<PAGE> 1
UNITED STATES
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): May 23, 1996
TARGET THERAPEUTICS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
0-19801 95-3962471
(Commission File Number) (IRS Employer Identification No.)
47201 Lakeview Blvd., Fremont, CA 94538
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (510) 440-7700
N/A
(Former name or former address, if changed since last report)
<PAGE> 2
The undersigned Registrant hereby amends the following item of its
Current Report on Form 8-K filed on June 7, 1996. The Registrant is amending
Item 7 to include certain required financial statements and pro forma financial
statements and exhibits associated therewith.
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Acquired Business
The following pages 3 through 6 contain (i) the unaudited condensed
consolidated balance sheet of Interventional Therapeutics
Corporation ("ITC") as of March 31, 1996 and the unaudited
condensed consolidated statements of operations and cash flows of
ITC and accompanying notes for the nine months ended March 31, 1995
and 1996. The audited financial statements of ITC for the year
ended June 30, 1995, with the Report of Frank, Rimerman & Co.,
Independent Auditors thereon have been included as exhibit 99.1 to
this filing.
(b) Pro Forma Financial Statements
The following pages 7 through 12 contain the unaudited pro forma
condensed combined balance sheet of Target Therapeutics, Inc.
("Target") and ITC as of March 31, 1996, and the unaudited pro
forma condensed combined statement of operations of Target and ITC
for the year ended March 31, 1996 and the notes thereto.
(c) Exhibits.
2.1* Agreement and Plan of Reorganization dated April 29, 1996
between the Registrant, Interventional Therapeutics
Corporation and TTI Acquisition Corporation (a wholly-owned
subsidiary of Registrant).
23.1 Consent of Frank, Rimerman & Co., Independent Auditors
99.1 Interventional Therapeutics Corporation Consolidated
Financial Statements for the year ended June 30, 1995, with
Report of Frank, Rimerman & Co., Independent Auditors.
--------------------------------
* Previously filed.
2
<PAGE> 3
Interventional Therapeutics Corporation
Condensed Consolidated Balance Sheet
(Unaudited)
(in thousands)
March 31, 1996
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 116
Accounts receivable, net 435
Inventories 506
Other current assets 28
------
Total current assets 1,085
Property and equipment, net 236
Other assets 114
------
$1,435
======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 352
Bank borrowings 202
------
Total current liabilities 554
Long term obligations 286
Stockholders' equity:
Preferred and common stock 1,111
Accumulated deficit (516)
------
Total stockholders' equity 595
------
$1,435
======
</TABLE>
See accompanying notes.
3
<PAGE> 4
INTERVENTIONAL THERAPEUTICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
1996 1995
------ ------
<S> <C> <C>
Revenues $2,028 $1,811
Cost of sales 984 675
------ ------
Gross margin 1,044 1,136
Research and development 243 274
Selling 414 374
General and administrative 512 548
------ ------
1,169 1,196
------ ------
Loss from operations (125) (60)
Interest expense (29) (41)
------ ------
(154) (101)
Income tax provision 2 2
------ ------
Net loss $ (156) $ (103)
====== ======
</TABLE>
See accompanying notes.
4
<PAGE> 5
INTERVENTIONAL THERAPEUTICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Cash flows from operating activities
Net loss $(156) $(103)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 40 64
Changes in assets and liabilities:
Accounts receivable 56 (188)
Inventories 172 (215)
Prepaid expenses and other assets 26 123
Accounts payable, accrued expenses and other liabilities (25) 201
----- -----
Total adjustments 269 (15)
----- -----
Net cash provided by (used in) operating activities 113 (118)
----- -----
Cash flows used in investing activities for the purchase
of property and equipment (57) (39)
----- -----
Cash flows from financing activities
Proceeds from line of credit -- (30)
Proceeds from convertible debt -- 186
Proceeds from issuance of preferred stock 2 4
----- -----
Net cash provided by financing activities 2 160
----- -----
Net increase in cash and cash equivalents 58 3
Cash and cash equivalents at beginning of period 58 43
----- -----
Cash and cash equivalents at end of period $ 116 $ 46
===== =====
Supplemental disclosure of noncash financing activities
Conversion of shareholder loan to preferred stock $ 376 $ --
Conversion of accrued interest on shareholder loan
to preferred stock 48 --
----- -----
$ 424 $ --
===== =====
</TABLE>
See accompanying notes.
