<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-K/A
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] 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: 0-28440
RADIANCE MEDICAL SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 68-0328265
(State of Incorporation) (I.R.S. Employer Identification No.)
13700 Alton Parkway, Suite 160, Irvine, California 92618
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (949) 457-9546
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities to be registered pursuant to Section 12(g) of the Act: Common Stock,
$.001 par value.
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 [ ]
Indicate by a check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, as of March 15, 1999, was approximately $33,788,000 (based upon the
closing price for shares of the Registrant's Common Stock as reported by the
Nasdaq National Market for the last trading date prior to that date). Shares of
Common Stock held by each officer, director and holder of 5% or more of the
outstanding Common Stock have been excluded in that such persons may be deemed
to be affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
On March 15, 1999, approximately 10,597,000 shares of the Registrant's Common
Stock, $.001 par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE.
Portions of the Registrant's Proxy Statement for the 1999 Annual Meeting of
Stockholders to be held on June 9, 1999 are incorporated by reference into Part
III.
<PAGE> 2
This Report on Form 10-K/A is filed soley to amend the disclosure contained in
"Note 6, License Agreements- Guidant Corporation" contained in Note 6 of the
Notes to Consolidated Financial Statements, and to update the date of the
Consent of Ernst & Young LLP, Independent Auditors, attached hereto as Exhibit
23.1.
ITEM 8. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors................................ F-1
Financial Statements
Consolidated Balance Sheets............................................... F-2
Consolidated Statements of Operations..................................... F-3
Consolidated Statement of Stockholders' Equity (Net Capital Deficiency)... F-4
Consolidated Statements of Cash Flows..................................... F-5
Notes to Consolidated Financial Statements................................ F-6
</TABLE>
The financial statement schedule listed under Part IV, Item 14, is filed
as part of this Form 10-K/A.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this Annual
Report on Form 10-K/A:
1. Financial Statements.
Report of Ernst & Young LLP, Independent Auditors
Consolidated Balance Sheets - December 31, 1997 and 1998
Consolidated Statements of Operations
for the years ended December 31, 1996, 1997 and 1998
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1996, 1997 and 1998
Consolidated Statements of Cash Flows
for the years ended December 31, 1996, 1997 and 1998
Notes to Consolidated Financial Statements
for the years ended December 31, 1996, 1997 and 1998
2. Financial Statement Schedule.
II - Valuation and Qualifying Accounts
Schedules not listed above have been omitted because
they are not applicable or are not required to be set
forth herein as such information is included in the
Consolidated Financial Statements or the notes
thereto.
3. Exhibits. Reference is made to Item 14(c) of this
Annual Report on Form 10-K/A.
(b) REPORTS ON FORM 8-K. The Company filed a Report on Form 8-K as
of November 12, 1998 reporting the signing of a merger agreement
between CardioVascular Dynamics, Inc. and Radiance Medical
Systems, Inc.
(c) EXHIBITS.
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<PAGE> 3
<TABLE>
<S> <C>
2.1(3) Agreement and Plan of Reorganization dated as of June 9,
1993 among Endosonics Corporation ("Endosonics"),
Endosonics Acquisition Corporation and the Company.
2.2(3) First Amendment dated as of June 30, 1993 to the
Agreement and Plan of Reorganization among Endosonics,
Endosonics Acquisition Corporation and the Company.
2.4(12) Agreement and Plan of Merger dated November 3, 1998 by
and between CardioVascular Dynamics, Inc. and Radiance
Medical Systems, Inc.
2.5(13) Assets Sale and Purchase Agreement dated January 21,
1999 by and between the Company and Escalon Medical
Corp.
3.1(10) Amended and Restated Certificate of Incorporation, and
Certificates of Amendment thereof dated January 14, 1999
and November 12, 1998.
3.2(11) Amended and Restated Bylaws of the Company.
4.1(1) Specimen Certificate of Common Stock.
10.1(3) Form of Indemnification Agreement entered into between
the Registrant and its directors and officers.
10.2(3)** The Registrant's 1996 Stock Option Plan and forms of
agreements thereunder.
10.3(3)** The Registrant's Employee Stock Purchase Plan and forms
of agreement thereunder.
10.4(3) Series A Supplemental Stock Purchase Agreement dated
June 5, 1992, by and between the Company and Radiance.
10.5(3) Stock Purchase Option Agreement dated June 5, 1992, by
and between Endosonics and the Company.
10.7(3)* Stock Purchase and Technology License Agreement dated
September 10, 1994, as amended on September 29, 1995, by
and among Endosonics, the Company and SCIMED Life
Systems, Inc. ("SCIMED").
10.8(3) Waiver and Grant of Warrant dated June 30, 1995 by and
between SCIMED, the Company and Endosonics.
10.9(3)* License Agreement dated January 15, 1995 by and between
the Company and Advanced Cardiovascular Systems, Inc.
("ACS").
10.10(3)* License Agreement dated March 4, 1996 by and between the
Company and ACS.
10.11(3) Series B Stock Purchase Agreement dated March 29, 1996
by and between the Company and Endosonics.
10.15(3) Industrial Lease dated February 23, 1995 by and between
the Irvine Company and the Company.
10.16(1) Waiver and Grant of Warrant dated May 2, 1996 by and
between SCIMED, the Company and Endosonics.
10.18(4)* Supply Agreement dated July 15, 1996 by and between the
Company and Medtronic, Inc.
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C>
10.19(4)* OEM Agreement dated July 15, 1996 by and between the
Company and Medtronic, Inc.
10.20(6) License Agreement dated May 16, 1997, by and between the
Company and Endosonics.
10.21(6) Registration Rights Agreement dated as of January 26,
1997 by and between the Company and Endosonics.
10.22(7)** Supplemental Stock Option Plan
10.23(8) Stock Repurchase Agreement dated as of February 10, 1998
by and between Endosonics and the Company.
10.24(9)* License Agreement by and between the Company and Guidant
Corporation dated June 19, 1998.
10.25(14)** 1996 Stock Option/Stock Issuance Plan (as Amended and
Restated as of April 8, 1997, March 12, 1998 and
November 3, 1998).
10.26(15)** 1997 Stock Option Plan (As Amended as of June 15, 1998)
assumed by Registrant pursuant to its acquisition of
Radiance Medical Systems, Inc. on January 14, 1999.
10.27**+ Amendment to Employment Agreement dated as of February
1, 1999 between the Company and Michael R. Henson and
form of Employment Agreement entered into on January 14,
1999 between the Company and Michael R. Henson.
10.28**+ Employment Agreement entered into as of February 1, 1999
by and between the Company and Stephen R. Kroll.
10.29**+ Form of Employment Agreement by and between the Company
and Jeffrey Thiel.
10.30**+ Form of Employment Agreement by and between the Company
and Claire Walker.
21.1+ List of Subsidiaries.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
24.1+ Power of Attorney.
27.1+ Financial Data Schedule.
</TABLE>
- -------------
* Confidential treatment requested.
** Indicates compensatory plan or arrangement.
+ Previously filed as an exhibit to the Company's Report on Form 10-K
filed with the Securities and Exchange Commission on March 31, 1999.
(1) Previously filed as an exhibit to Amendment No. 2 to the Company's
Registration Statement on Form S-1 filed with the Securities and
Exchange Commission on June 10, 1996.
(3) Previously filed as an exhibit to the Company's Registration
Statement on Form S-1 filed with the Securities and Exchange
Commission on May 3, 1996.
(4) Previously filed as an exhibit to the Company's report on Form 10-Q
filed with the Securities and Exchange Commission on August 14,
1996.
-4-
<PAGE> 5
(6) Previously filed as an exhibit to the Company's Registration
Statement on Form S-1 filed with the Securities and Exchange
Commission on June 19, 1997.
(7) Previously filed as an exhibit to the Company's Registration
Statement on Form S-8 filed with the Securities and Exchange
Commission on December 12, 1997.
(8) Previously filed as Exhibit 10 to the Company's Report on Form 10-Q
filed with the Securities and Exchange Commission as of May 14,
1998.
