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U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark one)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended June 28, 1997 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ________________ to
________________
COMMISSION FILE NUMBER: 1-8145
THORATEC LABORATORIES CORPORATION
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(Exact Name of Small Business Issuer as Specified in Its Charter)
California 94-2340464
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
2023 Eighth Street, Berkeley, California 94710
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (510) 841-1213
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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As of July 28, 1997, registrant had 18,044,526 shares of common
stock outstanding.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THORATEC LABORATORIES CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 28, December 28,
1997 1996
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ASSETS
Current Assets:
Cash and cash equivalents $ 5,915,984 $ 5,348,000
Short-term investments available-for-sale 6,217,607 10,631,990
Receivables 1,419,834 833,700
Inventories (Note 3) 2,716,778 2,826,220
Prepaid expenses and other 84,923 266,519
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Total current assets 16,355,126 19,906,429
Equipment and leasehold improvements, at cost 2,735,555 2,509,099
Construction in progress 2,921,983 534,089
Accumulated depreciation and amortization (2,000,922) (1,908,667)
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Equipment and leasehold improvements - net 3,656,616 1,134,521
Other Assets 939,739 929,495
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TOTAL ASSETS $ 20,951,481 $ 21,970,445
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,552,553 $ 1,352,732
Accrued compensation 684,453 527,497
Product sales advances 268,393 267,128
Other 229,814 493,198
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Total current liabilities 3,735,213 2,640,555
Commitments (Note 4)
Shareholders' Equity:
Common shares, 100,000,000 authorized; issued and
outstanding 18,043,236 in 1997 and 17,942,117 in 1996 63,581,412 63,519,139
Paid-in capital 2,481,469 2,471,877
Accumulated deficit (48,838,105) (46,679,195)
Unrealized gain on investments - net 362 5,651
Cumulative translation adjustment (8,870) 12,418
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Total shareholders' equity 17,216,268 19,329,890
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 20,951,481 $ 21,970,445
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See notes to condensed consolidated financial statements.
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THORATEC LABORATORIES CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Six Months
Ended Ended
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June 28, June 29, June 28, June 29,
1997 1996 1997 1996
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Revenue: $ 2,707,977 $ 2,162,790 $ 4,436,057 $ 3,464,439
Product sales - net 124,720 24,800 238,320 24,800
Rental income 186,972 38,609 390,491 77,230
Interest and other income
------------ ------------ ------------ ------------
Total revenue 3,019,669 2,226,199 5,064,868 3,566,469
------------ ------------ ------------ ------------
Costs and expenses:
Costs of products sold 1,237,450 817,921 2,075,247 1,639,820
Research and development 1,091,652 865,938 2,313,788 1,471,525
Selling, general and administrative 1,520,323 799,171 2,834,743 1,532,226
Debt conversion expense 378,295
Interest expense 45,811
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Total costs and expenses 3,849,425 2,483,030 7,223,778 5,067,677
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Net loss $ (829,756) $ (256,831) $ (2,158,910) $ (1,501,208)
============ ============ ============ ============
Net loss per common share $ (.05) $ (.02) $ (.12) $ (.10)
============ ============ ============ ============
Weighted average number of
common shares outstanding 18,016,473 15,837,512 17,992,435 15,481,950
See notes to condensed consolidated financial statements.