5
<PAGE> 6
Interventional Therapeutics Corporation
Notes to Condensed Consolidated Financial Statements
March 31, 1996
(unaudited)
1. ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted consolidated
accounting principles for interim financial information. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
In the opinion of management, the unaudited consolidated financial statements
contain all adjustments necessary to present fairly the financial position of
Interventional Therapeutics Corporation ("ITC") at March 31, 1996, and the
results of its operations and cash flows for the nine months ended March 31,
1996 and 1995. Interim results for the nine month periods are not necessarily
indicative of operating results to be expected for the full year. These
financial statements should be read in conjunction with the Company's audited
consolidated financial statements and the notes thereto filed as Exhibit 99.1
of this Form 8 - K/A.
The accounting policies of ITC are as set forth in Note 1 to ITC's audited
consolidated financial statements for the year ended June 30, 1995 filed
as Exhibit 99.1 as part of this Form 8 - K/A.
2. SALE OF ITC
On April 29, 1996, ITC entered into a definitive agreement with Target
Therapeutics Inc., ("Target") pursuant to which the ITC agreed to be acquired
by Target, subject to certain terms and conditions, and pursuant to which all
of the outstanding securities of ITC would be exchanged for up to approximately
331,000 shares (including options to purchase shares) of Target common stock.
The transaction was consummated on May 23, 1996.
6
<PAGE> 7
Target Therapeutics, Inc.
Unaudited Pro Forma Condensed Combined
Financial Information
The unaudited pro forma condensed combined financial statements
(collectively, the Pro Forma Financial Statements) were prepared to give effect
to the acquisition by Target of all the outstanding securities of ITC under the
purchase method of accounting. The pro forma condensed combined balance sheet as
of March 31, 1996, assumed that the acquisition occurred on March 31, 1996. The
pro forma combined statement of operations for the year ended March 31, 1996,
assumes that the acquisition occurred on April 1, 1995. The Pro Forma Financial
Statements do not purport to represent what the companies' financial position or
results of operations would have been if the acquisition in fact had occurred on
the date or at the beginning of the period indicated or to project the
companies' financial position or results of operations for any future date or
period.
The pro forma adjustments are based upon available information and upon certain
assumptions as described in Note 1 to the Pro Forma Financial Statements that
Target believes are reasonable in the circumstances. The purchase price has been
allocated to the acquired assets and liabilities based on their respective fair
values. The Pro Forma Financial Statements and accompanying notes should be read
in conjunction with the respective historical consolidated financial statements
of Target and ITC, including the notes thereto. The historical consolidated
financial statements of Target are included in its annual report (Form 10-K) for
the year ended March 31, 1996. The historical consolidated financial statements
of ITC are included as Exhibit 99.1 in this Form 8 - K/A.
7
<PAGE> 8
Target Therapeutics, Inc.
Unaudited Pro Forma Condensed
Combined Balance Sheet
March 31, 1996
(In thousands)
<TABLE>
<CAPTION>
Target Interventional Pro Forma Pro Forma
Therapeutics, Therapeutics Adjustments Combined
Inc. Corporation
------------- -------------- ----------- ----------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash, cash equivalents and short-term investments $ 47,273 $ 116 $ -- $ 47,389
Investment in Conceptus, Inc. 20,493 20,493
Accounts receivable, net 15,676 435 (76)(e) 16,035
Inventories 6,740 506 349 (b) 7,595
Deferred tax assets 4,214 4,214
Other current assets 1,235 28 1,263
--------- --------- --------- ---------
Total current assets 95,631 1,085 273 96,989
Property and equipment, net 11,136 236 (101)(c) 11,271
Goodwill 1,237 (a) 1,237
Other assets including intangible assets 7,508 114 2,840 (d) 10,462
--------- --------- --------- ---------
$ 114,275 $ 1,435 $ 4,249 $ 119,959
========= ========= ========= =========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable 2,062 307 (76)(e) 2,293
Accrued compensation 3,831 69 3,900
Other accrued liabilities 6,698 178 2,920 (a) 9,796
Deferred tax liabilities 10,311 10,311
--------- --------- --------- ---------
Total current liabilities 22,902 554 2,844 26,300
Long-term obligations and minority interest 535 286 821
Stockholders' equity:
Common stock - Target 37 1 (d) 38
Additional paid-in capital - Target 50,759 15,999 (d) 66,758
Retained earnings - Target 27,688 (14,000)(a) 13,688
Preferred and common stock - ITC 1,111 (1,111)(a)
Accumulated deficit - ITC (516) 516 (a)
Unrealized gain on available-for-sale securities 12,265 12,265
Accumulated translation adjustments 89 89
--------- --------- --------- ---------
Total stockholders' equity 90,838 595 1,405 92,838
--------- --------- --------- ---------
$ 114,275 $ 1,435 $ 4,249 $ 119,959
========= ========= ========= =========
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.