(9) Previously filed as Exhibit 10.24 to the Company's Report on Form
10-Q filed with the Securities and Exchange Commission as of August
11, 1998.
(10) Previously filed as Exhibit 3.5 to the Company's Report on Form 8-K
filed with the Securities and Exchange Commission as of January 22,
1999.
(11) Previously filed as Exhibit 3.4 to the Company's Report on Form 8-K
filed with the Securities and Exchange Commission as of January 22,
1999.
(12) Previously filed as Exhibit 2.4 to the Company's Report on Form 8-K
filed with the Securities and Exchange Commission as of November 12,
1998.
(13) Previously filed as Exhibit 2 to the Company's Report on Form 8-K
filed with the Securities and Exchange Commission as of February 5,
1999.
(14) Previously filed as Annex III to the Company's Proxy Statement on
Schedule 14A filed with the Securities and Exchange Commission on
December 18, 1998.
(15) Previously filed as Exhibit 99.2 to the Company's Registration
Statement on Form S-8 filed with the Securities and Exchange
Commission on February 17, 1999.
-5-
<PAGE> 6
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this amendment to be signed
on its behalf by the undersigned, thereunto duly authorized.
RADIANCE MEDICAL SYSTEMS, INC.
Date: April 26, 1999 By: /s/ Michael R. Henson
----------------------------------------
Michael R. Henson
Chief Executive Officer
(Principal Executive Officer) and
Chairman
Date: April 26, 1999 By: /s/ Stephen R. Kroll
----------------------------------------
Stephen R. Kroll
Vice President, Finance and
Administration, Chief Financial Officer
and Secretary (Principal Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Michael R. Henson Chief Executive Officer April 26, 1999
- -------------------------------- (Principal Executive Officer)
(Michael R. Henson) and Chairman
/s/ Stephen R. Kroll Vice President, Finance and April 26, 1999
- -------------------------------- Administration, Chief
(Stephen R. Kroll) Financial Officer and
Secretary (Principal
Financial and Accounting
Officer)
/s/ Franklin D. Brown* Director April 26, 1999
- --------------------------------
(Franklin D. Brown)
/s/ William G. Davis* Director April 26, 1999
- --------------------------------
(William G. Davis)
/s/ Gerard von Hoffmann* Director April 26, 1999
- --------------------------------
(Gerard von Hoffmann)
/s/ Edward M. Leonard* Director and Assistant April 26, 1999
- --------------------------------- Secretary
(Edward M. Leonard)
/s/ Jeffrey F. O'Donnell* Director April 26, 1999
- ---------------------------------
(Jeffrey F. O'Donnell)
/s/ Maurice Buchbinder, M.D.* Director April 26, 1999
- ---------------------------------
(Maurice Buchbinder, M.D.)
*By: /s/ Stephen R. Kroll
----------------------------------
Stephen R. Kroll, Attorney-in-Fact
</TABLE>
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<PAGE> 7
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Radiance Medical Systems, Inc.
We have audited the accompanying consolidated balance sheets of Radiance
Medical Systems, Inc. as of December 31, 1997 and 1998, and the related
consolidated statements of operations, stockholders' equity (net capital
deficiency) and cash flows for each of the three years in the period ended
December 31, 1998. Our audits also included the financial statement schedule
listed in the Index at Item 14(a). These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Radiance Medical Systems, Inc. at December 31, 1997 and 1998, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
/s/ ERNST & YOUNG LLP
Orange County, California
February 18, 1999
F-1
<PAGE> 8
RADIANCE MEDICAL SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1998
-------- --------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents ..................................................... $ 6,141 $ 1,437
Marketable securities available-for-sale, including unrealized gains of
$176 and $209, respectively ................................................... 24,773 23,375
Accounts receivable, net of allowance for doubtful accounts of $500 and
$583, respectively ............................................................ 2,752 2,413
Other accounts receivable ..................................................... 282 375
Inventories ................................................................... 3,205 1,623
Other current assets .......................................................... 163 218
-------- --------
Total current assets ........................................................ 37,316 29,441
Property and Equipment:
Furniture and equipment ....................................................... 1,871 2,326
Leasehold improvements ........................................................ 322 326
-------- --------
2,193 2,652
Less accumulated depreciation and amortization ................................ (643) (1,120)
-------- --------
Net property and equipment .................................................. 1,550 1,532
Intangibles, net of amortization of $84 and $188 .............................. 1,978 2,133
Notes receivable from officers ................................................ 273 116
Deferred charges and other assets ............................................. 244 559
-------- --------
Total assets ................................................................ $ 41,361 $ 33,781
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ......................................... $ 3,488 $ 4,286
Deferred license revenue ...................................................... -- 250
-------- --------
Total current liabilities ................................................. 3,488 4,536
Commitments (Note 10)
Stockholders' equity
Convertible preferred Stock, $.001 par value; 7,560,000 shares
authorized, no shares issued and outstanding .................................. -- --
Common Stock, $.001 par value; 30,000,000 shares authorized, 9,389,000 and
9,578,000 shares issued and outstanding at December 31, 1997 and 1998,
respectively ................................................................ 9 10
Additional paid-in capital .................................................... 60,371 60,664
Deferred compensation ......................................................... (634) (409)
Accumulated deficit ........................................................... (19,821) (27,807)
Treasury stock, at cost; 345,000 and 686,000 common shares at December 31,
1997 and 1998, respectively ................................................. (2,205) (3,675)
Accumulated other comprehensive income ........................................ 153 462
-------- --------
Total stockholders' equity .................................................. 37,873 29,245
-------- --------
Total liabilities and stockholders' equity .................................. $ 41,361 $ 33,781
======== ========
</TABLE>
See accompanying notes.