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THORATEC LABORATORIES CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
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June 28, 1997 June 29, 1996
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Cash flows from operating activities:
Net loss $ (2,158,910) $ (1,501,208)
Adjustments to reconcile net loss to net cash used in
operating activities:
Debt conversion expense 378,295
Common stock options granted for services 9,592 59,980
Depreciation and amortization 101,093 62,003
Changes in assets and liabilities:
Receivables (586,134) (633,253)
Prepaid expenses and other 181,596 192,844
Inventories 109,442 (299,260)
Other assets (16,494) 1,372
Accounts payable and other liabilities (160,386) 325,264
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Net cash used in operating activities (2,520,201) (1,413,963)
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Cash flows from investing activities:
Purchases of short-term investments available-for-sale (37,207,536)
Maturities of short-term investments available-for-sale 36,295,000
Sales of short-term investments available-for-sale 5,321,630
Capital expenditures (1,383,182) (108,693)
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Net cash provided by (used in) investing activities 3,025,912 (108,693)
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Cash flows from financing activities:
Common stock issued upon exercise of warrants 961,739
Common stock issued upon exercise of options 62,273 151,551
Deferred financing charges -- net (183,206)
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Net cash provided by financing activities 62,273 930,084
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Net increase (decrease) in cash and cash equivalents 567,984 (592,572)
Cash and cash equivalents at beginning of period 5,348,000 1,645,523
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Cash and cash equivalents at end of period $ 5,915,984 $ 1,052,951
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Noncash Financing Transactions:
Conversion of long-term debt into common stock $ $ 1,675,000
Noncash Investing Transactions:
Construction costs in accounts payable $ 1,520,180 $
Other Cash Flow Information:
Interest paid $ $ 45,811
See notes to condensed consolidated financial statements.
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THORATEC LABORATORIES CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The interim consolidated financial statements presented have been prepared
by Thoratec Laboratories Corporation (the Company) without audit and, in the
opinion of management, reflect all adjustments necessary (consisting only of
normal recurring adjustments) to present fairly the financial position,
results of operations and cash flows at June 28, 1997 and for all periods
presented. The results of operations for any interim period are not
necessarily indicative of results for a full year.
The consolidated balance sheet presented as of December 28, 1996, has been
derived from the consolidated financial statements that have been audited by
the Company's independent public accountants. The consolidated financial
statements and notes are presented as permitted by the Securities and
Exchange Commission and do not contain certain information included in the
annual consolidated financial statements and notes of the Company. It is
suggested that the accompanying condensed consolidated financial statements
be read in conjunction with the audited consolidated financial statements
and the notes thereto contained in the Company's Annual Report on Form 10-K
for the fiscal year ended December 28, 1996, filed with the Securities and
Exchange Commission.
The preparation of the Company's consolidated financial statements in
conformity with generally accepted accounting principles necessarily
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 consolidated balance sheet dates and the
reported amounts of revenues and expenses for the periods presented.
2. RECENTLY ISSUED ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128).
The Company is required to adopt SFAS 128 in the fourth quarter of fiscal
1997 and will restate at that time earnings per share (EPS) data for prior
periods to conform with SFAS 128. Earlier application is not permitted.
SFAS 128 replaces current EPS reporting requirements and requires a dual
presentation of basic and diluted EPS. Basic EPS excludes dilution and is
computed by dividing net income available to common shareholders by the
weighted average number of common shares outstanding during the period.
Diluted EPS reflects the potential dilution that could occur if securities
or other contracts to issue common stock were exercised or converted into
common stock.
If SFAS 128 had been in effect during the current and prior periods, basic
EPS and diluted EPS would not have been significantly different than primary
EPS and fully diluted EPS currently reported for the periods. Fully diluted
EPS, as with diluted EPS, is not reported due to its antidilutive effect on
EPS.
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3. INVENTORIES
Inventories consist of the following:
June 28, December 28,
1997 1996
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Finished goods $1,503,796 $1,639,444
Work in process 577,807 648,622
Raw materials 635,175 538,154
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Total $2,716,778 $2,826,220
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4. COMMITMENTS
In February 1997, the Company notified its largest European VAD products
distributor that it intended to expand its marketing efforts in Europe and
begin distributing its VAD products directly to hospitals and therefore
would be terminating the distribution agreement with the distributor
effective July 1997. According to the distribution agreement, the Company or
its appointed successor distributor will purchase equipment and inventory
meeting certain requirements and specifications held by the distributor as
of the termination date. The Company estimates that approximately $340,000
of goods may be subject to repurchase by the Company. The estimated income
statement impact of this distributor agreement termination has been accrued
as of June 28, 1997.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
Liquidity and Capital Resources
At the end of the second quarter of 1997 the Company had working capital of
$12,620,000 compared with $17,266,000 at the end of 1996. The decrease in
working capital was due primarily to planned expenditures related to the
construction of the Company's new manufacturing facility. In addition, ongoing
operations contributed to the decrease in working capital. Receivables increased
principally as a result of higher sales in June compared to December. Prepaid
expenses and other decreased primarily from amortization of insurance premiums.
