and expenses 3,408 1,931 ------------------------------- Loss from operations (678) (1,315) Interest income 72 9 ------------------------------- Net loss $ (606) $ (1,306) =============================== Basic net loss per share $ (0.35) $ (0.79) =============================== Shares used in the calculation of basic net loss per share 1,713,649 1,650,000 ===============================
See accompanying notes. 2 18 NAVIUS CORPORATION CONDENSED STATEMENT OF CASH FLOWS (Unaudited) (in thousands)
NINE MONTHS ENDED MARCH 31, 1998 1997 ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (606) $(1,306) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 50 30 Net changes in: Operating assets (50) (63) Operating liabilities (139) 948 ----------------------- Net cash used in operating activities (745) (391) CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment (251) (111) CASH FLOWS FROM FINANCING ACTIVITIES Payments on note payable to shareholder (122) -- Payments on long-term debt (76) (101) Issuance of common stock 20 -- Issuance of preferred stock, net of issuance costs 2,800 1,277 ----------------------- Net cash provided by financing activities 2,622 1,176 ----------------------- Net increase in cash and cash equivalents 1,626 674 Cash and cash equivalents, beginning of period 201 193 ----------------------- Cash and cash equivalents, end of period $ 1,827 $ 867 ======================= Supplemental disclosure of cash flow information: Noncash investing activities: Increase in capital lease obligations $ 4 $ 13 Noncash financing activities: Issuance of preferred stock for finders fee 140 60 Cash paid for: Interest 2 15 Income taxes 2 1
See accompanying notes. 3 19 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying interim financial statements are unaudited. In the opinion of management of Navius Corporation ("Navius" or the "Company"), the accompanying condensed financial statements reflect all adjustments necessary, consisting only of normal recurring adjustments, to present fairly the Company's consolidated financial position at March 31, 1998 and the consolidated results of its operations and cash flows for the nine month periods ended March 31, 1998 and 1997. Results for the interim periods are not necessarily indicative of 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 June 30, 1997, included in this Form 8-K. 2. INVENTORIES Inventories are stated at the lower of weighted-average cost or market. 3. SALE OF PREFERRED STOCK On July 18, 1997, the Company sold 350,000 shares of Series D Convertible Preferred Stock for $2,800. In addition, a non-cash commission of 17,500 shares was granted to an individual for raising the funds. These shares are convertible, at the option of the holders, into shares of common stock at a 1:1 conversion rate subject to anti-dilution privileges if additional shares of common stock are issued at a price less than the original purchase price of the Series D Convertible Preferred shares ($8.00 per share). In addition, the shares of Series D Convertible Preferred Stock will automatically convert into common stock upon the closing of a public offering of common stock of the Company of not less than $10,000. The Series D Convertible Preferred Stock stockholders shall be entitled to receive noncumulative dividends at 8% of the original purchase price per annum when and if declared by the Board of Directors. The Series D Convertible Preferred Stock will also participate pro-rata on dividends paid on common stock. The holders of the Series D Convertible Preferred Stock shall have the right to nominate a member of the Company's Board of Directors. 4. LONG-TERM DEBT In July 1997, the Company paid in full the notes payable to stockholders and note payable to bank dated October 24, 1995. 5. COMPUTATION OF NET LOSS PER SHARE Net loss per share is computed using the weighted average number of shares of common stock outstanding. Common equivalent shares from stock options and convertible preferred stock are excluded from the computation of net loss per share because their effect is antidilutive. At March 31, 1998 the Company had outstanding options to purchase 1,015,125 shares of common stock (with exercise prices ranging from ($0.09 to $0.50). If exercised, these options could potentially dilute basic earnings per share in future periods. 6. SALE OF THE COMPANY On August 5, 1998 the Company sold all of its outstanding shares to EndoSonics Corporation ("EndoSonics") in a transaction valued at approximately $19,000 in cash and EndoSonics common stock, plus royalties on future product sales. 