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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 September 27,
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
- --------------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
California 94-2340464
- -------------------------------------- -------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
6035 Stoneridge Drive,
Pleasanton, California 94588
- -------------------------------------- -------------
(Address of Principal (Zip Code)
Executive Offices)
Registrant's telephone number, including area code: (510) 847-8600
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 ---------
As of November 10, 1997, registrant had 20,162,365 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)
September 27, December 28,
1997 1996
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ASSETS
Current Assets:
Cash and cash equivalents $ 4,086,516 $ 5,348,000
Short-term investments available for sale 5,310,654 10,631,990
Receivables 1,454,635 833,700
Inventories (Note 3) 3,188,576 2,826,220
Prepaid expenses and other 235,594 266,519
------------ ------------
Total current assets 14,275,975 19,906,429
Equipment and leasehold improvements, at cost 3,028,687 2,509,099
Construction in progress 3,069,139 534,089
Accumulated depreciation and amortization (2,061,072) (1,908,667)
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Equipment and leasehold improvements - net 4,036,754 1,134,521
Other Assets 1,450,509 929,495
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TOTAL ASSETS $ 19,763,238 $ 21,970,445
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,125,766 $ 1,352,732
Accrued compensation 834,815 527,497
Product sales advances 258,885 267,128
Other 321,829 493,198
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Total current liabilites 3,541,295 2,640,555
Commitments
Shareholders' Equity:
Common shares, 100,000,000 authorized; issued and
outstanding 18,153,721 in 1997 and 17,942,117 in 1996 63,818,627 63,519,139
Paid-in capital 2,481,849 2,471,877
Accumulated deficit (50,069,403) (46,679,195)
Unrealized gain on investments - net 186 5,651
Cumulative translation adjustment (9,316) 12,418
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Total shareholders' equity 16,221,943 19,329,890
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 19,763,238 $ 21,970,445
============ ============
See notes to condensed consolidated financial statements.
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THORATEC LABORATORIES CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Nine Months
Ended Ended
---------------------------- ----------------------------
September 27, September 28, September 27, September 28,
1997 1996 1997 1996
------------ ------------ ------------ ------------
Revenue:
Product sales - net $ 2,159,034 $ 2,002,117 $ 6,833,411 $ 5,491,356
Interest and other income 163,146 252,209 553,637 329,739
------------ ------------ ------------ ------------
Total revenue 2,322,180 2,254,626 7,387,048 5,821,095
Costs and expenses:
Costs of products sold 874,876 747,229 2,950,123 2,387,049
Research and development 1,141,615 1,022,571 3,455,403 2,494,096
Selling, general and
administrative 1,536,987 1,157,053 4,371,730 2,689,279
Debt conversion expense 378,295
Interest expense 45,811
------------ ------------ ------------ ------------
Total costs and expenses 3,553,478 2,926,853 10,777,256 7,994,530
------------ ------------ ------------ ------------
Net loss $ (1,231,298) $ (672,227) $ (3,390,208) $ (2,173,435)
============ ============ ============ ============
Net loss per common share $ (.07) $ (.04) $ (.19) $ (.13)
============ ============ ============ ============
Weighted average number of
Common shares outstanding 18,097,725 17,874,666 18,027,534 16,279,521
See notes to condensed consolidated financial statements.
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THORATEC LABORATORIES CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
----------------------------
September 27, September 28,
1997 1996
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Cash flows from operating activities:
Net loss $ (3,390,208) $ (2,173,435)
Adjustments to reconcile net loss to net cash used in
operating activities:
Debt conversion 378,295
Common stock options granted for services 9,972 62,212
Depreciation and amortization 167,862 93,918
Changes in assets and liabilities:
Receivables (620,935) (609,605)
Prepaid expenses and other 30,925 14,995
Inventories (362,356) (959,965)
Other assets (551,783) (796,758)
Accounts payable and other liabilities 420,163 971,919
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Net cash used in operating activities (4,296,360) (3,018,424)
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Cash flows from investing activities:
Purchases of short-term investments available for sale (66,211,706) (47,323,236)
Maturities of short-term investments available for sale 64,760,000 25,515,000
Sales of short-term investments available for sale 6,767,577 10,856,073
Capital expenditures (2,580,143) (241,895)
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Net cash provided by (used in) investing activities 2,735,728 (11,194,058)
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Cash flows from financing activities:
Common stock issued in public placement - net 17,591,204
Common stock issued upon exercise of warrants 961,739
Common stock issued upon exercise of options 299,148 166,368
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Net cash provided by financing activities 299,148 18,719,311
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Net increase (decrease) in cash and cash equivalents (1,261,484) 4,506,829
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 $ 4,086,516 $ 6,152,352
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Noncash Financing Transactions:
Conversion of notes into common stock $ $ 1,675,000
Noncash Investing Transactions:
Construction costs in accounts payable $ 767,001 $
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
September 27, 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 auditors. 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 (FASB)
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.
During June 1997, the FASB issued Statements of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income," which requires
that an enterprise report the change in its net
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assets from nonowner sources by major components and as a single
total. The FASB also issued Statements of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information," which establishes annual and interim standards
for an enterprise's operating segments and related disclosures about
its products, services, geographic areas, and major customers.
