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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 July 4, 1998 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 Incorporation or (I.R.S. Employer
Organization) Identification No.)
6035 Stoneridge Drive, Pleasanton, California 94588
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (925) 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 August 4, 1998 registrant had 20,357,110 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)
July 4, 1998 January 3, 1998
------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 3,077,701 $ 9,469,311
Short-term investments available-for-sale 5,529,514 5,390,663
Receivables 2,623,764 1,302,323
Inventories (Note 3) 5,412,689 3,901,258
Prepaid expenses and other 164,950 270,865
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Total Current Assets 16,808,618 20,334,420
Equipment and leasehold improvements, at cost 12,459,459 8,823,679
Accumulated depreciation and amortization (2,474,156) (2,154,105)
------------ ------------
Equipment and leasehold improvements - net 9,985,303 6,669,574
Other Assets 1,500,534 1,473,180
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TOTAL ASSETS $ 28,294,455 $ 28,477,174
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 3,753,149 $ 2,804,400
Accrued compensation 989,546 929,920
Product sales advances 300,953 255,199
Other 387,177 460,378
------------ ------------
Total Current Liabilities 5,430,825 4,449,897
Commitments
Shareholders' Equity:
Common shares, 100,000,000 authorized;
issued and outstanding 20,327,395 in 1998
and 20,172,445 in 1997 72,730,589 72,664,107
Paid-in capital 2,482,229 2,482,229
Accumulated deficit (52,325,862) (51,081,554)
Other comprehensive loss:
Unrealized loss on investments - net (702) (7,539)
Cumulative translation adjustments (22,624) (29,966)
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Total other comprehensive loss (23,326) (37,505)
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Total Shareholders' Equity 22,863,630 24,027,277
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 28,294,455 $ 28,477,174
============ ============
See notes to condensed consolidated financial statements
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THORATEC LABORATORIES CORPORATION AND SUBSIDIARY CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
----------------------------------- -----------------------------------
July 4, June 28, July 4, June 28,
1998 1997 1998 1997
------------ ------------ ------------ ------------
Revenue:
Product sales - net $ 4,208,396 $ 2,832,697 $ 7,711,460 $ 4,674,377
Interest and other income 195,568 186,972 395,413 390,491
------------ ------------ ------------ ------------
Total revenue 4,403,964 3,019,669 8,106,873 5,064,868
------------ ------------ ------------ ------------
Costs and expenses:
Costs of products sold 1,621,111 1,237,450 2,977,703 2,075,247
Research and development 1,265,434 1,091,652 2,485,494 2,313,788
Selling, general and administrative 2,087,517 1,520,323 3,887,984 2,834,743
------------ ------------ ------------ ------------
Total costs and expenses 4,974,062 3,849,425 9,351,181 7,223,778
------------ ------------ ------------ ------------
Net loss $ (570,098) $ (829,756) $ (1,244,308) $ (2,158,910)
============ ============ ============ ============
Basic and diluted loss per share
(Note 5) $ (0.03) $ (0.05) $ (0.06) $ (0.12)
============ ============ ============ ============
Shares used to compute basic and
diluted loss per share 20,322,322 18,016,473 20,303,778 17,992,435
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
-----------------------------------
July 4, 1998 June 28, 1997
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Cash flows from operating activities:
Net loss $ (1,244,308) $ (2,158,910)
Adjustments to reconcile net loss to net cash
used in operating activities:
Common stock options granted for services 9,592
Depreciation and amortization 320,051 101,093
Changes in assets and liabilities:
Receivables (1,321,441) (586,134)
Prepaid expenses and other 105,915 181,596
Inventories (1,511,431) 109,442
Other Assets (27,354) (16,494)
Accounts payable and other liabilities 419,204 (160,386)
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Net cash used in operating activities (3,259,364) (2,520,201)
------------ ------------
Cash flows from investing activities:
Purchases of short-term investments
available-for-sale (8,148,285) (37,207,536)
Maturities of short-term investments
available-for-sale 7,875,000 36,295,000
Sales of short-term investments available-for-sale 141,271 5,321,630
Capital expenditures (3,066,714) (1,383,182)
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Net cash provided by (used in) investing
activities (3,198,728) 3,025,912
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Cash flows from financing activities:
Common stock issued upon exercise of options 66,482 62,273
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Net cash provided by financing activities 66,482 62,273
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Net increase (decrease) in cash and cash equivalents (6,391,610) 567,984
Cash and cash equivalents at beginning of period 9,469,311 5,348,000
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Cash and cash equivalents at end of period $ 3,077,701 $ 5,915,984
============ ============
Noncash Financing Transaction:
Construction costs and capital assets in
accounts payable $ 1,811,661 $ 1,520,180
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
July 4, 1998 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 January 3, 1998, 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 January 3, 1998, 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.