4 20 ENDOSONICS CORPORATION UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS The following unaudited pro forma combined condensed financial statements give effect to the merger of EndoSonics Corporation ("EndoSonics") and Navius Corporation ("Navius") pursuant to the Agreement and Plan of Reorganization (the "Merger"). The unaudited pro forma combined condensed balance sheet gives effect to the Merger as if it occurred on June 30, 1998. The unaudited pro forma combined condensed statement of operations gives effect to the Merger as if it occurred on January 1, 1997. The pro forma combined condensed financial statements are based on the historical financial statements of EndoSonics and Navius, giving effect to the Merger applying the purchase method of accounting and the assumptions and adjustments as discussed in the accompanying notes to the pro forma combined condensed financial statements. The pro forma combined condensed financial statements for the year ended December 31, 1997 have been prepared by EndoSonics management based upon the audited consolidated financial statements of EndoSonics for the year then ended and the unaudited financial statements of Navius for the year then ended. The pro forma combined condensed financial statements as of and for the six months ended June 30, 1998 have been prepared by EndoSonics management based upon the unaudited consolidated financial statements of EndoSonics and the unaudited financial statements of Navius as of June 30, 1998 and for the six months then ended. The Merger will be accounted for using the purchase method of accounting. The unaudited pro forma combined condensed financial statements have been prepared on the basis of assumptions described in the notes thereto and include assumptions relating to the allocation of the consideration paid for the assets and liabilities of Navius based on preliminary estimates of their fair value. The actual allocation of such consideration may differ materially from that reflected in the unaudited pro forma combined condensed financial statements after independent valuations and other procedures are completed following the closing of the Merger. In the opinion of EndoSonics, all adjustments necessary to present fairly the unaudited pro forma condensed combined financial statements have been made based on the proposed terms and structure of the Merger. The pro forma information is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if the Merger had been consummated on January 1, 1997 or June 30, 1998, respectively, nor is it necessarily indicative of future operating results or financial position. These pro forma combined condensed financial statements should be read in conjunction with the historical consolidated financial statements and the related notes thereto of EndoSonics and Navius incorporated by reference and included herein, respectively. 1 21 ENDOSONICS CORPORATION UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET June 30, 1998 (in thousands)
Pro Forma Combined Pro Forma Reflecting EndoSonics Navius Adjustments Merger ---------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 10,172 $ 1,466 $ (7,391) (A) $ 4,247 Short-term investments 14,404 -- -- 14,404 Accounts receivable, net of allowances 10,183 201 -- 10,384 Inventories 5,991 185 -- 6,176 Other current assets 1,006 29 (350) (D) 685 --------------------------------------------------------- Total current assets 41,756 1,881 (7,741) 35,896 Property and equipment, net 3,505 443 -- 3,948 Developed technology -- -- 5,937 (A) 5,937 Other intangible assets 6,688 -- 283 (A) 6,971 Investments 7,516 -- -- 7,516 Other assets -- 13 -- 13 --------------------------------------------------------- $ 59,465 $ 2,337 $ (1,521) $ 60,281 ========================================================= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable, current portion $ -- $ 357 $ (350) (D) $ (7) Accounts payable 6,043 174 -- 6,217 Other accrued expenses 5,029 309 727 (C) 6,065 --------------------------------------------------------- Total current liabilities 11,072 840 377 12,289 Note payable, less current portion -- 5 -- 5 Deferred revenue, less current portion -- 554 -- 554 STOCKHOLDERS' EQUITY Common stock 16 74 (73) (A) 17 Additional paid-in-capital 157,666 -- 9,499 (A) 167,165 Preferred stock -- 4,088 (4,088) (A) -- Subscription receivable -- (36) 36 (A) Accumulated deficit (108,336) (3,188) (10,460) (B) (118,796) 3,188 (A) Unrealized gain on available for sale securities 2,399 -- -- 2,399 Foreign currency translation (84) -- -- (84) Treasury stock (3,268) -- -- (3,268) --------------------------------------------------------- Total stockholders' equity 48,393 938 (1,898) 47,433 --------------------------------------------------------- $ 59,465 $ 2,337 $ (1,521) $ 60,281 =========================================================
(A) Reflects the allocation of the purchase price, based on estimated fair values, to the historical Navius balance sheet. The adjustment includes approximately $6.0 million of purchased developed technology and approximately $0.3 million of other intangible assets. The adjustment also reflects the elimination of the Navius stockholders' equity accounts. The adjustment to cash gives effect to the $1.58 per share to be paid to Navius stockholders. The increase in common stock and additional paid-in-capital reflects the value of the shares to be issued by EndoSonics to Navius stockholders. 2 22 (B) Reflects the one-time write-off of purchased in-process research and development identified in the purchase price allocation. This adjustment has not been included in the pro forma combined condensed statement of operations pursuant to Regulation S-X, due to its non-recurring nature. (C) Reflects estimated costs attributable to the transaction for EndoSonics ($0.7 million). (D) Reflects the elimination of intercompany advances. See accompanying notes to unaudited pro forma condensed combined financial statements. 3 23 ENDOSONICS CORPORATION UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS Six Months Ended June 30, 1998 (in thousands, except per share amounts)