8
<PAGE> 9
Target Therapeutics, Inc.
Notes to Unaudited Pro Forma Condensed
Combined Balance Sheet
March 31, 1996
1. BASIS OF PRESENTATION
The unaudited pro forma condensed combined balance sheet information
has been prepared by combining the historical consolidated balance sheet of the
Company at March 31, 1996, with the historical, restated balance sheet of ITC
at March 31, 1996, and gives effect to the pro forma adjustments as described
in the notes below.
(a) The acquisition of ITC, which was accounted for as a purchase, has been
recorded based upon available information and upon certain assumptions that
Target believes are reasonable in the circumstances. Estimated acquisition
costs include approximately $1.4 million of investment banking, legal and
accounting costs and approximately $1.5 million of exit costs associated
with termination of distributor and international lease arrangements. The
purchase price has been allocated to the acquired assets and liabilities
based on their relative fair values, subject to final adjustments. These
allocations are based on valuations and other studies that are not yet
completed. The final values may differ from those set forth below.
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Estimated purchase price $ 16,000
Estimated acquisition expenses 2,920
--------
Total estimated acquisition cost $ 18,920
========
Historic net book value at March 31, 1996 $ 595
Write-up of inventories 349
Write-off of plant and equipment (101)
Goodwill 1,237
In-process research and development 14,000
Developed technology 2,000
Non-compete agreement 600
Assembled workforce 200
Trademark/tradename 40
--------
$ 18,920
========
</TABLE>
9
<PAGE> 10
Target Therapeutics, Inc.
Notes to Unaudited Pro Forma Condensed
Combined Balance Sheet
March 31, 1996
In accordance with generally accepted accounting principles, the Company
will allocate $14 million of the purchase price to in-process research and
development. This amount will be taken as a charge to operations for the
quarter ending June 30, 1996, resulting in a corresponding charge to
retained earnings. This one-time charge is reflected in the unaudited pro
forma condensed combined balance sheet but not in the unaudited pro forma
condensed combined statement of operations due to its unusual,
non-recurring nature.
(b) The Company will write-up the value of various ITC inventory accounts in
connection with the purchase price allocation. The majority of this
write-up will be charged to cost of goods sold in fiscal year 1997.
(c) Plant and equipment will be written down for equipment to be disposed of
subsequent to the merger and as a result of closing the ITC's U.K. office
and subsequent disposal of the assets located there.
(d) Target common stock, valued at approximately $16 million, was issued in
exchange for the outstanding shares of ITC.
(e) Intercompany accounts reflected on the historical balance sheets have
been eliminated.
10
<PAGE> 11
Target Therapeutics, Inc.
Unaudited Pro Forma Condensed
Combined Statement of Operations
Twelve Months Ended March 31, 1996
(In thousands)
<TABLE>
<CAPTION>
Target Interventional Pro Forma Pro Forma
Therapeutics, Therapeutics Adjustments Combined
Inc. Corporation
------------- -------------- ----------- ---------
<S> <C> <C> <C> <C>
Product sales $ 69,795 $ 2,705 $ (125)(a) $ 72,375
Costs and expenses:
Cost of sales 21,478 1,236 (125)(a) 22,589
222 (b) 222
349 (d) 349
Research and development expenses 12,937 336 13,273
Selling, general and administrative expenses 20,726 1,197 341 (b) 22,264
-------- -------- -------- --------
55,141 2,769 787 58,697
-------- -------- -------- --------
Income (loss) from operations 14,654 (64) (912) 13,678
Interest income, net 1,926 (39) 1,887
Other income 736 736
Minority interest (607) (607)
-------- -------- -------- --------
Income (loss) before income taxes 16,709 (103) (912) 15,694
Provision for income taxes 5,007 2 5,009
-------- -------- -------- --------
Net income (loss) $ 11,702 $ (105) $ (912) $ 10,685
======== ======== ======== ========
Net income per share $ 0.77 $ 0.68
======== ========
Shares used in calculating per share information 15,280 331 (c) 15,611
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.