Adoption of these Statements will not impact the Company's
consolidated financial position, results of operations or cash flows,
and any effect will be limited to the form and content of its
disclosures. Such Statements are effective for fiscal years beginning
after December 15, 1997, with earlier application permitted.
3. INVENTORIES
Inventories consist of the following:
September 27, December 28,
1997 1996
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Finished goods $1,409,095 $1,639,444
Work in process 790,290 648,622
Raw materials 989,191 538,154
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Total $3,188,576 $2,826,220
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4. SUBSEQUENT EVENTS
In October 1997, the Company executed an agreement with Arrow
International, Inc. ("Arrow") to supply mechanical valves for the VAD
System for a four-year term.
On November 10, 1997, subsequent to the end of the nine-month interim
period the Company sold, through a registered direct public offering,
3,000,000 shares of common stock at $5.00 per share, including
1,000,000 shares from a selling shareholder. Net cash proceeds
received by the Company were approximately $8,900,000. Agent
commissions and approximately $450,000 of other estimated expenses
will be recorded as an offset to common stock at the closing of the
offering.
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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 third quarter of 1997 the Company had working capital of
$10,735,000 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 September compared to
December. Prepaid expenses and other decreased primarily from amortization of
insurance premiums partially offset by increased prepaid rent. Other assets
increased primarily due to additional deposits related to the new building
lease. Accounts payable and accrued liabilities increased as a result of
higher balances from capital asset construction, research and development
consulting and other normal operating items.
On November 10, 1997, subsequent to the end of the nine-month interim period
the Company sold, through a registered direct public offering, 3,000,000 shares
of common stock at $5.00 per share, including 1,000,000 shares from a selling
shareholder. Net cash proceeds received by the Company were approximately
$8,900,000. Agent commissions and approximately $450,000 of other estimated
expenses will be recorded as an offset to common stock at the closing of the
offering. While the Company believes that with the proceeds of this offering
and cash, cash equivalents and short-term investments of $9,400,000 at
September 27, 1997 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 next 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 September 27, 1997 and September 28, 1996
Product sales in the third quarter of 1997 were approximately $2,159,000
compared to $2,002,000 in the third quarter of 1996. The $157,000, or 8%,
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 $125,000 in the third quarter of 1997 compared to the
third quarter of 1996. 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. Accordingly, the distribution agreement between the Company and this
distributor was terminated effective July 1997. 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 third quarter
of 1997 was approximately $82,000 compared to $113,000 in the third quarter of
1996. Interest and other income decreased approximately $89,000 to $163,000
due principally to lower
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cash balances from operating uses and capital expenditures. Cost of sales in
1997 increased $128,000, or 17%, as a result of higher sales volume and costs
incurred to expand the Company's manufacturing capabilities. Gross margins
decreased from 63% in 1996 to 59% in 1997 due in large part to costs incurred
to expand the Company's manufacturing capabilities partially offset by higher
average unit selling prices for the VAD pumps and cannulae. Research and
development expenses for the third quarter of 1997 increased $119,000, or 12%,
compared to the third 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 third quarter of
1997 increased $380,000, or 33%, compared to the third quarter of 1996, due to
expanded domestic and international marketing and sales efforts, including
costs associated with going direct in Europe and general support needed for
expected growth, including increased personnel. This was partially offset by
decreases in general corporate and patent legal expenses.
Nine Months Ended September 27, 1997 and September 28, 1996
Product sales in the first nine months of 1997 were approximately $6,833,000
compared to $5,491,000 in the first nine months of 1996. The $1,342,000, or
24%, 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 $717,000 in the first nine months of
1997 compared to the first nine months of 1996. 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. Accordingly, the distribution agreement between the
Company and this distributor was terminated effective July 1997. 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 nine
months of 1997 was approximately $321,000 compared to $119,000 in the first
nine months of 1996. Interest and other income increased approximately
$224,000 to $554,000 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 $563,000, or 24%, as a result of higher sales
volume. Gross margins overall have not changed significantly from 1996 to
1997. Increased average selling prices of many of the Company's products
contributed to higher margins. However, offsetting this increase was higher
volume sales in 1997 of lower margin drivers and increased costs in 1997 to
expand the Company's manufacturing capabilities. Research and development
expenses for the first nine months of 1997 increased $961,000, or 39%, compared
to the first nine 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 nine
months of 1997 increased $1,682,000, or 63%, compared to the first nine months
of 1996, due to expanded domestic and international marketing and sales
efforts, including costs associated with going direct in Europe, 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 nine 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
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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 prospectus dated November 5, 1997 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 6. EXHIBITS AND REPORTS ON FORM 8-K
(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
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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: November 11, 1997 /s/ D. Keith Grossman
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D. Keith Grossman, Chief Executive Officer
Date: November 11, 1997 /s/ Cheryl D. Hess
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Cheryl D. Hess, Chief Financial Officer
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EXHIBIT INDEX
Exhibit Number Document
10 Second Amendment to Lease Agreement Originally By
and Between Main Street Associates and Thoratec
Laboratories Corporation Dated as of July 25, 1996
11 Statement Re: Computation of Per-Share Earnings
27 Financial Data Schedule
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