Pro Forma Combined Pro Forma Reflecting EndoSonics Navius Adjustments Merger --------------------------------------------------------------------- REVENUES $ 19,116 $ 1,062 $ -- $ 20,178 COSTS AND EXPENSES: Cost of sales 9,533 229 -- 9,762 Research, development and clinical 3,596 1,197 -- 4,793 Selling, general and administrative 6,697 750 -- 7,447 Amortization of intangibles 534 -- 377 (A) 911 --------------------------------------------------------------------- Total costs and expenses 20,360 2,176 377 22,913 --------------------------------------------------------------------- Loss from operations (1,244) (1,114) (377) (2,735) Equity in net loss of CardioVascular Dynamics, Inc. (158) -- -- (158) OTHER INCOME: Interest income 590 42 (243) (B) 389 Gain on sale of CardioVascular Dynamics, Inc 739 -- -- 739 --------------------------------------------------------------------- Total other income 1,329 42 (243) 1,128 --------------------------------------------------------------------- Net loss $ (73) $ (1,072) $ (620) $ (1,765) ===================================================================== Basic net loss per share $ (0.01) $ (0.62) $ (0.10) ============================== ============ Shares used in the calculation of basic net loss per share 16,006,263 1,743,341 17,111,312 ============================== ============
(A) Reflects the amortization of developed technology and other intangible assets identified in the purchase price allocation. (B) Reflects decreased interest income as a result of cash paid to complete the merger transaction. See accompanying notes to unaudited pro forma condensed combined financial statements. 4 24 ENDOSONICS CORPORATION UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS Year Ended December 31, 1997 (in thousands, except per share amounts)
Pro Forma Combined Pro Forma Reflecting EndoSonics Navius Adjustments Merger --------------------------------------------------------------------- REVENUES: Product sales $ 33,141 $ 1,248 $ -- $ 34,389 Contract revenue 856 -- -- 856 --------------------------------------------------------------------- Total revenues 33,997 1,248 -- 35,245 COSTS AND EXPENSES: Cost of sales 17,962 210 -- 18,172 Acquired in-process research, development, and clinical 43,000 -- -- 43,000 Other research, development and clinical 6,309 1,516 -- 7,825 Selling, general and administrative 11,908 1,135 -- 13,043 Restructuring 4,956 -- -- 4,956 Amortization of intangibles 475 -- 754 (A) 1,229 --------------------------------------------------------------------- Total costs and expenses 84,610 2,861 754 88,225 --------------------------------------------------------------------- Loss from operations (50,613) (1,613) (754) (52,980) Equity in net loss of CardioVascular (2,358) -- -- (2,358) Dynamics, Inc. OTHER INCOME: Interest income 1,881 17 (485) (B) 1,413 Gain realized on equity investments of CardioVascular Dynamics, Inc. 4,021 -- -- 4,021 --------------------------------------------------------------------- Total other income 5,902 17 (485) 5,434 --------------------------------------------------------------------- Net loss before provision for income taxes (47,069) (1,596) (1,239) (49,904) Provisions for income taxes 175 1 -- 176 --------------------------------------------------------------------- Net loss $ (47,244) $ (1,597) $ (1,239) $ (50,080) ===================================================================== Basic net loss per share $ (3.22) $ (0.95) $ (3.18) ============================== ============ Shares used in the calculation of basic net loss per share 14,669,975 1,675,178 15,775,024 ============================== ============
(A) Reflects the amortization of developed technology and other intangible assets identified in the purchase price allocation. (B) Reflects decreased interest income as a result of cash paid to complete the merger transaction. See accompanying notes to unaudited pro forma condensed combined financial statements. 