11
<PAGE> 12
Target Therapeutics, Inc.
Notes to Unaudited Pro Forma Condensed
Combined Statement of Operations
March 31, 1996
The unaudited pro forma condensed combined statement of operations information
has been prepared by combining the historical consolidated statement of
operations of the Company for the fiscal year ended March 31, 1996, with the
historical consolidated statement of operations of ITC for the fiscal year ended
March 31, 1996, and gives effect to the pro forma adjustments as described in
the notes below.
(a) Intercompany sales are eliminated in the pro forma adjustments.
(b) Amortization expense of goodwill and other intangible assets arising from
the ITC acquisition as shown below are reflected in the pro forma
adjustments and detailed as follows (dollars in thousands):
<TABLE>
<CAPTION>
PERIOD OF ANNUAL
--------- ------
AMOUNT AMORTIZATION AMORTIZATION
------ ------------ ------------
<S> <C> <C> <C>
Intangible assets:
Developed technology $ 2,000 9 years $ 222
Non-compete agreement 600 5 years 120
Assembled workforce 200 5 years 40
Trademark/tradename 40 10 years 4
------- -----
$ 2,840 $ 386
Goodwill $ 1,237 7 years $ 177
------- -----
$ 4,077 $ 563
======= =====
</TABLE>
(c) The pro forma adjustments reflect the issuance of approximately 331,000
shares of Target common stock (including options to purchase common stock)
that were exchanged for the outstanding securities of ITC. These shares
were assumed to have been issued on April 1, 1995, in the pro forma
statement of operations.
(d) Cost of sales includes the charge for inventory value recorded in
connection with the purchase price allocation and assumed sold during the
twelve months ended March 31, 1996.
12
<PAGE> 13
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.
TARGET THERAPEUTICS, INC.
(Registrant)
Dated: July 24, 1996 By: /s/ Robert E. McNamara
---------------------------------------------
Robert E. McNamara
Vice President, Finance and Administration,
Chief Financial Officer (Principal Financial
and Accounting Officer) and Assistant
Secretary
13
<PAGE> 14
INDEX TO EXHIBITS
Exhibits.
- ---------
23.1 Consent of Frank, Rimerman & Co., Independent Auditors
99.1 Interventional Therapeutics Corporation consolidated financial
statements for the year ended June 30, 1995, with Report of Frank,
Rimerman & Co., Independent Auditors.
14
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm and to the use of our report dated
October 23, 1995 (except for the second paragraph of Note 1, the fifth
paragraph of Note 3, and the last two paragraphs of Note 7, as to which the
date is July 11, 1996) with respect to the consolidated financial statements of
Interventional Therapeutics Corporation included in Form 8-K filing of Target
Therapeutics, Inc.
/s/ Frank, Rimerman & Co.
-------------------------------
FRANK, RIMERMAN & CO.
Menlo Park, California
July 19, 1996
<PAGE> 1
EXHIBIT 99.1
INTERVENTIONAL THERAPEUTICS
CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
WITH
INDEPENDENT AUDITORS' REPORT
JUNE 30, 1995
<PAGE> 2
C O N T E N T S
<TABLE>
<CAPTION>
Page
----
<S> <C>
INDEPENDENT AUDITORS' REPORT 1
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet 2
Consolidated Statement of Operations 3
Consolidated Statement of Stockholders' Equity 4
Consolidated Statement of Cash Flows 5 - 6
Notes to Consolidated Financial Statements 7 - 14
</TABLE>
<PAGE> 3
[FRANK, RIMERMAN + CO. LETTERHEAD]
Board of Directors
Interventional Therapeutics Corporation
Fremont, California
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheet of Interventional
Therapeutics Corporation as of June 30, 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
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 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Interventional
Therapeutics Corporation as of June 30, 1995, and the results of its operations
and its cash flows for the year then ended in conformity with generally accepted
accounting principles.