Certain reclassifications have been made to the 1997 amounts to conform
to the 1998 presentation.
2. RECENTLY ISSUED ACCOUNTING STANDARD
During June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" (SFAS 131), which
establishes annual and interim standards for an enterprise's operating
segments and related disclosures about it's products, services,
geographic areas, and major customers. Adoption of this Statement 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 Statement is effective for fiscal years
beginning after December 15, 1997, with earlier application permitted.
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3. INVENTORIES
Inventories consist of the following:
July 4, 1998 January 3, 1998
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Finished goods $ 2,534,709 $ 1,652,312
Work in process 1,725,882 803,606
Raw materials 1,152,098 1,445,340
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Total $ 5,412,689 $ 3,901,258
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4. COMPREHENSIVE LOSS
Effective January 4, 1998, Thoratec Laboratories Corporation adopted
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income." This Statement requires that all items recognized
under accounting standards as components of comprehensive earnings be
reported in an annual financial statement that is displayed with the
same prominence as other annual financial statements. This statement
also requires that an entity classify items of other comprehensive
earnings by their nature in an annual financial statement. For example,
other comprehensive earnings may include foreign currency translation
adjustments, unrealized gains and losses on marketable securities
classified as available-for-sale and minimum pension liability
adjustments. Annual financial statements for prior periods will be
reclassified, as required. The Company's total comprehensive loss is as
follows:
Three Months Ended Six Months Ended
--------------------------------- ---------------------------------
July 4, June 28, July 4, June 28,
1998 1997 1998 1997
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Net loss $ (570,098) $ (829,756) $(1,244,308) $(2,158,910)
Other net comprehensive income:
Unrealized gain (loss) on securities 335 (1,801) 6,837 (5,289)
Foreign currency translation adjustments (16,398) 501 7,342 (21,288)
----------- ----------- ----------- -----------
Other comprehensive income (loss) (16,063) (1,300) 14,179 (26,577)
----------- ----------- ----------- -----------
Comprehensive loss $ (586,161) $ (831,056) $(1,230,129) $(2,185,487)
=========== =========== =========== ===========
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5. EARNINGS PER SHARE
The Company calculates basic earnings per share (EPS) and diluted EPS in
accordance with Statement of Financial Accounting Standards No. 128,
"Earnings per Share" (SFAS 128). Basic EPS is computed by dividing net
income (loss) for the period by the weighted average number of common
shares outstanding for that period. Diluted EPS takes into account the
effect of dilutive instruments, such as stock options, and uses the
average share price for the period in determining the number of
incremental shares that are to be added to the weighted average number
of shares outstanding. Diluted EPS for the three months ended and six
months ended July 4, 1998 and the three months and six months ended June
28, 1997 exclude any effect of such instruments because their inclusion
would be antidilutive.
The following is a summary of the calculation of the number of shares
used in calculating basic and diluted EPS:
Three Months Ended Six Months Ended
---------------------------------- ----------------------------------
July 4, June 28, July 4, June 28,
1998 1997 1998 1997
-------------- -------------- -------------- --------------
Shares used to compute
basic EPS 20,322,322 18,016,473 20,303,778 17,992,435
Add: effect of dilutive
securities -- -- -- --
-------------- -------------- -------------- --------------
Shares used to compute
diluted EPS 20,322,322 18,016,473 20,303,778 17,992,435
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
Liquidity and Capital Resources
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At the end of the second quarter of 1998 the Company had working capital of
$11,378,000 compared with $15,885,000 at the end of 1997. The decrease in
working capital was due to a decrease in cash and an increase in accounts
payable partially offset by increases in receivables and inventories. Cash was
used to support ongoing operations as well as planned expenditures on the
Company's new manufacturing facility. Receivables increased principally due to
higher sales in June compared to December. Inventories increased in preparation
for planned increases in sales activity including the planned introduction of
the Company's portable VAD driver, the TLC-II. Accounts payable increased due to
timing of construction payment related to the new manufacturing facility,
capital assets and other operating items.
