<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): January 21, 1999
ESCALON MEDICAL CORP.
---------------------
(Exact name of registrant as specified in its charter)
California 0-20127 33-0272839
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
351 East Conestoga Road
Wayne, Pennsylvania 19087
(Address of principal executive offices)
Registrant's telephone number, including area code: (610) 688-6830
N/A
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(Former Name or Former Address, if Changed Since Last Report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On January 21, 1999, Escalon Medical Corp. (the "Registrant"), Escalon
Vascular Access, Inc., a wholly owned subsidiary of the Registrant (the
"Buyer"), and Radiance Medical Systems, Inc. (the "Seller") entered into an
Assets Sale and Purchase Agreement (the "Asset Purchase Agreement"), pursuant to
which the Buyer purchased all of the assets of the Seller's Vascular Access
Business for an aggregate purchase price consisting of $2,104,442 in cash, the
Buyer's assumption of certain liabilities of the Seller relating to the Vascular
Access Business and an agreement to pay royalties based on the sale of products
of the Vascular Access Business for a period of five years following the closing
of the Asset Purchase Agreement. At closing, the Buyer made an initial payment
of the aggregate purchase in an amount equal to $1,104,442 in cash, and the
remaining $1,000,000 will be payable upon the completion of the transition
referred to in the next paragraph.
The purchased assets include inventory, equipment and other physical
property used in the Seller's Vascular Access Business. Prior to the acquisition
the purchased assets were used by the Seller in the manufacture and distribution
of a vascular access system for arterial and venous localization and
catheterization. The Buyer intends to continue such use of the purchased assets
in its business. The Seller will continue to manufacture Vascular Business
products during a transition period while the Buyer transfers the Vascular
Access Business to its Milwaukee, Wisconsin facility.
No material relationship exists between the Seller and (i) the
Registrant or the Buyer, (ii) any director or officer of the Registrant or the
Buyer, or (iii) any associate of any such directors or officers. The purchase
price was determined by arms' length negotiations between the Registrant and the
Buyer and the Seller and took into account the following principal factors
regarding the Seller: (i) the assets and liabilities regarding the Seller's
Vascular Access Business, (ii) sales of the Vascular Access Business over the
past two years, and (iii) judgements regarding the future results of operations
and values of the Seller's Vascular Access Business.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
The audited financial statements of the business acquired include only
the statement of assets acquired and statement of operating revenue and direct
expenses since it is impractical and uninformative to prepare complete financial
statements from a larger entity of which the acquired assets were a part of. The
significant operating assets that comprised the Seller, will continue to be
operated by the Seller
Exhibit 23.1 - Statement of Assets Sold and Related Statement of
Operating Revenue and Expenses of the Vascular Access Line of Business of
Radiance Medical Systems, Inc.
(b) Unaudited Pro Forma Financial Information.
The following unaudited pro forma condensed consolidated financial
information has been prepared to reflect the transaction under the Asset
Purchase Agreement (the "Transaction") between Escalon Medical Corp., Escalon
Vascular Access, Inc., a wholly owned subsidiary of the Registrant (the
"Buyer"), and Radiance Medical Systems, Inc. The unaudited pro forma condensed
consolidated financial information should be read in conjunction with the
audited historical consolidated financial statements and related notes included
in the Registrants Annual
<PAGE> 3
Report on Form 10-K for the period ended June 30, 1998 and the condensed
consolidated financial statements for the six months ended December 31, 1998 in
the Registrant's Quarterly Report on Form 10-Q for period ended December 31,
1998, which reports are incorporated herein by reference.
The unaudited pro forma condensed consolidated statement of operations
gives effect to the Transaction as if it had occurred at the beginning of the
period presented.
The unaudited pro forma condensed consolidated financial information is
presented for illustrative purposes only and does not purport to be indicative
of the operating results or financial position that would have actually occurred
if the Transaction had been in effect on the dates indicated, nor is it
necessarily indicative of future operating results or financial position.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ----------- -----------
<S> <C> <C> <C>
Sales revenues $ 5,942,004 $ 2,663,605(1) $ 8,605,609
Costs and expenses:
Cost of goods sold 2,588,500 1,342,270(1) 3,930,770
Research and development 494,895 479,872(1) 974,767
Marketing, general and administrative 2,805,454 1,226,814(1) 4,032,268
----------- ----------- -----------
Total costs and expenses 5,888,849 3,048,956 8,937,805
----------- ----------- -----------
Income (loss) from operations 53,155 (385,351) (332,196)
Other income, net 118,317 -- 118,317
----------- ----------- -----------
Net income (loss) $ 171,472 $ (385,351) $ (213,879)
=========== =========== ===========
Basic and diluted net loss per share (a) $ (0.039) $ (0.184)
=========== ===========
Weighted average shares -
basic and diluted 2,673,093 2,673,093
=========== ===========
</TABLE>
(a) For earnings per share computations, net income was decreased by
$276,750 for preferred stock dividends and accretion.