F-2
<PAGE> 9
RADIANCE MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR END DECEMBER 31,
------------------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Revenue:
Sales ..................................................... $ 8,384 $ 11,332 $ 9,415
License fee and other ..................................... 150 -- 2,760
Contract .................................................. 200 -- --
-------- -------- --------
Total revenue ........................................... 8,734 11,332 12,175
Operating costs and expenses:
Cost of sales ............................................. 4,111 6,418 6,152
Research and development .................................. 3,582 7,041 7,957
Marketing and sales ....................................... 3,358 6,691 5,371
General and administrative (including $156 for the
year ended December 31, 1996 paid to Endosonics)........... 1,548 2,179 2,937
Charge for acquired in-process research and
development ............................................... 2,133 -- 234
Minority interest in losses of RMS ........................ -- -- (992)
-------- -------- --------
Total operating costs and expenses ...................... 14,732 22,329 21,659
-------- -------- --------
Loss from operations....................................... (5,998) (10,997) (9,484)
Other income (expense):
Interest income ........................................... 1,324 2,201 1,567
Distributorship fees and other income (expense) ........... 50 24 (69)
-------- -------- --------
Total other income ...................................... 1,374 2,225 1,498
-------- -------- --------
Net loss .................................................. $ (4,624) $ (8,772) $ (7,986)
======== ======== ========
Basic and diluted net loss per share (pro forma
through June 1996) ........................................ $ (0.69) $ (0.96) $ (0.90)
======== ======== ========
Shares used in computing basic and diluted net loss
per share (pro forma through June 1996) ................... 6,755 9,188 8,862
======== ======== ========
</TABLE>
See accompanying notes
F-3
<PAGE> 10
RADIANCE MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------------- ------------------------ PAID-IN DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION
----------- ----------- --------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 ........ 2,000,000 $ 2 -- $-- $ 5,670 $(345)
Sale of preferred stock to
Endosonics ....................... 400,000 -- -- -- 8,000 --
Conversion of preferred stock ....... (2,400,000) (2) 4,800,000 5 (3) --
Exercise of common stock options .... -- -- 139,000 -- 138 --
Initial public offering of
common stock ..................... -- -- 3,910,000 4 42,764 --
Deferred compensation resulting
from grant of options ............ -- -- -- -- 150 (150)
Amortization of deferred
compensation ..................... -- -- -- -- -- 119
Acquisition of Intraluminal
Devices, Inc. .................... -- -- 93,000 -- 1,400 --
Conversion of $750,000 debt by
Fukuda Denshi .................... -- -- 62,000 -- 750 --
Net loss ............................ -- -- -- -- -- --
Unrealized gain on investments ...... -- -- -- -- -- --
---------- --- --------- --- ------ ------
Balance of December 31, 1996 ........ -- -- 9,004,000 9 58,869 (376)
Exercise of common stock options .... -- -- 208,000 -- 238 --
Employee stock purchase plan ........ -- -- 33,000 -- 266 --
SCIMED warrant exercise ............. -- -- 120,000 -- 377 --
Sale of common stock to Cathex ...... -- -- 25,000 -- 200 --
Expense repayment by Intraluminal
Devices, Inc. by transfer and
cancellation of common stock ..... -- -- (1,000) -- (16) --
Deferred compensation resulting
From grant of options ........... -- -- -- -- 437 (437)
Amortization of deferred
Compensation ..................... -- -- -- -- -- 179
Treasury common stock ............... -- -- -- -- -- --
Net Loss ............................ -- -- -- -- -- --
Unrealized gain on investments ...... -- -- -- -- -- --
Unrealized exchange rate loss ....... -- -- -- -- -- --
---------- --- --------- --- ------ ------
Balance at December 31, 1997 ........ -- -- 9,389,000 9 60,371 (634)
Exercise of common stock options .... -- -- 139,000 1 162 --
Employee stock purchase plan ........ -- -- 50,000 -- 180 --
Deferred compensation resulting from
grant of options ................. -- -- -- -- 159 (159)
Deferred compensation adjustment due
to grant revaluation ............. -- -- -- -- (208) 208
Amortization of deferred compensation -- -- -- -- -- 176
Treasury shares purchased ........... -- -- -- -- -- --
Net loss ............................ -- -- -- -- -- --
Unrealized gain on investments ...... -- -- -- -- -- --
Unrealized exchange rate gain ....... -- -- -- -- -- --
---------- --- --------- --- ------ ------
Balance at December 31, 1998 ........ -- $-- 9,578,000 $10 $60,664 $(409)
========== === ========= === ====== ======
</TABLE>
<TABLE>
<CAPTION>
TOTAL
ACCUMULATED STOCKHOLDERS'
TREASURY OTHER EQUITY
ACCUMULATED -------------------------- COMPREHENSIVE (NET CAPITAL COMPREHENSIVE
DEFICIT SHARES AMOUNT INCOME DEFICIENCY) INCOME
------------ ----------- ----------- ------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 ........ $ (6,425) -- $-- $ -- $(1,098)
Sale of preferred stock to
Endosonics ....................... -- -- -- -- 8,000
Conversion of preferred stock ....... -- -- -- -- --
Exercise of common stock options .... -- -- -- -- 138
Initial public offering of
common stock ..................... -- -- -- -- 42,768
Deferred compensation resulting
from grant of options ............ -- -- -- -- --
Amortization of deferred
compensation ..................... -- -- -- -- 119
Acquisition of Intraluminal
Devices, Inc. .................... -- -- -- -- 1,400
Conversion of $750,000 debt by
Fukuda Denshi .................... -- -- -- -- 750
Net loss ............................ (4,624) -- -- -- (4,624) $(4,624)
Unrealized gain on investments ...... -- -- -- 170 170 170
-------- ---- -------- ---- ------- -------
Balance of December 31, 1996 ........ (11,049) -- -- 170 47,623 $(4,454)
========
Exercise of common stock options .... -- -- -- -- 238
Employee stock purchase plan ........ -- -- -- -- 266
SCIMED warrant exercise ............. -- -- -- -- 377
Sale of common stock to Cathex ...... -- -- -- -- 200
Expense repayment by Intraluminal
Devices, Inc. by transfer and
cancellation of common stock ..... -- -- -- -- (16)
Deferred compensation resulting
From grant of options ........... -- -- -- -- --
Amortization of deferred
Compensation ..................... -- -- -- -- 179
Treasury common stock ............... -- 345 (2,205) -- (2,205)
Net Loss ............................ (8,772) -- -- -- (8,772) $(8,772)
Unrealized gain on investments ...... -- -- -- 6 6 6
Unrealized exchange rate loss ....... -- -- -- (23) (23) (23)
-------- ---- -------- ---- ------- -------
Balance at December 31, 1997 ........ (19,821) 345 (2,205) $153 37,873 $(8,789)
=======
Exercise of common stock options .... -- -- -- -- 163
Employee stock purchase plan ........ -- -- -- -- 180
Deferred compensation resulting from
grant of options ................. -- -- -- -- --
Deferred compensation adjustment due
to grant revaluation ............. -- -- -- -- --
Amortization of deferred compensation -- -- -- -- 176
Treasury shares purchased ........... -- 341 (1,470) -- (1,470)
Net loss ............................ (7,986) -- -- -- (7,986) $(7,986)
Unrealized gain on investments ...... -- -- -- 33 33 33
Unrealized exchange rate gain ....... -- -- -- 276 276 276
-------- ---- -------- ---- ------- -------
Balance at December 31, 1998 ........ $(27,807) 686 $(3,675) $462 $29,245 $(7,677)
======== ==== ======== ==== ======= =======
</TABLE>
See accompanying notes
F-4
<PAGE> 11
RADIANCE MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Operating activities:
Net loss .................................................................... $ (4,624) $ (8,772) $ (7,986)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization ............................................. 182 432 576
Amortization of deferred compensation ..................................... 119 179 176
Bad debt expense .......................................................... 221 318 295
Charge for acquired in-process research and development ................... 1,400 -- 234
Minority interest in losses of Radiance ................................... -- -- (992)
Changes (net of effects of acquisition of controlling interest in RMS):
Trade accounts receivable, net ............................................ (1,372) (2,767) 44
Inventories ............................................................... (2,145) 10 1,582
Other assets .............................................................. (671) 37 (125)
Accounts payable and accrued expenses ..................................... 698 836 928
Deferred revenue .......................................................... (50) (79) 250
-------- -------- --------
Net cash used in operating activities .......................................... (6,242) (9,806) (5,018)
Investing activities:
Purchase of available-for-sale securities ................................. (25,563) (43,208) (37,841)
Sales of available-for-sale securities .................................... -- 44,174 39,272
Capital expenditures for property and equipment .......................... (940) (699) (431)
Net of cash acquired, purchase of controlling interest in Radiance ........ -- -- 587
Net of cash acquired, purchase of Clinitec ................................ -- (30) --
Change in other assets .................................................... -- (358) (625)
-------- -------- --------
Net cash (used in) provided by investing activities ............................ (26,503) (121) 962
Financing activities:
Proceeds from sale of common stock .......................................... 42,768 466 180
Proceeds from exercise of stock warrants .................................... -- 377 --
Proceeds from exercise of stock options ..................................... 138 238 163
Proceeds from sale of preferred stock to EndoSonics ......................... 8,000 -- --
Proceeds from repayment of affiliate debt ................................... -- -- 479
Purchase of treasury common stock ........................................... -- (2,205) (1,470)
Payable to Endosonics, net .................................................. (2,537) -- --
-------- -------- --------
Net cash provided by (used in) financing activities ............................ 48,369 (1,124) (648)
-------- -------- --------
Net increase (decrease) in cash ................................................ 15,624 (11,051) (4,704)
Cash and cash equivalents, beginning of period ................................. 1,568 17,192 6,141
-------- -------- --------
Cash and cash equivalents, end of period ....................................... $ 17,192 $ 6,141 $ 1,437
======== ======== ========
Supplemental disclosure of non-cash financing activities:
The Company exercised preferred stock warrants bringing its ownership of
Radiance to approximately 50%. In conjunction with the assumption of control of
Radiance, the following liabilities were assumed:
Fair value of assets acquired ............................................... $ -- $ -- $ 1,535
Cash paid to exercise preferred stock warrants .............................. -- -- (1,463)
-------- -------- --------
Liabilities assumed ......................................................... $ -- $ -- $ 72
======== ======== ========
The Company purchased all of the capital stock of Clinitec for $30. In
conjunction with the acquisition, the Company forgave $1,630 in debt and assumed
the following liabilities:
Fair value of assets acquired ............................................... $ -- $ 401 $ --
Cash paid for the capital stock ............................................. -- (30) --
-------- -------- --------
Liabilities assumed ......................................................... $ -- $ 371 $ --
======== ======== ========
Common stock issued upon the acquisition of Intraluminal Devices, Inc., Note 1.. $ 1,400 $ -- $ --
Conversion of Debentures to Common Stock, Note 5 ............................... 750 -- --
</TABLE>
See accompanying notes
F-5
<PAGE> 12
RADIANCE MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Business and Basis of Presentation
Radiance Medical Systems, Inc. (formerly Cardiovascular Dynamics, Inc and herein
after referred to the "Company" or "Radiance") was incorporated in March 1992 in
the State of California. The Company and its subsidiaries design, develop,
manufacture and market proprietary therapeutic catheters and stents used to
treat certain vascular diseases. Accordingly, the Company operates in a single
business segment.