As explained in Note 1 to the consolidated financial statements, the Company was
acquired by, and became a wholly-owned subsidiary of Target Therapeutics, Inc.
effective May 23, 1996.
/s/ Frank, Rimerman & Co.
October 23, 1995, except for the second paragraph
of Note 1, the fifth paragraph of Note 3,
and the last two paragraphs of Note 7,
as to which the date is July 11, 1996
<PAGE> 4
INTERVENTIONAL THERAPEUTICS CORPORATION
CONSOLIDATED BALANCE SHEET
June 30, 1995
<TABLE>
ASSETS (Note 3)
<S> <C>
CURRENT ASSETS
Cash $ 58,144
Accounts receivable, net 491,165
Inventories, net 677,334
Prepaid expenses and other current assets 73,162
----------
Total current assets 1,299,805
PROPERTY AND EQUIPMENT, net 219,955
OTHER ASSETS (Note 5) 94,598
----------
$1,614,358
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit (Note 3) $ 201,689
Convertible notes payable to stockholder (Note 3) 376,000
Accounts payable 188,286
Accrued payroll and related expenses 78,450
Other current liabilities (Notes 2, 3 and 4) 208,850
Note payable (Note 3) 57,474
Current portion of capital lease obligations (Note 3) 12,455
----------
Total current liabilities 1,123,204
----------
LONG TERM LIABILITIES
Deferred rent (Note 4) 119,330
Capital lease obligations, less current portion (Note 3) 46,663
----------
165,993
----------
COMMITMENTS (Notes 4 and 7)
STOCKHOLDERS' EQUITY (Notes 1, 3, 6, and 7)
Convertible preferred stock, no par value, 500,000 shares
authorized, 194,874 shares issued and outstanding 635,002
Common stock, no par value, 10,000,000 shares authorized,
1,025,751 shares issued and outstanding 49,694
Accumulated deficit (359,535)
----------
325,161
----------
$1,614,358
==========
</TABLE>
See Notes to Consolidated Financial Statements
-2-
<PAGE> 5
INTERVENTIONAL THERAPEUTICS CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended June 30, 1995
<TABLE>
<S> <C>
NET SALES $2,487,061
COST OF SALES (Note 2) 924,875
----------
Gross profit 1,562,186
----------
OPERATING EXPENSES
Marketing 511,803
General and administrative 508,929
Research and development 366,705
Regulatory affairs 172,894
----------
1,560,331
----------
Income from operations 1,855
----------
OTHER INCOME (EXPENSE)
Interest and other income 6,124
Interest expense (57,545)
----------
(51,421)
----------
Net loss before income tax expense (49,566)
INCOME TAX EXPENSE (Note 5) 1,600
----------
Net loss $ (51,166)
==========
</TABLE>
See Notes to Consolidated Financial Statements
-3-
<PAGE> 6
INTERVENTIONAL THERAPEUTICS CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Year Ended June 30, 1995
<TABLE>
<CAPTION>
Convertible Preferred Stock Common Stock
---------------------------- -----------------------
(Accumulated
Shares Amount Shares Amount Deficit) Total
------- -------- -------- ------ --------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, beginning 194,874 $635,002 998,251 $44,194 $(308,369) $370,827
Exercise of stock options
at $0.20 per share - - 27,500 5,500 - 5,500
Net loss - - - - (51,166) (51,166)
------- -------- --------- ------- --------- --------
BALANCE, ending 194,874 $635,002 1,025,751 $49,694 $(359,535) $325,161
======= ======== ========= ======= ========= ========
</TABLE>
See Notes to Consolidated Financial Statements
-4-
<PAGE> 7
INTERVENTIONAL THERAPEUTICS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended June 30, 1995
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (51,166)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 84,287
Inventory reserve 105,000
Allowance for doubtful accounts 5,000
Deferred rent 44,054
Changes in operating assets and liabilities:
Accounts receivable (137,103)
Inventories (273,180)
Refundable income taxes 81,000
Prepaid expenses and other current assets 81,891
Accounts payable 81,455
Accrued payroll and related expenses (5,467)
Other accrued liabilities (85,437)
---------
Net cash used in operating activities (69,666)
---------
CASH FLOWS FROM INVESTING ACTIVITIES
Organization costs (4,567)
Expenditures for property and equipment (24,166)
---------
Net cash used in investing activities (28,733)
---------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of line of credit (28,311)
Repayment of capital lease obligations (4,008)
Repayment of note payable (45,696)
Proceeds from convertible note payable to stockholder 186,000
Proceeds from exercise of stock options 5,500
---------
Net cash provided by financing activities 113,485
---------
Net increase in cash 15,086
CASH, beginning 43,058
---------
CASH, ending $58,144
=========
</TABLE>
-5-
<PAGE> 8
INTERVENTIONAL THERAPEUTICS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended June 30, 1995
(continued)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
<TABLE>
<S> <C>
Interest $31,088
=======
Income taxes $ 800
=======
</TABLE>
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
The Company acquired $63,126 of equipment under capital lease obligations.