5 25 NOTE 1 The unaudited pro forma combined condensed balance sheet of EndoSonics and Navius has been prepared as if the Merger, which is being accounted for as a purchase, was completed as of June 30, 1998. Based on an average of closing prices per share of EndoSonics common stock just prior to and after July 23, 1998 (the agreement and announcement date of the merger) such balance sheet reflects the conversion of Navius common and preferred stock outstanding as of June 30, 1998 (3,649,398 shares) into: (i) approximately 1,105,000 shares of EndoSonics Common Stock, (ii) payment of $7,391,000 in cash and (iii) royalties on future products sales pursuant to the Merger Agreement. Certain options outstanding at June 30, 1998 to purchase approximately 1,044,000 shares of Navius common stock will be assumed by EndoSonics pursuant to the Merger and converted into options to purchase approximately 394,000 shares of EndoSonics Common Stock. The aggregate purchase price to be allocated to the acquired assets and technology is estimated to be approximately $19 million, including estimated transaction costs incurred by EndoSonics of approximately $0.7 million, which include financial advisory, legal and accounting fees. The aggregate purchase price to be allocated to the acquired assets and technology consisted of the following (rounded and in thousands): Cash $ 7,400 EndoSonics common stock 9,500 Liabilities assumed 1,400 Estimated transaction costs 700 ------- $19,000 =======
Based upon a preliminary independent valuation of assets and technology acquired, EndoSonics has allocated the purchase price as follows as of June 30, 1998 (rounded and in thousands): Tangible assets acquired $ 2,300 In-process research and development 10,400 Developed technology 6,000 Other intangibles 300 ------- $19,000 =======
6 26 The allocation of the Navius purchase price is preliminary and is based on management's estimate of the fair value of the assets and technology acquired, and is subject to change based on the final results of an independent valuation which the Company expects to receive during the fourth quarter of 1998. The final allocation of the purchase price could be materially different from the current estimate. The technological feasibility of the acquired in-process research and development has not been established and had no alternative future uses. Pursuant to Regulation S-X, the in-process research and development has been written-off against the combined accumulated deficit and has not been reflected in the pro forma combined condensed statement of operations. The developed technology will be amortized over the estimated useful lives of the related products of 9 years. The other intangibles will be amortized over useful lives ranging from 3 to 9 years. NOTE 2 The unaudited pro forma combined condensed statements of operations of EndoSonics and Navius have been prepared as if the Merger was completed as of January 1, 1997, and reflects the amortization of developed technology and other intangibles for the year ended December 31, 1997 and the six months ended June 30, 1998. In addition, interest income has been reduced as a result of the assumed payment of cash to effect the Merger on January 1, 1997. NOTE 3 The shares used in computing the unaudited pro forma combined net loss per share for the year ended December 31, 1997 and the six months ended June 30, 1998 are based upon the historical weighted average common shares outstanding adjusted to reflect the issuance, as of January 1, 1997, of approximately 1,105,000 shares of EndoSonics Common Stock as described in Note 1. Options to purchase approximately 1,044,000 shares of Navius common stock will be assumed by EndoSonics pursuant to the Merger and converted into options to purchase approximately 394,000 shares of EndoSonics common stock. The EndoSonics common stock issuable upon exercise of these stock options has been excluded as the effect would be anti-dilutive. 7 27 (c) Exhibits. 2.1* Agreement and Plan of Reorganization dated as of July 23, 1998 among the Company, Navius and Merger Sub. 20.1* Press Release dated July 23, 1998 announcing the execution of the Agreement and Plan of Reorganization. 23 Consent of independent public accountants
* Incorporated by reference from exhibit with the same number to the Registrant's Current Report on Form 8-K, dated August 5, 1998. 8 28 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ENDOSONICS CORPORATION Date: October 19, 1998 By: /s/ Richard L. Fischer ----------------------------- Richard L. Fischer Vice President, Finance and Chief Financial Officer 29 INDEX TO EXHIBITS
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION PAGE - ------ ----------- ------------ 2.1* Agreement and Plan of Reorganization dated as of July 23, 1998 among the Company, Navius and Merger Sub. 20.1* Press Release dated July 23, 1998 announcing the execution of the Agreement and Plan of Reorganization. 23 Consent of independent public accountants
* Incorporated by reference from exhibit with the same number to the Registrant's Current Report on Form 8-K, dated August 5, 1998. EX-23 2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS 1 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS The Board of Directors Navius Corporation We consent to the inclusion of our report dated July 25, 1997, with respect to the balance sheets of Navius Corporation as of June 30, 1997 and 1996, and the related statements of earnings, stockholders' equity, and cash flows for each of the years in the two-year period ended June 30, 1997, which report appears in the Form 8-K of EndoSonics Corporation dated August 5, 1998. KPMG PEAT MARWICK LLP New York, New York September 28, 1998 -----END PRIVACY-ENHANCED MESSAGE-----