(1) Revenue and expenses as shown on the Radiance Medical Systems, Inc.
Audited Statement of Operating Revenue and Expenses of the Vascular
Access Line of Business for the year ended December 31, 1998.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTH ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
REGISTRANT PRO FORMA
ACTUAL ADJUSTMENTS PRO FORMA
----------- ----------- -----------
<S> <C> <C> <C>
Sales revenues $ 3,460,097 $ 1,331,803(1) $ 4,791,900
Costs and expenses:
Cost of goods sold 1,509,004 671,135(1) 2,180,139
Research and development 341,250 239,936(1) 581,186
Marketing, general and administrative 1,397,973 613,407(1) 2,011,380
----------- ----------- -----------
Total costs and expenses 3,248,227 1,524,478 4,772,705
----------- ----------- -----------
Income from operations 211,870 (192,675) 19,195
Other income, net 68,567 -- 68,567
----------- ----------- -----------
Net income (a) $ 280,437 $ (192,675) $ 87,762
=========== =========== ===========
Basic net income per share $ 0.084 $ 0.021
=========== ===========
Diluted net income per share $ 0.068 $ 0.021
=========== ===========
Weighted average shares - basic 3,028,668 3,028,668
Weighted average shares - diluted 4,103,394 4,103,394
=========== ===========
</TABLE>
(a) Net income is reduced by $24,540, for dividends paid to preferred
shareholder and not available for common shareholders' in earnings per share
computation.
(1) Six months (50%) of revenues and expenses as reported on the Radiance
Medical Systems, Inc. Audited Statement of Operating Revenue and Expenses of the
Vascular Access Line of Business for the year ended December 31, 1998.
<PAGE> 4
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRO FORMA PRO
HISTORICAL ADJUSTMENTS FORMA
---------- ----------- -----
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 2,406,665 $ (1,104,442)(1) $ 1,302,223
Accounts receivable, net 873,975 -- 873,975
Inventory, net 688,079 704,442(2) 1,392,521
Investments and other current assets 613,954 -- 613,954
------------ ------------ ------------
Total current assets 4,582,673 (400,000) 4,182,673
Furniture and equipment, at cost, net 130,522 313,890(2) 444,412
License and distribution rights, net 809,657 -- 809,657
Goodwill, net 904,451 1,086,110(2) 1,990,561
Other assets 621,079 -- 621,079
------------ ------------ ------------
Total assets $ 7,048,382 $ 1,000,000 $ 8,048,382
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities: $ 861,941 $ 1,000,000 $ 1,861,941
Shareholders' Equity:
Preferred stock 679,231 -- 679,231
Common stock 45,321,687 -- 45,253,597
Treasury stock (118,108) -- (118,108)
Accumulated deficit (39,696,369) -- (39,696,369)
------------ ------------ ------------
Total shareholders' equity 6,186,441 -- 6,186,441
------------ ------------ ------------
Total liabilities and shareholder's
Equity $ 7,048,382 $ 1,000,000 $ 8,048,382
============ ============ ============
</TABLE>
(1) Total purchase price paid, $1,104,442 in cash and $1,000,000 accrued
and payable when production transfer to Wisconsin is completed.
(2) Assets acquired, inventory, $ 704,442; manufacturing equipment,
$313,890; and goodwill allocated to the acquisition, $ 1,086,110.
Equipment and goodwill will be expensed on a straight line basis over
10 years.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ESCALON MEDICAL CORP.
(Registrant)
DATE: April 6, 1999 By: /s/ Douglas R. McGonegal
----------------------------------------
Douglas R. McGonegal
Vice President Finance and Chief Financial
Officer (Principal Financial and Accounting
Officer) and Secretary
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
2.1 Asset Sale and Purchase Agreement dated January 21,1999 among Escalon Medical Corp.,
Escalon Vascular Access, Inc. and Radiance Medical Systems, Inc. (1)
23.1 Statement of Assets Sold and Related Statement of Operating Revenue and Expenses
of the Vascular Access Line of Business of Radiance Medical Systems, Inc. *
</TABLE>
- -----------------------
* Filed herewith
(1) Filed as an exhibit to the Company's Form 8-K dated January
21, 1999.
<PAGE> 1
Exhibit 23.1
Statement of Assets Sold
and Related Statement of Operating
Revenue and Expenses of the
Vascular Access Line of Business
of
Radiance Medical Systems, Inc.