The Company financed its product liability insurance premiums with a $57,474
note payable.
See Notes to Consolidated Financial Statements
-6-
<PAGE> 9
INTERVENTIONAL THERAPEUTICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business and Significant Accounting Policies
NATURE OF BUSINESS
Interventional Therapeutics Corporation (ITC) was founded on January 9, 1986.
The Company has a wholly owned subsidiary, incorporated in the State of
California on February 17, 1994, which is doing business in the United
Kingdom. The consolidated financial statements include the accounts of ITC
and its wholly owned subsidiary after elimination of all significant
intercompany accounts and translations (Company). Since formation, the
Company has been involved in research and production of products designed for
doctors that use interventional devices primarily in the neuro-radiology
field. More specifically, the Company makes balloons, embolization particles,
microcoils and catheters. The procedure that doctors use is strictly
interventional through entry by use of a catheter and without surgery.
Subsequent Event - Change in Ownership
On May 23, 1996, the Company was acquired by, and became a wholly-owned
subsidiary of Target Therapeutics, Inc. (Target). Under terms of the
acquisition, the Company's stockholders received approximately 0.20 shares of
Target common stock for each share of the Company's common and preferred
stock they held. As a result of the acquisition, the Company may be
restricted in its ability to utilize the entire net operating loss
carryforwards (Note 5).
Concentration of Credit Risk and Major Customer:
Financial instruments which potentially subject the Company to concentration
of credit risk consist primarily of accounts receivable. The Company sells
its products directly to doctors and hospitals in the United States (50%) and
Europe. The Company performs ongoing credit evaluations of its customers and
generally does not require collateral. The Company maintains a reserve for
potential losses and such losses have been within management expectations.
During the year, the Company had sales to a single customer of approximately
$209,000. Receivables from this customer at June 30, 1995 were approximately
$73,000.
SIGNIFICANT ACCOUNTING POLICIES
Foreign Currency Translation:
Foreign currency translation gains and losses are reported as a separate
component of stockholders' equity. There are no material translation gains or
losses in 1995.
-7-
<PAGE> 10
INTERVENTIONAL THERAPEUTICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business and Significant Accounting Policies (continued)
Property and Equipment:
Property and equipment is recorded at cost and depreciated using the
straight-line method over a five-year period except in the case of leasehold
improvements which are amortized over the shorter of the estimated useful
lives or the remaining term of the Company's facility lease.
Property and equipment consists of the following:
Equipment $472,399
Furniture 24,879
Leasehold improvements 31,767
--------
529,045
Less accumulated depreciation and amortization 309,090
--------
$219,955
========
Inventories:
Inventories are stated at the lower of cost (first-in, first-out method) or
market, net of inventory reserves of $130,000, and consist of the following:
<TABLE>
<S> <C>
Raw materials $254,500
Work in process 187,138
Finished goods 235,696
--------
$677,334
========
</TABLE>
Organization Costs:
The Company incurred organization costs associated with the incorporation of
its wholly owned subsidiary. These costs have been capitalized and are being
amortized using the straight-line method, over a five year period.
Income Taxes:
Effective July 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109 (SFAS 109), "Accounting for Income Taxes." Under SFAS 109,
deferred tax assets and liabilities are recognized for the anticipated future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
-8-
<PAGE> 11
INTERVENTIONAL THERAPEUTICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Refunds Payable
From 1991 to 1994, the Company accepted returns of product resulting from
sales made in excess of limits imposed by the Food and Drug Administration.
During 1994, the Company accrued a liability for these returns of $218,697,
including a prior period adjustment of $207,762 relating to returns accepted
during 1991 through 1993, based on management's intent to provide cash or
product refunds to customers that had returned product.