The consolidated financial statements for December 31, 1996, 1997 and 1998
include the accounts of the Company and its subsidiaries. Intercompany
transactions have been eliminated. To conform with the 1998 financial statement
presentation, certain reclassifications have been made to the 1997 and 1996
financial statements.
Use of Estimates
The preparation of 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 at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents includes cash on hand, demand deposits, and short-term
investments with original maturities of three months or less.
Marketable Securities Available-For-Sale
The Company accounts for its investments pursuant to Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt and
Equity Securities ("SFAS No. 115").
The Company has classified its entire investment portfolio as available-for-
sale. Available-for-sale securities are stated at fair value with unrealized
gains and losses included in stockholders' equity. The amortized cost of debt
securities is adjusted for amortization of premiums and accretions of discounts
to maturity. Such amortization is included in interest income. Realized gains
and losses are included in other income (expense). The cost of securities sold
is based on the specific identification method.
Inventories
Inventories are comprised of raw materials, work-in-process and finished goods
and are stated at the lower of cost, determined on an average cost basis, or
market value.
Property and Equipment
Property and equipment are stated at cost and depreciated or amortized on a
straight-line basis over the lesser of the estimated useful lives of the assets
or the lease term. The estimated useful lives range from three to seven years.
F-6
<PAGE> 13
RADIANCE MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Accounting for the Costs of Computer Software Developed for or Obtained for
Internal Use
In March 1998, the AICPA issued SOP 98-1, Accounting for the Costs of Computer
Software Developed for or Obtained for Internal Use ("SOP"). The Company intends
to adopt the provisions of the SOP on January 1, 1999. The SOP requires the
capitalization of certain costs incurred after the date of adoption in
connection with developing or obtaining software for internal use. The Company
currently expenses such costs, and it anticipates that the impact of the SOP
will not be material on its results of operations or financial position for the
foreseeable future as amounts expended to develop or obtain software have not
been and are not expected to be material.
Intangible Assets
The excess of the purchase price over the net assets of the business acquired
("goodwill") and any other identifiable acquired intangible assets are amortized
on the straight-line method over the estimated recovery period. The goodwill and
other intangible assets stemming from the acquisition of Clinitec and purchase
of a controlling interest in the (former) Radiance Medical Systems, Inc.
("RMS"), $1.9 million and $0.5 million, respectively, is being amortized over
ten and three to seven years, respectively. Based upon an independent appraisal
of intangible assets acquired in the purchase of a controlling interest in RMS,
$0.3 million was classified as developed technology and covenants not to compete
and capitalized, and $0.2 million as acquired in-process research and
development and expensed.
Long-lived Assets
Long-lived assets and certain identifiable intangibles to be held and used are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Long-lived assets
expected to be disposed of are stated at the estimated fair value less the cost
to sell.
Concentrations of Credit Risk and Significant Customers
The Company maintains its cash and cash equivalents in deposit accounts and in
pooled investment accounts administered by a major financial institution.
The Company sells its products primarily to medical institutions and
distributors worldwide. The Company performs on going credit evaluations of its
customers' financial condition and generally does not require collateral from
customers. Management believes that an adequate allowance for doubtful accounts
has been provided.
During 1997 and 1998, product sales to Cathex, the Company's Japanese
distributor, comprised 13% and 22%, respectively, of total revenues. Accounts
receivable from Cathex represented 44% and 49% of net accounts receivable at
December 31, 1997 and 1998, respectively. During 1996 product sales to Fukuda
Denshi Co., Ltd., ("Fukuda"), the Company's former Japanese distributor (see
Note 5), comprised 14% of total revenue.
Product sales to Medtronic, Inc. ("Medtronic") accounted for 21% and 13% of
total revenues during 1996 and 1997, respectively.
In June of 1998, the Company signed a technology license agreement with Guidant
Corporation ("Guidant"), an international interventional cardiology products
company, to grant them the ability to manufacture and distribute
F-7
<PAGE> 14
RADIANCE MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
products using the Company's focus technology. During 1998, Radiance recognized
license fees from Guidant of $2.8 million, which represented 23% of total
revenues. (See Note 6.)
Export Sales
The Company had export sales by region as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Europe.......................... $1,614 $3,020 $2,476
Japan........................... 1,240 2,350 2,622
Other........................... 660 1,209 789
------ ------ ------
$3,514 $6,579 $5,887
====== ====== ======
</TABLE>
Revenue Recognition and Warranty
The Company recognizes revenue from the sale of its products when the goods are
shipped to its customers. Reserves are provided for anticipated product returns
and warranty expenses at the time of shipment. License revenues are recognized
on a contract with SCIMED Life Systems, Inc. ("SCIMED") when distribution rights
to certain markets are made available to SCIMED for the sale of products based
upon certain limited catheter technology. License revenues are recognized on a
contract with Guidant Corporation based upon the achievement of milestones
involving the transfer of technology to Guidant and royalties based upon the
sale of products using the Focus technology (See Note 6). Contract revenues are
recognized on contracts with SCIMED and Advanced CardioVascular Systems, Inc.
("ACS") for transferring certain limited catheter technology based upon the
Company's completion of (1) technical assistance to aid ACS and SCIMED in
manufacturing the related products, and (2) research and development to develop
the related products for SCIMED (See Note 3).
Accounting for Stock-Based Compensation
The Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees ("APB 25") and related Interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS No.
123"), requires use of option valuation models that were not developed for use
in valuing employee stock options. Under the provisions of APB 25, the Company
has not recognized compensation expense because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant. Pro forma information regarding net income and earnings
per share is required by SFAS No. 123, which also requires that the information
be determined as if the Company has accounted for its employee stock options
granted subsequent to December 31, 1994 under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using the Black-Scholes option pricing model. The Black-Scholes model was
developed for use in estimating the fair value of traded options which have no
vesting restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the expected
stock price volatility. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's
F-8
<PAGE> 15
RADIANCE MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
In calculating pro forma information regarding net income and net income per
share the fair value was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for the
options on the Company's Common Stock: risk-free interest rate of 6.0%, 5.5% and
5.7%; a dividend yield of 0%, 0% and 0%; volatility of the expected market price
of the Company's common stock of 0.475, 0.692 and 0.696; and a weighted-average
expected life of the options of 3.5, 5.0 and 5.0 years for 1996, 1997 and 1998,
respectively.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information for the years ended December 31, 1996, 1997 and 1998 follows:
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- ---------
<S> <C> <C> <C>
Pro forma net loss .............................. $(5,170) $(9,320) $ (9,135)
Pro forma basic and diluted net loss per share.. $ (0.77) $ (1.02) $ (1.03)
</TABLE>
Because SFAS No. 123 is applicable only to options granted subsequent to
December 31, 1994, its total pro forma effect was not fully reflected until
1997.
Reporting Comprehensive Income
In 1998, the Company adopted Statement of Financial Accounting Standards No.