As of January 21, 1999 and
for the year ended December 31, 1998
with Report of Independent Auditors
<PAGE> 2
Report of Independent Auditors
Board of Directors and Shareholders
Radiance Medical System, Inc.
We have audited the accompanying statement of assets sold as of January 21, 1999
and the statement of operating revenues and expenses of the vascular access line
of business of Radiance Medical System, Inc. for the year ended December 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of assets sold and statement of operating
revenues and expenses of the vascular access line of business 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 audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above presents fairly, in
all material respects, the statement of assets sold as of January 21, 1999 and
the statement of operating revenues and expenses of the vascular access line of
business of Radiance Medical Systems, Inc. for the year ended December 31, 1998,
in conformity with generally accepted accounting principles.
The accompanying statement of assets sold and statement of operating revenues
and expenses of the vascular access line of business of Radiance Medical
Systems, Inc. has been prepared in order to comply with a requirement to include
audited financial statements in Escalon Medical Corporation's Form 8-K to be
filed with the Securities and Exchange Commission.
/s/Ernst & Young LLP
Orange County, California
April 2, 1999
1
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Vascular Access Line of Business
of
Radiance Medical Systems, Inc.
Statement of Assets Sold
January 21, 1999
<TABLE>
<S> <C>
Inventory $704,442
Equipment, net of accumulated depreciation of $35,058 146,025
--------
Total assets $850,467
========
</TABLE>
See accompanying notes.
2
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Vascular Access Line of Business
of
Radiance Medical Systems, Inc.
Statement of Operating Revenue and Expenses
For the year ended December 31, 1998
<TABLE>
<S> <C>
Revenue $ 2,663,605
Costs of goods sold 1,342,270
-----------
Gross margin 1,321,335
Operating Expenses:
Research and development 479,872
Sales and marketing 556,372
Allocation of corporate expenses 670,442
-----------
Total operating expenses 1,706,686
-----------
Net loss $ (385,331)
===========
</TABLE>
See accompanying notes.
3
<PAGE> 5
Vascular Access Line of Business
of
Radiance Medical Systems, Inc.
Notes to the Statement of Assets Sold and the Statement of Operating
Revenues and Expenses of the Vascular Access Line of Business
December 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PURPOSE OF FINANCIAL STATEMENTS
Effective January 21, 1999, Radiance Medical System, Inc. (the Company) sold its
vascular access line of business to Escalon Medical Corporation (Escalon). These
financial statements have been prepared in order for Escalon to comply with a
Securities an Exchange Commission requirement to file audited financial
statements with its Form 8-K related to the purchase of the vascular access line
of business from the Company.
BASIS OF PRESENTATION
The accompanying the statement of assets sold and the statement of operating
revenues and expenses of the vascular access line of business of the Company has
been prepared based on amounts included in the Company's books and records. All
other financial statements required by generally accepted accounting principles
have been excluded by management.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accounting
principles requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
REVENUE RECOGNITION
Sales and related cost of sales are recognized on the date of shipment, or if
required, upon acceptance by the customer.
INVENTORY
Inventory is comprised of raw materials, work-in-process and finished goods and
is stated at the lower of cost, determined on an average cost basis, or market
value.
4
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Vascular Access Line of Business
of
Radiance Medical Systems, Inc.
Notes to the Statement of Assets Sold and the Statement of Operating
Revenues and Expenses of the Vascular Access Line of Business
(continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORY (CONTINUED)
Inventories consist of the following at January 21, 1999:
<TABLE>
<S> <C>
Raw materials $357,988
Work-in-process 92,743
Finished goods 253,711
--------
$704,442
========
</TABLE>
EQUIPMENT
Equipment is stated at cost and is depreciated on a straight line basis over
five years.
Equipment is 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 costs to sell.
ADVERTISING EXPENSE
The Company expenses advertising costs as incurred. No advertising was incurred
for the vascular access line of business during 1998.
CONCENTRATIONS OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
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.
5
<PAGE> 7
Vascular Access Line of Business
of
Radiance Medical Systems, Inc.
Notes to the Statement of Assets Sold and the Statement of Operating
Revenues and Expenses of the Vascular Access
Line of Business (continued)
2. ALLOCATION OF CORPORATE EXPENSES
The accompanying statement of operating revenue and expenses includes an
allocation of corporate general and administrative expenses to the vascular
access line of business. This allocation is intended to recognize the costs of
corporate services provided to the vascular access business including:
accounting, auditing, payroll and treasury functions; administration of employee
incentive programs; marketing support; facilities management; legal services;
and other support services. The allocation is based on sales of the vascular
access line of business as a percentage of total Company sales applied to the
total general and administrative expenses incurred by the Company. Management
believes that the allocation is reasonable.
6