During 1995, the Company paid cash refunds or gave purchase credits of
$20,939 relating to these returned products. In addition, the Company
reassessed its remaining obligation to its customers for returns and reduced
its obligations by $117,758. This change in estimate of $117,758 was credited
to against cost of goods sold for 1995. The remaining $80,000 obligation has
been included in other current liabilities.
3. Financing Arrangements
Line of Credit:
The Company has a bank line of credit agreement that allows for borrowings of
up to 65% of eligible accounts receivable to a maximum of $350,000. The line
of credit is renewable in January, 1996, is secured by all assets of the
Company, and provides for interest at prime plus 3.0% (12.0% at June 30,
1995). The credit arrangement provides that the bank will increase the
percentage of eligible accounts receivable and decrease the interest rate on
the line to prime plus 2.5% if the Company is in compliance with certain
covenants.
In consideration of the loan commitment fees payable, the Company granted the
bank stock purchase warrants for 5,766 shares of convertible preferred stock.
The warrants are exercisable at $6.07 per share. The warrants, if not
exercised, expire in 2000.
Note Payable:
The Company finances its product liability insurance premiums through a
finance company which retains a security interest in any refunds or dividends
received on the financed policies. The note is payable at $4,790 per month,
including interest at 8% per annum.
-9-
<PAGE> 12
INTERVENTIONAL THERAPEUTICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Financing Arrangements (continued)
Convertible Notes Payable to Stockholder:
The Company has convertible notes payable to a stockholder which are due on
December 31, 1995 and bear interest at 8% per annum, payable at maturity. The
Company has the option of converting the notes into shares of convertible
preferred stock prior to maturity at a price per share as determined by the
most recent stock sale price. The notes cannot be repaid, in whole or in
part, in cash if, after such payment, there would be a violation of any loan
covenants with respect to the line of credit.
Subsequent to October 23, 1995, the Company converted these notes and accrued
interest of $48,110 into 105,500 shares of convertible preferred stock at an
effective conversion price of $4.02 per share.
Capital Leases:
The Company has capital lease obligations which are collateralized by
equipment with a net book value of approximately $58,000 at June 30, 1995.
Total monthly lease payments of approximately $1,650, including imputed
interest at rates between 8%-18%, are payable through lease terms which
expire from July, 1999 to March, 2000.
Future minimum principle payments under capital leases are as follows:
<TABLE>
<S> <C>
1996 $12,455
1997 14,599
1998 16,900
1999 9,962
2000 5,202
-------
$59,118
=======
</TABLE>
4. Commitments
Facilities Leases:
The Company has a non-cancelable lease agreement for its U.S. facilities
which expires in 2004, and a non-cancelable office lease agreement in the
United Kingdom which expires in 2009.
Consistent with generally accepted accounting principles, the Company
recognizes rent expense on a straight-line basis over the life of the leases.
The Company was not required to make payments on its facilities leases during
the last quarter of fiscal year ended June 30, 1994. As a result of the free
rent provision and fixed lease payment escalations stated in the lease
agreement, the Company has accrued $119,330 of deferred rent expense as of
June 30, 1995.
-10-
<PAGE> 13
INTERVENTIONAL THERAPEUTICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Commitments (continued)
Facilities Leases (continued):
Rental expense, including taxes and insurance, was approximately $254,000.
Future minimum lease payments required under the operating leases (excluding
taxes and insurance) are approximately as follows:
<TABLE>
<S> <C>
1996 $ 210,000
1997 215,000
1998 230,000
1999 245,000
Thereafter 1,935,000
----------
$2,835,000
==========
</TABLE>
License Agreement:
The Company is obligated under the terms of a license agreement with a patent
holder for the exclusive worldwide right to make, use, and sell hydrophilic
coatings used to reduce friction on catheters. The license agreement requires
the Company to pay quarterly a 4% fee on all sales of hydrophilic coated
products with a minimum annual license fee of $25,000 for 1996 and each year
thereafter until the U.S. patent rights expire.
The license agreement is effective until the expiration of the last to expire
of the patent rights. During 1995, the Company accrued $22,500 under the
terms of this agreement, but has withheld payment pending resolution of a
dispute with the licensee regarding the continuation of the contract.