130, Reporting Comprehensive Income ("SFAS No. 130"). SFAS No. 130 establishes
standards for reporting and displaying comprehensive income and its components
with the same prominence as other financial statement information.
Disclosures about Segments of an Enterprise and Related Information
For the year beginning January 1, 1998, the Company adopted Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information ("SFAS No. 131"). SFAS No. 131 establishes
standards for the way that public business enterprises report selected
information about operating segments in annual and interim financial statements
and has no significant foreign operations. Because the Company operates in one
business segment and has no significant foreign operations, no additional
reporting is required under SFAS No. 131.
Income Taxes
From June 1993 until June 1996, the Company's results of operations were
included in consolidated tax returns filed by EndoSonics, its former parent.
There was no income tax provision for the consolidated tax group during the
periods covered by these financial statements. All net operating loss and credit
carryforwards and deferred tax assets and liabilities have been disclosed herein
on a separate company basis for Radiance.
Net Loss Per Share
Net loss per common share is computed using the weighted average number of
common shares outstanding during the periods presented. Options to purchase
shares of the Company's common stock granted under the Company's
F-9
<PAGE> 16
RADIANCE MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
stock option plan have been excluded from the calculation of diluted earnings
per share as they are anti-dilutive. The following table sets forth the
computation of basic and diluted net loss per share:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1996 1997 1998
--------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
NUMERATOR:
Net loss ............................................ $(4,624) $(8,772) $(7,986)
------- ------- -------
Net loss used for basic and diluted loss per
share -- Loss attributable to common
stockholders ........................................ $(4,624) $(8,772) $(7,986)
======= ======= =======
DENOMINATOR:
Denominator for basic and diluted loss per
share -- Weighted average common shares outstanding.. 4,715 9,118 8,862
Assumed conversion of Preferred Stock from the
date of issuance (Series A and B) ................... 2,040 -- --
------- ------- -------
6,755 9,118 8,862
======= ======= =======
Basic and diluted net loss per share ................ $ (0.69) $ (0.96) $ (0.90)
======= ======= =======
</TABLE>
2. ACQUISITIONS
On October 16, 1996, the Company acquired all of the outstanding shares of
Intraluminal Devices, Inc. ("IDI") in exchange for approximately 93,000 shares
of Radiance common stock valued at $1,400. The acquisition was accounted for
using the purchase method of accounting. As the assets of IDI were patents for
products still in their development stage, the purchase price and the associated
costs of acquisition, $700, were expensed as acquired in-process research and
development.
On July 29, 1997, the Company acquired all of the common stock of its
independent distributor in Germany and Switzerland, Clinitec GmbH ("Clinitec").
The aggregate purchase price of the acquisition was $1,630 and consisted of cash
of $30 and the forgiveness of debt of $1,600. The transaction was accounted for
by the purchase method of accounting and, accordingly, the purchase price was
allocated to the assets acquired and the liabilities assumed based on their fair
market values at the date of acquisition. In connection with the acquisition,
the Company acquired assets and assumed liabilities with fair market values of
$401 and $652, respectively. The excess of the purchase price over the fair
value of the net assets acquired of $1,900 has been allocated to goodwill. The
results of operations of Clinitec are included in the consolidated statement of
operations subsequent to the date of acquisition.
RMS was incorporated by the Company in August 1997 to develop radiation products
to treat restenosis based on RMS's patented focus delivery systems technology.
In consideration for the granting by RMS of a license to this technology, RMS
issued to the Company 750,000 shares of Series B Preferred Stock, a warrant to
purchase 1,500,000 shares of Series B Preferred Stock, rights of first offer
with respect to the commercialization of RMS's products, and a promise to
receive royalties on sales of products based upon the licensed technology.
Following the organization of RMS and its sale of common stock to investors in a
private offering, Radiance did not control RMS and accounted for its investment
at zero --the book value of the assets transferred to RMS by Radiance. In
September 1998, the Company exercised warrants to purchase an additional
1,500,000 Preferred Series B shares in RMS for $0.975 per share or a total of
$1,500, bringing the Company's ownership of the outstanding equity of RMS to
approximately 50%.
F-10
<PAGE> 17
RADIANCE MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
In November 1998, the Company signed a definitive merger agreement with RMS and
in January 1999, the Company acquired RMS pursuant to that Agreement. Under the
terms of the Agreement, the Company paid the shareholders of RMS $3.00 for each
share of Preferred Stock and $2.00 for each share of Common Stock for a total
consideration of approximately $7,000, excluding the value of Radiance common
stock options to be provided to RMS optionholders in exchange for their RMS
common stock options. Such consideration was paid by delivery of an aggregate of
1,900,157 shares of Common Stock, and $700 in cash to certain RMS stockholders
who elected to receive cash pursuant to the definitive merger agreement. Options
for 546,250 shares of RMS common stock accelerated and vested immediately prior
to the completion of the Merger. Of these, 1,250 were exercised, and the holder
received the same consideration for their shares of RMS Common Stock as other
holders of RMS Common Stock. The options not exercised prior to the completion
of the Merger were assumed by the Company and converted into options at the same
exercise price to purchase an aggregate of 317,775 share of the Company's Common
Stock.
In addition, RMS share and option holders may receive product development
milestone payments of $2.00 for each share of RMS Preferred Stock and $3.00 for
each share of RMS Common Stock. The development milestone payments may be
increased up to 30%, or reduced or eliminated if the milestones are reached
earlier or later, respectively, than the milestone target dates. The milestones
represent important steps in the United States Food and Drug Administration and
European approval process, which the Company has determined are critical to
bringing the RMS technology to the marketplace.
The following table reflects unaudited pro forma combined results of operations
of the Company, IDI, Clinitec and RMS on the basis that the acquisitions, or
purchase of a controlling interest in the case of Radiance, had taken place and
the related charge for IDI, noted above, was recorded at the beginning of 1996
for IDI and Clinitec, as IDI operations were not material to the Company's
operations prior to 1996, and at the inception of RMS in August 1997.
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Revenues......................... $ 8,822 $11,633 $12,175
Net Loss......................... (5,060) (9,589) (8,511)
Net Loss per common share........ (0.75) (1.05) (0.96)
Shares used in computation....... 6,755 9,118 8,862
</TABLE>
In management's opinion, the unaudited pro forma combined results of operations
are not indicative of the actual results that would have occurred had the
acquisitions been consummated at the beginning of 1996, 1997 or 1998,
respectively, or of future operations of the combined companies under the
ownership and management of the Company.
3. SCIMED LIFE SYSTEMS, INC.
In September 1994, the Company and EndoSonics entered into a Stock Purchase and
Technology License Agreement with SCIMED Life Systems, Inc. ("SCIMED"). SCIMED
acquired a 19% interest in Radiance in exchange for $2,500 in cash. Radiance
also granted SCIMED an exclusive license to certain patents in the
cardiovascular field of use, which allows SCIMED to manufacture the Transport
PTCA infusion catheter (the "Transport") developed by Radiance in exchange for a
$1,000 license fee that was paid in 1994. SCIMED will pay royalties to Radiance
on sales of the Transport and other products which use this patented technology.
Radiance retains rights to this technology and the associated patents for use
outside of the cardiovascular field.
F-11
<PAGE> 18
RADIANCE MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
During June 1995, the Company issued a warrant to SCIMED to purchase up to
80,000 shares of Series A Preferred Stock at an exercise price of $3.29 per
share in exchange for a waiver of SCIMED's anti-dilution right.
During May 1996, the Company agreed to issue an additional warrant to SCIMED to
purchase up to 40,000 shares of Series A Preferred Stock at an exercise price of
$3.29 per share in exchange for a waiver of SCIMED's anti-dilution right related
to the shares to be issued under the 1996 Plan. In August 1997, SCIMED exercised
all 120,000 warrants, mentioned above.
SCIMED also paid Radiance $200 in 1996, on a cost reimbursement basis to fund
continuing development of the technology and for other support.