Other operating assets and liabilities did not fluctuate significantly from the
end of the year.
While the Company believes it has sufficient funds for its current business plan
for at least the next twelve months it expects that its operating expenses will
increase in future periods as the Company expends increased amounts on product
manufacturing and marketing and on research and development. As a result, the
Company expects to incur net losses for at least the current year. There can be
no assurance that the Company will achieve profitability or positive cash flow.
The Company does not expect that inflation will have a material impact on its
operations.
Results of Operations
Fiscal Quarters Ended June 28, 1997 and June 29, 1996
Product sales in the second quarter of 1997 were approximately $2,708,000
compared to $2,163,000 in the second quarter of 1996. The $545,000, or 25%,
increase is primarily the result of increased sales of the Company's VAD System
in the United States, the establishment of a domestic sales and marketing
organization in 1996, and an increase in the number of hospitals using the
Company's VAD System. Partially offsetting this increase is a decrease in
European VAD sales of $374,000 in the second quarter of 1997 compared to the
second quarter of 1996 as a result of the Company's largest European VAD
products distributor reducing its orders in preparation for the termination of
the distribution agreement with the Company effective July 1997. In February
1997, the Company notified this distributor that it intended to expand its
marketing efforts in Europe and begin distributing its VAD products directly to
hospitals. In June 1996, the Company implemented a rental program whereby
hospitals can rent certain of the Company's products on a short-term basis.
Rental income in the second quarter of 1997 was approximately $125,000 compared
to $25,000 in the second quarter of 1996. Interest and other income increased
approximately $148,000 to $187,000 due to higher cash balances, primarily as a
result of proceeds received from the Company's public stock offering in July
1996. Cost of sales in 1997 increased $420,000, or 51%, as a result of higher
sales volume partially offset by reduced expenditures incurred to upgrade
existing investigational center equipment. Gross margins decreased from 63% in
1996 to 56% in 1997 due in large part to the mix of products sold, there being
proportionately more drivers sold in the second quarter of 1997 than in the
second quarter of 1996. Research and development expenses for the second quarter
of 1997 increased $226,000, or 26%, compared to the second quarter of 1996 due
to increased costs associated with the development of the Company's portable VAD
driver, the TLC-II, and its graft products. Selling, general and administrative
expenses in the second quarter of 1997 increased $721,000, or 90%, compared to
the second quarter of 1996, due to expanded domestic and international marketing
and sales efforts, including costs associated with going direct in Europe,
general
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corporate and legal expenses, investor relations, and general support needed for
expected growth, including increased personnel.
Six Months Ended June 28, 1997 and June 29, 1996
Product sales in the first six months of 1997 were approximately $4,436,000
compared to $3,464,000 in the first six months of 1996. The $972,000, or 28%,
increase is primarily the result of increased sales of the Company's VAD System
in the United States, the establishment of a domestic sales and marketing
organization in 1996, and an increase in the number of hospitals using the
Company's VAD System. Partially offsetting this increase is a decrease in
European VAD product sales of $593,000 in the first six months of 1997 compared
to the first six months of 1996 as a result of the Company's largest European
VAD products distributor reducing its orders in preparation for the termination
of the distribution agreement with the Company effective July 1997. In February
1997, the Company notified this distributor that it intended to expand its
marketing efforts in Europe and begin distributing its VAD products directly to
hospitals. In June 1996, the Company implemented a rental program whereby
hospitals can rent certain of the Company's products on a short-term basis.
