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