4. RELATED PARTY TRANSACTIONS
Prior to the Company's initial public offering in June 1996, certain corporate
expenses, primarily related to executive management time, accounting, cash
management, and other administrative and engineering services, have been
allocated to the Company by its former parent, EndoSonics. Total expenses
allocated were $156 for the year ended December 31, 1996.
5. AGREEMENTS WITH FUKUDA AND CATHEX
The Company entered into a distribution agreement, dated May 1, 1997, with
Cathex, Ltd. (The "Cathex Agreement"), whereby Cathex was appointed to serve as
Radiance's exclusive distributor for certain of the Company's products in Japan.
In exchange for this exclusive distributorship, Cathex shareholders agreed to
purchase $200 in Radiance common stock or approximately 25,000 shares. Cathex
also agreed to undertake all necessary clinical trails to obtain approval from
Japanese regulator authorities for the sale of the products in Japan. Cathex's
purchases under the Cathex Agreement are subject to certain minimum
requirements. The initial term of the Cathex Agreement expires on January 1,
2001, subject to a five-year extension. The Cathex Agreement may also be
terminated in the event of breach upon 90 days notice by the non-breaching
party, subject to cure within the notice period.
The Company previously had a distribution agreement with Fukuda. The agreement
provided Fukuda with exclusive distribution rights relative to certain of the
Company's products in Japan for periods extending through May 1999. Distribution
fee revenues received from Fukuda were deferred and were being recognized as
revenue over the initial periods covered by the respective agreement. In July
1995 and May 1996, the distribution agreement with Fukuda was amended. In
exchange for the exclusive distribution rights to additional Company products,
the Company received $750 which converted into the right to receive 62,500
shares of Common Stock upon the consummation of the initial public offering. In
November, 1996, Fukuda exercised the conversion feature of said obligation. In
May 1997, the Company terminated the existing distribution agreement.
F-12
<PAGE> 19
RADIANCE MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
6. LICENSE AGREEMENTS
Advanced CardioVascular Systems, Inc.
In January 1995 the Company entered into a license agreement with Advanced
CardioVascular Systems, Inc. ("ACS"), a subsidiary of Guidant Corporation, under
which ACS was obligated to make milestone and minimum royalty payments to
Radiance. An initial milestone of $150 was earned in the year ended December 31,
1996. In February 1997, ACS elected to terminate the agreement.
Endosonics Corporation
The Company entered into a license agreement with EndoSonics pursuant to which
the Company granted EndoSonics the non-exclusive, royalty-free right to certain
technology for use in the development and sale of certain products. In exchange,
Radiance received the non-exclusive, royalty-free right to utilize certain of
EndoSonics' product regulatory filings to obtain regulatory approval of Radiance
products.
Guidant Corporation
In June of 1998, the Company signed a technology license agreement with Guidant
Corporation ("Guidant") to grant Guidant the ability to manufacture and
distribute stent delivery products using the Company's focus technology. Under
the Agreement, the Company is entitled to receive certain milestone payments
based upon the transfer of the technology to Guidant, and royalty payments based
upon the sale of products using the focus technology. An initial license payment
of $2,000 was received by the Company upon the signing of the Agreement. In
October of 1998, the Company received another $1,000 license milestone payment
upon the completion of the technology transfer to Guidant. Based upon the
completion of certain initial technology transfer milestones, the Company
recognized $2,750 in license revenue in 1998, and will recognize the remaining
$250 of deferred license revenue as remaining milestones are met.
7. MARKETABLE SECURITIES AVAILABLE-FOR-SALE
The Company's investments in debt securities are diversified among high credit
quality securities in accordance with the Company's investment policy. The
Company's investment portfolio is managed by a major financial institution. The
following is a summary of investments in debt securities at December 31, 1997
and 1998.
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1998
------------------------------ -------------------------------
Gross
Unrealized Gross
Holding Unrealized
Gains Fair Holding Fair
Cost (Losses) Value Cost Gains Value
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury and other agencies debt
securities .......................... $ 4,976 $ 30 $ 5,006 $ 5,928 $ 33 $ 5,961
Corporate debt securities ........... 17,605 150 17,755 14,239 169 14,408
Foreign government debt securities .. 2,016 (4) 2,012 2,999 7 3,006
-------- -------- -------- -------- -------- --------
$ 24,597 $ 176 $ 24,773 $ 23,166 $ 209 $ 23,375
======== ======== ======== ======== ======== ========
</TABLE>
All debt securities mature within one year with the exception of debt
securities with a cost and fair value totaling $2.0 million and $3.5 million at
December 31, 1997 and 1998, respectively, which mature within two years.
F-13
<PAGE> 20
RADIANCE MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
8. INVENTORIES
Inventories are stated at the lower of cost, determined on an average cost
basis, or market value. Inventories consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1998
------ ------
<S> <C> <C>
Raw materials ...... $1,285 $ 630
Work in process .... 165 87
Finished goods ..... 1,755 906
------ ------
$3,205 $1,623
====== ======
</TABLE>
9. INTANGIBLES
Intangibles consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1998
------- ------
<S> <C> <C>
Goodwill .................................................. $1,809 $1,746
Developed research and development and other intangible ...
assets .................................................... -- 243
Product license ........................................... 169 144
------ ------
$1,978 $2,133
====== ======
</TABLE>
10. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1998
------ ------
<S> <C> <C>
Accounts payable ................ $1,374 $1,281
Accrued payroll and related
expenses ........................ 1,317 1,287
Accrued clinical studies ........ 548 979
Accrued office closing costs .... -- 225
Other accrued expenses .......... 249 514
------ ------
$3,488 $4,286
====== ======
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases its administrative, research and manufacturing facilities and
certain equipment under long-term, noncancellable lease agreements that have
been accounted for as operating leases. Certain of these leases include
scheduled rent increases and renewal options as prescribed by the agreements.
Future minimum payments by year under long-term, noncancellable operating leases
were as follows as of December 31, 1998:
F-14
<PAGE> 21
RADIANCE MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
<S> <C>
1999 ........ $ 468
2000 ........ 442
2001 ........ 150
2002 ........ 47
2003 ........ 15
------
$1,122
======
</TABLE>
Rental expense charged to operations for all operating leases during the years
ended December 31, 1996, 1997 and 1998, was approximately $365, $574 and $639,
respectively.
12. SHAREHOLDERS EQUITY
Preferred Stock
In March 1996, the Company issued 400,000 shares of Series B Preferred Stock to
EndoSonics at $20.00 per share for aggregate proceeds of $8,000.
The preferred stockholders converted their shares to common shares upon the
consummation of the Company's initial public offering.
Stock Split
In 1996, the Board of Directors of the Company approved a 2-for-1 Common Stock
split which has been reflected retroactively for all periods in the accompanying
financial statements.
Sale of Common Stock
On June 25, 1996, the Company closed its initial public offering (the
"Offering") which consisted of 3,400,000 shares of Common Stock at $12.00 per
share. On July 17, 1996, the Company's underwriters exercised their
overallotment option to purchase an additional 510,000 shares of Common Stock at
$12.00 per share. The Company received net offering proceeds from the sale of
Common Stock of approximately $42.8 million after deducting underwriting
discounts and commissions and other expenses of the Offering.