While the Company believes it has sufficient funds for its current business plan
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 of new product lines. 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
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Fiscal Quarters Ended July 4, 1998 and June 28, 1997
Product sales in the second quarter of 1998 were approximately $4,208,000
compared to $2,832,000 in the second quarter of 1997. The $1,376,000, or 49%,
increase is principally the result of increased sales of the Company's VAD
System in the United States and Europe. The increase is due to increases in the
number of domestic and European centers using the VAD System since direct sales
and marketing efforts were initiated in early 1996 and mid-1997, respectively,
as well as increases in the average selling price of the VAD System
internationally. Included in product sales is rental income in the second
quarter of 1998 of approximately $342,000 compared to $125,000 in the second
quarter of 1997. The $217,000, or 174%, increase is principally due to new and
existing centers renting drivers rather than purchasing the equipment. Interest
and other income in the second quarter of 1998 were relatively unchanged when
compared to the second quarter of 1997. Cost of sales increased $384,000, or
31%, in 1998 as a result of higher sales in 1998. Gross margin increased from
56% in 1997 to 61% in 1998 due to changes in sales mix with increased unit sales
of VAD pumps worldwide and higher average selling prices for the VAD System
internationally. Research and development expenses for the second quarter of
1998 increased $174,000, or 16%, compared to the second quarter of 1997 due
principally to increased expenses associated with the new facility. Selling,
general and administrative expenses in the second quarter of 1998 increased
$567,000, or 37%, compared to the second quarter of 1997. Selling expenses
increased due to growth of sales and marketing personnel, including costs of
direct sales in Europe, and marketing costs associated with new product
introductions. General and administrative expenses increased due to increased
costs of the new Pleasanton facility and strategic planning projects.
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Six Months Ended July 4, 1998 and June 28, 1997
Product sales in the first six months of 1998 were approximately $7,711,000
compared to $4,674,000 in the first six months of 1997. The $3,037,000, or 65%,
increase is principally the result of increased sales of the Company's VAD
System in the United States and Europe. The increase is due to increases in the
number of domestic and European centers using the VAD system, as well as
increases in the average selling price of the VAD System. Included in product
sales is rental income in the first six months of 1998 of approximately $617,000
compared to $238,000 in the first six months of 1997. The $379,000, or 159%,
increase is principally due to new and existing centers renting drivers rather
than purchasing the equipment. Interest and other income in the first six months
of 1998 increased slightly to $395,000 from $390,000 from a government research
grant partially offset by lower interest income on overall lower cash balances
from operating uses and capital expenditures. Cost of sales increased $902,000,
or 43%, in 1998 as a result of higher sales in 1998. Gross margin increased from
56% in 1997 to 61% in 1998 due to changes in sales mix with increased unit sales
of VAD pumps and higher average selling prices for the VAD System. Research and
development expenses for the first six months of 1998 increased $172,000, or 7%,
compared to the first six months of 1997 due to increased outside services with
spending increases for ongoing support for products and increased overhead
expenses from the new facility. Selling, general and administrative expenses in
the first six months of 1998 increased $1,053,000, or 37%, compared to the first
six months of 1997. Selling expenses increased due to marketing efforts
associated with new product introductions and growth of sales and marketing
personnel, including costs of implementing a direct sales strategy in Europe.
General and administrative expenses increased due to costs of the new Pleasanton
facility and strategic planning projects.
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 annual report on Form 10-K for
the fiscal year ended January 3, 1998, and the Company's other filings with the
Securities and Exchange Commission. Actual results, events or performance may
differ materially. These forward-looking statements 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 18, 1998. The following item
was voted upon and approved at the meeting:
1. To elect directors to serve for the ensuing year and until their
successors are elected.
Number of Votes
------------------------------
For Withheld
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Christy W. Bell 15,303,101 12,785
Howard E. Chase 14,837,643 478,243
J. Daniel Cole 14,839,043 476,843
D. Keith Grossman 15,302,834 13,052
J. Donald Hill 15,303,101 12,785
William M. Hitchcock 15,303,101 12,785
George W. Holbrook, Jr 15,303,101 12,785
Daniel M. Mulvena 15,303,101 12,785
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PART III. 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
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: August 5, 1998 /s/ D. Keith Grossman
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D. Keith Grossman, Chief Executive Officer
Date: August 5, 1998 /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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27 Financial Data Schedule
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