Royalty Agreement:
The Company is obligated under the terms of a royalty agreement with a
medical advisor for the use of his name and for his suggestions in the
Company's development, use, and sale of a single piece tapered catheter. The
royalty agreement requires the Company to pay semi-annually a 4% royalty on
all sales of the catheter. During 1995, the Company accrued $2,282 under the
terms of this agreement.
-11-
<PAGE> 14
INTERVENTIONAL THERAPEUTICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Income Taxes
Income tax expense is as follows:
<TABLE>
<CAPTION>
Total Deferred Current
----- -------- -------
<S> <C> <C> <C>
Federal $(48,000) $(48,000) $ --
State (2,400) (4,000) 1,600
United Kingdom -- -- --
Change in valuation allowance 52,000 52,000 --
-------- -------- --------
$ 1,600 $ -- $ 1,600
======== ======== ========
</TABLE>
At June 30, 1995, the Company has state net operating loss carryforwards of
approximately $200,000, which begin to expire in 1997. The Company also has
federal research and development credit carryforwards of approximately
$90,000, which expire in 2006 to 2110.
The Company's deferred income tax assets primarily result from its inventory
reserve, the accrual of refunds payable (Note 2) which are deductible when
paid for income tax purposes, and from state net operating loss and federal
research and development credit carryovers. The Company has provided a
valuation allowance of $234,000 against these deferred income tax assets, as
their full realization is uncertain.
The net deferred tax assets resulting from these reporting differences at
June 30, 1995 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Current:
Federal $ 100,000
State 20,000
---------
120,000
---------
Long-term:
Federal 123,000
State 11,000
---------
134,000
---------
Total net deferred tax assets 254,000
Valuation allowance (234,000)
---------
$ 20,000
=========
</TABLE>
-12-
<PAGE> 15
INTERVENTIONAL THERAPEUTICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Convertible Preferred Stock
Convertible preferred stock is convertible into common on a share-for-share
basis, has voting rights equal to common stock, and has a liquidation
priority over common equal to the issuance price of the shares plus any
declared but unpaid dividends (none at June 30, 1995).
7. Stock Option Plan
In January 1991, the Company established a stock option plan (the Plan) for
the issuance of incentive or nonstatutory stock options to directors,
employees and non-employee consultants for the purchase of the Company's
common stock. Under the terms of the Plan, the Company may issue a maximum of
314,750 shares of common stock. Options are granted at the discretion of the
Board of Directors.
The Plan allows for the purchase of the Company's common stock at prices not
less than 100% of estimated fair market value (as determined by the Company's
Board of Directors) on the date of the grant, or 110% of the estimated fair
market value on the date of the grant, if the option holder possesses more
than 10% of the total combined voting power of all classes of stock. The
Company has a right of first refusal to acquire shares obtained by the
exercise of stock options at a price equal to or greater than the price being
offered for such shares by a third party.
Stock options become exercisable over a 48-month period from the date of
grant. No vesting occurs until one year of employment or service to the
Company. At that time, 25% of the options are exercisable and the remaining
options are exercisable ratably each month for the remaining 36 months. Stock
options have a maximum term of 10 years from date of grant; 5 years if the
option holder possesses more than 10% of the total combined voting power of
all classes of stock. Outstanding options are exercisable at prices ranging
from $0.10 to $0.20 per share.
Activity under the Plan is as follows:
<TABLE>
<CAPTION>
Options
Available Options
for Grant Outstanding
--------- -----------
<S> <C> <C>
Balances, June 30, 1994 35,582 207,917
Exercised - (27,500)
Canceled 37,500 (37,500)
------ -------
Balances, June 30, 1995 73,082 142,917
====== =======
</TABLE>
-13-
<PAGE> 16
INTERVENTIONAL THERAPEUTICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Stock Option Plan (continued)
Subsequent to October 23, 1995, the Company issued 120,000 options. Options
for 50,000 shares were issued to Company founders to replace an equal number
of expiring options. These options were fully vested and exercisable upon
issuance. Options for 70,000 shares were issued to four Company officers and
a director. These options were to become fully vested and exercisable on June
30, 1996.
All options outstanding on May 23, 1996, the date the Company was acquired by
Target (Note 1), were converted into options to acquire common stock of
Target. Terms of these new options are substantially similar to those of the
previous options.
-14-