Stock Option Plan
In May 1996, the Company adopted the 1996 Stock Option/Stock Issuance Plan (the
"1996 Plan") which is the successor to the Company's 1995 Stock Option Plan. In
September 1997, the Company adopted the 1997 Supplemental Stock Option Plan (the
"1997 Plan"). Under the terms of the 1996 and 1997 Plans, eligible key
employees, directors, and consultants can receive options to purchase shares of
the Company's Common Stock at a price not less than 100% for incentive stock
options and 85% for nonqualified stock options of the fair value on the date of
grant, a determined by the Board of Directors. At December 31, 1998 the Company
had 2,100,000 and 90,000 shares of Common Stock for issuance under the 1996 and
1997 Plan, respectively. In January 1999, the Company authorized an additional
750,000 shares of common stock for issuance under the 1996 Plan. At December 31,
1998, the Company had 152,000 shares and 39,000 shares of Common Stock available
for grant under the 1996 and 1997 Plan, respectively. The options granted under
the Plans are exercisable over a maximum term of ten years from the date of
grant and generally vest over a four year period. Shares underlying the exercise
of unvested options are subject to various restrictions as to resale and right
of repurchase by the Company which lapses over the vesting period. The activity
under both plans is summarized below:
F-15
<PAGE> 22
RADIANCE MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
OPTION PRICE NUMBER
PER SHARE OF SHARES
--------- ---------
<S> <C> <C>
Balance at December 31, 1995.. $1.00 to $ 1.50 956,000
Granted....................... $2.50 to $13.25 346,000
Exercised..................... $1.00 to $ 1.50 (138,600)
Forfeited..................... $1.00 to $13.25 (18,875)
Cancelled..................... -- --
--------------- -----------
Balance at December 31, 1996.. $1.00 to $13.25 1,144,525
Granted....................... $5.00 to $ 9.50 1,000,000
Exercised..................... $1.00 to $ 2.50 (208,259)
Forfeited..................... $1.00 to $13.25 (204,229)
Cancelled..................... $ 6.87 (130,000)
--------------- -----------
Balance at December 31, 1997.. $1.00 to $13.25 1,602,037
Granted....................... $3.25 to $ 6.44 665,100
Exercised..................... $1.00 to $ 2.50 (138,965)
Forfeited..................... $1.00 to $ 9.50 (614,794)
Cancelled..................... -- --
--------------- -----------
Balance at December 31, 1998.. $1.00 to $12.00 1,513,378
=============== ===========
</TABLE>
The Board of Directors approved repricing of the following options:
<TABLE>
<CAPTION>
Date Repricing Original New
Approved Option Grant Date Grant Price Grant Price
-------- ----------------- -------- -----------
<S> <C> <C> <C>
April 21, 1997 August 5, 1996 $13.25 $6.88
November 4, 1996 12.50 6.88
April 7, 1998 January 13, 1997 9.50 4.94
September 19, 1997 7.31 4.94
December 14, 1998 April 21, 1997 6.88 3.63
May 20, 1998 6.00 3.63
May 26, 1998 5.88 3.63
June 10, 1998 6.44 3.63
</TABLE>
As a result of the repricing, the vesting period on the aforementioned options
started anew.
The following table summarizes information regarding stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED-
OPTIONS AVERAGE WEIGHTED OPTION WEIGHTED-
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE PRICES AT 12/31/98 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/98 PRICE
--------------- ----------- ---------------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 1.00 -$ 1.50 358,216 6.6 $1.28 282,049 $1.23
2.50 - 5.63 983,662 9.0 4.05 65,074 4.10
7.31 - 12.00 171,500 8.6 7.91 19,844 9.41
--------- -------
1.00 - 12.00 1,513,378 8.4 3.84 366,967 2.18
========= =======
</TABLE>
The weighted-average grant-date fair value of options granted during 1996, 1997
and 1998, for options where the exercise price on the date of grant was equal to
the stock price on that date, was $5.12, $4.50 and $2.99,
F-16
<PAGE> 23
RADIANCE MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
respectively. The weighted-average grant-date fair value of options granted
during 1996, 1997 and 1998, for options where the exercise price on the date of
grant was less than the stock price on that date, was $3.16, $0, and $0,
respectively.
During 1996, the Company recorded deferred compensation of approximately $150
for financial reporting purposes to reflect the difference between the exercise
price of certain options and the deemed fair value, for financial statement
presentation purposes, of the Company's shares of Common Stock. An additional
$437 and $159 of deferred compensation was recorded to recognize compensation
for non-employee option grants during the years ended December 31, 1997 and
1998, respectively. Deferred compensation is being amortized over the vesting
period of the related options. $119, $179 and $176 of deferred compensation was
amortized in the years ended December 31, 1996, 1997 and 1998, respectively.
Stock Purchase Plan
Under the terms of the Company's 1996 Employee Stock Purchase Plan (the
"Purchase Plan"), eligible employees can purchase Common Stock through payroll
deductions at a price equal to the lower of 85% of the fair market value of the
Company's Common Stock at the beginning or end of the applicable offering
period. A total of 200,000 shares of Common Stock are reserved for issuance
under the Purchase Plan. During 1998, a total of approximately 50,000 shares, of
Common Stock was purchased at an average price of $3.61 per share.
F-17
<PAGE> 24
RADIANCE MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
13. INCOME TAXES
Significant components of the Company's deferred tax assets are as follows at
December 31:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Net operating loss carryforward .... $ 3,959 $ 5,473
Accrued expenses ................... 405 572
Tax credits ........................ 812 953
Bad debt reserve ................... 205 236
Depreciation ....................... (56) (85)
Amortization ....................... -- 58
Inventory write-downs .............. 451 749
Capitalized research and development 642 963
Deferred revenue ................... -- 100
Deferred Compensation amortization . -- 215
Other .............................. 191 249
------- -------
Gross deferred tax assets .......... 6,609 9,483
Valuation allowance ................ (6,609) (9,483)
------- -------
Net deferred tax assets ............ $ -- $ --
======= =======
</TABLE>
The valuation allowance increased by $2,874 and $3,150 in 1998 and 1997,
respectively.
The Company's effective tax rate differs from the statutory rate of 35% due to
federal and state losses which were recorded without tax benefit.
At December 31, 1998, the Company has net operating loss carryforwards for
federal and state income tax purposes of approximately $15,700 and $406,
respectively, which expire in the years 2000 through 2018. In addition, the
Company has research and development tax credits for federal and state income
tax purposes of approximately $522, and $431, respectively, which expire in the
years 2011 through 2013.
Because of the "change of ownership" provision of the Tax Reform Act of 1986,
utilization of the Company's net operating loss and research credit
carryforwards may be subject to an annual limitation against taxable income in
future periods. As a result of the annual limitation, a portion of these
carryforwards may expire before ultimately becoming available to reduce future
income tax liabilities.
The results of operations includes the net loss of the Company's wholly-owned
German subsidiary of $1,029.
14. EMPLOYEE BENEFIT PLAN
The Company provides a 401(k) Plan for all employees 21 years of age or older
with over 3 months of service. Under the 401(k) Plan, eligible employees
voluntarily contribute to the Plan up to 15% of their salary through payroll
deductions. Employer contributions may be made by the Company at its discretion
based upon matching employee contributions, within limits, and profit sharing
provided for in the Plan. No employer contributions were made in 1997 and 1998.
15. SUBSEQUENT AND SIGNIFICANT EVENTS
In October 1998, the Company signed a letter of intent to sell substantially all
of the properties and assets used exclusively in its Vascular Access Business
Unit to Escalon Medical Corporation and in January 1999 the sale was completed
under a definitive Sale and Purchase Agreement ("Agreement"). Under the terms of
the Agreement, the Company received an initial payment of $1,100. This payment
represented a $1,000 consideration payment increased by the excess of the actual
inventory transferred of $700 over the contractual estimate of $600.
F-18
<PAGE> 25
RADIANCE MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The Company may also receive up to an additional $1,000 upon the completion of
the transfer of the assets and technology, and royalty payments upon the sale of
products for a five-year period. The Company will recognize such additional
payments as income when it is probable they will be received. In addition, the
Company will continue to manufacture certain products for up to 180 days
following the Agreement date.