Rental income in the first six months of 1997 was approximately $238,000
compared to $25,000 in the first six months of 1996. Interest and other income
increased approximately $313,000 to $390,000 due to higher cash balances,
primarily as a result of proceeds received from the Company's public stock
offering in July 1996. Cost of sales in 1997 increased $435,000, or 27%, as a
result of higher sales volume. Gross margins increased from 53% in 1996 to 56%
in 1997 due to increases in the average selling prices of many of its products
in the second quarter of 1996 partially offset by proportionately more drivers
being sold in 1997 than in 1996. Research and development expenses for the first
six months of 1997 increased $842,000, or 57%, compared to the first six months
of 1996 due to increased costs associated with the development of the Company's
portable VAD driver, the TLC-II, and its graft products. Selling, general and
administrative expenses in the first six months of 1997 increased $1,303,000, or
85%, compared to the first six months of 1996, due to expanded domestic and
international marketing and sales efforts, including costs associated with going
direct in Europe, corporate and legal expenses associated with trademark and
patent submissions as well as general corporate activities, investor relations
and annual report preparation, and general support needed for expected growth,
including increased personnel. There was no debt conversion expense or interest
expense in the first six months of 1997 because all $1,675,000 of convertible
notes issued in 1994 were converted into common stock in the first quarter of
1996.
Forward-Looking Statements
The portions of this report that relate to future plans, events or performance
are forward-looking statements. Investors are cautioned that all such statements
involve risks and uncertainties, including announcements by the Company's
competitors, risks related to the government regulatory approval processes,
delays in facility construction, delays in product development and new product
introductions, rapidly changing technology, an intensely competitive market,
market acceptance of new products, relationships with foreign distributors,
reimbursement policies and general economic conditions. These factors, and
others, are discussed more fully in the Company's Form 10-K for the year ended
December 28, 1996 and the Company's other filings with the Securities and
Exchange Commission. Actual results, events or performance may differ
materially. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The Company
undertakes no obligation to publicly release the result of any revisions to
these forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
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PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
The annual meeting of Shareholders was held on May 16, 1997. The following items
were voted upon and approved at the meeting:
1. To elect directors to serve for the ensuing year and until their
successors are elected.
2. To approve the Thoratec 1997 Stock Option Plan.
3. To approve amendments to the Thoratec 1996 Nonemployee Directors Stock
Option Plan.
Number of Votes
Item #1 For Withheld
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Christy W. Bell 15,412,075 102,240
Howard E. Chase 15,150,777 363,538
D. Keith Grossman 15,412,675 101,640
J. Donald Hill 15,411,650 102,665
William M. Hitchcock 15,412,275 102,040
George W. Holbrook, Jr. 15,412,593 101,722
For Against Abstain Not Voted
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Item #2 11,251,695 1,880,984 13,368 2,368,268
Item #3 14,955,076 226,133 21,776 311,330
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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(a) Exhibits required by Item 601 of Regulation S-K
See Exhibit Index on the page immediately preceding exhibits.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
THORATEC LABORATORIES CORPORATION
Date: 7/30/97 /s/ D. Keith Grossman
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D. Keith Grossman, Chief Executive Officer
Date: 7/30/97 /s/ Cheryl D. Hess
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Cheryl D. Hess, Chief Financial Officer
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EXHIBIT INDEX
Exhibit Number Document
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10.1 First Amendment to Lease Agreement Originally
By and Between Main Street Associates and
Thoratec Laboratories Corporation dated July
25, 1996
10.2(1) Thoratec 1997 Stock Option Plan
10.3 Thoratec 1996 Nonemployee Directors Stock
Option Plan, as amended
11 Statement Re: Computation of Per-Share
Earnings
27 Financial Data Schedule
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(1) Incorporated by reference to Form S-8, filed by the registrant on July 28,
1997.
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