The following table sets forth the Vascular Access operating profits for the
periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Revenues ......................... $ 1,810 $ 2,419 $ 2,664
Operating costs and expenses:
Costs of sales ................. 1,201 937 1,342
Research and development ....... 44 392 480
Marketing and sales ............ 248 506 556
General and administrative ..... 109 465 671
------- ------- -------
Total operating costs and expenses 1,602 2,300 3,049
------- ------- -------
$ 208 $ 119 $ (385)
======= ======= =======
</TABLE>
F-19
<PAGE> 26
RADIANCE MEDICAL SYSTEMS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- -------- --------
ADDITIONS
---------------------
BALANCE AT CHARGES TO CHARGED BALANCE AT
BEGINNING COSTS AND TO OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------- --------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998
Allowance for doubtful accounts $ 500 $ 295 $ -- $ (212) $ 583
Reserve for excess and obsolete
inventories .................... $1,100 $1,274 $ -- $ (518) $1,856
Year ended December 31, 1997
Allowance for doubtful accounts $ 377 $ 318 $ -- $ (195) $ 500
Accrued warranty expenses ...... $ 29 $ -- $ -- $ (29) $ --
Reserve for excess and obsolete
inventories .................... $ 145 $ 955 $ -- $ -- $1,100
Year ended December 31, 1996
Allowance for doubtful accounts $ 180 $ 221 $ -- $ (24) $ 377
Accrued warranty expenses ...... $ 113 $ -- $ -- $ (84) $ 29
Reserve for excess and obsolete
inventories .................... $ 209 $ -- $ -- $ (64) $ 145
</TABLE>
II-1
<PAGE> 27
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT DESCRIPTION NUMBER PAGE
------- ----------- -----------
<S> <C> <C>
2.1(3) Agreement and Plan of Reorganization dated as of June 9,
1993 among Endosonics Corporation ("Endosonics"),
Endosonics Acquisition Corporation and Radiance Medical
Systems, Inc. ("Radiance")..............................
2.2(3) First Amendment dated as of June 30, 1993 to the
Agreement and Plan of Reorganization among Endosonics
Acquisition Corporation and Radiance.....................
2.4(12) Agreement and Plan of Merger dated November 3, 1998 by
and between CardioVascular Dynamics, Inc. and Radiance
Medical Systems, Inc.....................................
2.5(13) Assets Sale and Purchase Agreement dated January 21, 1999
by and between the Company and Escalon Medical Corp......
3.1(3) Certificate of Incorporation.............................
3.2(3) Amended Bylaws...........................................
4.1(1) Specimen Certificate of Common Stock.....................
10.1(3) Form of Indemnification Agreement entered into between
the Registrant and its directors and officers............
10.2(3)** The Registrant's 1996 Stock Option Plan and forms of
agreements thereunder....................................
10.3(3)** The Registrant's Employee Stock Purchases Plan and forms
of agreement thereunder..................................
10.4(3) Series A Supplemental Stock Purchase Agreement dated June
5, 1992, and by between Endosonics and Radiance..........
10.5(3) Stock Purchase Option agreement dated June 5, 1992, by
and between Endosonics and Radiance......................
10.7(3)* Stock Purchase and Technology License Agreement dated
September 10, 1994, as amended on September 29, 1995, by
and among Endosonics, Radiance and SCIMED Life Systems,
Inc. ("SCIMED")..........................................
10.8(3) Waiver and Grant of Warrant Dated June 30, 1995 by and
between SCIMED, Radiance and Endosonics..................
10.9(3)* License Agreement dated January 15, 1995 by and between
Radiance and Advanced Cardiovascular Systems, Inc. ("ACS")
10.10(3) License Agreement dated March 4, 1996 by and between
Radiance and ACS.........................................
10.11(3) Series B Stock Purchases Agreement dated March 29, 1996
and between Radiance and Endosonics......................
10.15(3) Industrial Lease dated February 23, 1995 by and between
the Irvine company and Radiance..........................
10.16(1) Waiver and Grant of Warrant dated May 2, 1996 by and
between SCIMED, Radiance and Endosonics..................
</TABLE>
II-2
<PAGE> 28
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT DESCRIPTION NUMBER PAGE
------- ----------- -----------
<S> <C> <C>
10.18(4)* Supply Agreement dated July 15, 1996 by and between
Radiance and Medtronic, Inc..............................
10.19(4)* OEM Agreement dated July 15, 1996 by and between Radiance
and Medtronic, Inc.......................................
10.20(6) License Agreement dated May 16, 1997 by and between
Radiance and Endosonics..................................
10.21(6) Register Rights Agreement dated May 14, 1997 by and
between Radiance and Endosonics..........................
10.22(7)** 1997 Supplemental Stock Option Plan......................
10.23(8) Stock Purchase Agreement dated as of February 10, 1997 by
and between Endosonics and the Company...................
10.24(9)* License Agreement by and between the Company and Guidant
Corporation dated June 19, 1998..........................
10.25(14)** 1996 Stock Option/Stock Issuance Plan (as Amended and
Restated as of April 8, 1997, March 12, 1998 and November
3, 1998).................................................
10.26(15)** 1997 Stock Option Plan (As Amended as of June 15, 1998)
assumed by Registrant pursuant to its acquisition of
Radiance Medical Systems, Inc. on January 14, 1999.......
10.27**+ amendment to Employment Agreement dated as of February 1,
1999 between the Company and Michael R. Henson and form
of Employment Agreement entered into on January 14, 1999
between the Company and Michael R. Henson................
10.28**+ Employment Agreement entered into as of February 1, 1999
by and between the Company and Stephen R. Kroll..........
10.29**+ Form of Employment Agreement by and between the Company
and Jeffrey Thiel........................................
10.30**+ Form of Employment Agreement by and between the Company
and Claire Walker........................................
21.1+ List of Subsidiaries.....................................
23.1 Consent of Ernst & Young LLP, Independent Authors........
24.1+ Power of Attorney (Reference is made to page 39 of the
Annual Report on Form 10-K)..............................
27.1+ Financial Date Schedule..................................
</TABLE>
* Confidential treatment granted
** Indicates compensatory plan or arrangement.
+ Previously filed as an exhibit to the Company's Report on Form 10-K filed
with the Securities and Exchange Commission on March 31, 1999.
(1) Previously filed as an exhibit to Amendment No. 2 to the Company's
Registration Statement on Form S-1 filed with the Securities and Exchange
Commission on June 10, 1996.
II-3
<PAGE> 29
(3) Previously filed as an exhibit to the Company's Registration Statement
on Form S-1 filed with the Securities and Exchange Commission on May 3,
1996.
(4) Previously filed as an exhibit to the Company's report on Form 10-Q
filed with the Securities and Exchange Commission on August 14, 1996.
(6) Previously filed as an exhibit to the Company's Registration Statement
on Form S-1 filed with the Securities and Exchange Commission on June
19, 1997.
(7) Previously field as an exhibit to the Company's Registration Statement
on Form S-8 filed with the Securities and Exchange Commission on
December 12, 1997.
(8) Previously filed as Exhibit 10 to the Company's Report on Form 10-Q
filed with the Securities and Exchange Commission as of May 14, 1998.
(9) Previously filed as Exhibit 10.24 to the Company's Report on Form 10-Q
filed with the Securities and Exchange Commission as of August 11, 1998.
(10) Previously filed as Exhibit 3.5 to the Company's Report on Form 8-K
filed with the Securities and Exchange Commission as of January 22,
1999.
(11) Previously filed as Exhibit 3.4 to the Company's Report on Form 8-K
filed with the Securities and Exchange Commission as of January 22,
1999.
(12) Previously filed as Exhibit 2.4 to the Company's Report on Form 8-K
filed with the Securities and Exchange Commission as of November 12,
1998.
(13) Previously filed as Exhibit 2 to the Company's Report on Form 8-K filed
with the Securities and Exchange Commission as of February 5, 1999.
(14) Previously filed as Annex III to the Company's Proxy Statement on
Schedule 14A filed with the Securities and Exchange Commission on
December 18, 1998.
(15) Previously filed as Exhibit 99.2 to the Company's Registration Statement
on Form S-8 filed with the Securities and Exchange Commission on
February 17, 1999.
II-4
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
on Form S-8 No. 333-07959, No. 333-42161 and No. 333-72531 and the Registration
Statements on Form S-3 No. 333-35343, No. 333-33997, No. 333-71053, and No.
333-59305 of our report dated February 18, 1999, with respect to the
consolidated financial statements and schedule of Radiance Medical Systems, Inc.
and subsidiaries included in this Annual Report (Form 10-K/A) for the year ended
December 31, 1998.
/s/ ERNST & YOUNG LLP
Orange County, California
April 26, 1999