<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q/A
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended March 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
----------------------
0-27880
CARDIOTHORACIC SYSTEMS, INC
---------------------------
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 94-3228757
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
10600 N. TANTAU AVE., CUPERTINO, CA 95014-0739
----------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone, including area code: (408) 342-1700
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 requirements for the past 90 days. Yes X No
----- -----
As of May 1, 1997, there were 13,496,454 shares of the Registrant's Common Stock
outstanding.
Exhibit Index on page: 24
Total number of pages: 26
1
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EXPLANATORY NOTE
On May 13, 1997, CardioThoracic Systems, Inc. (the "Company") filed its
Quarterly Report on Form 10-Q for the quarterly period ended March 28, 1997,
with the Securities and Exchange Commission (the "Commission").
The Company is now filing with the Commission its amended Quarterly
Report on Form 10-Q/A. The sole purpose for filing the amended Quarterly
Report is to correct the erroneous Total Assets figures at March 28, 1997 and
at December 31, 1996, which were set forth in the Company's Quarterly Report
on Form 10-Q. Each of the other figures set forth in the Quarterly Report on
Form 10-Q is correct; the incorrect Total Assets figures were typographical
errors.
The correct Total Assets figure at March 28, 1997 was set forth on
Exhibit 27.1 (Financial Data Schedule) to the Quarterly Report on Form 10-Q.
For ease of reference, this amended Quarterly Report contains all of the
information required to be set forth in a Quarterly Report on Form 10-Q.
<PAGE>
CARDIOTHORACIC SYSTEMS, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
--------
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEETS AS OF
MARCH 28, 1997 AND DECEMBER 31, 1996 3
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 28, 1997 AND
MARCH 31, 1996 4
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 28, 1997 AND
MARCH 31, 1996 5
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9
PART II. OTHER INFORMATION 20
SIGNATURES 23
EXHIBIT INDEX 24
2
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CARDIOTHORACIC SYSTEMS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 28, December 31,
1997 1996
------------- -------------
(unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,058,000 $ 5,184,000
Available-for-sale securities 38,648,000 42,608,000
Trade accounts receivable, net 1,450,000 133,000
Notes receivable from officers 115,000 115,000
Inventories 561,000 220,000
Interest receivable 912,000 946,000
Prepaid expenses and other current assets 268,000 124,000
------------- -------------
Total current assets 47,012,000 49,330,000
Property and equipment, net 2,806,000 2,494,000
Available-for-sale securities 31,339,000 30,665,000
Notes receivable from officers 1,129,000 1,157,000
Other assets 53,000 45,000
------------- -------------
Total assets $ 82,339,000 $ 83,691,000
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Equipment note, current portion $ 140,000 $ 136,000
Accounts payable 1,798,000 831,000
Accrued liabilities 2,712,000 2,343,000
------------- -------------
Total current liabilities 4,650,000 3,310,000
Bank borrowings 1,625,000 425,000
Equipment note, less current portion 666,000 703,000
Stockholders' equity:
Common stock, par value $0.001 13,000 13,000
Additional paid-in capital 103,071,000 102,040,000
Deferred compensation (5,801,000) (5,742,000)
Unrealized gain (loss) on available-for-sale securities (106,000) 17,000
Accumulated deficit (21,779,000) (17,075,000)
------------- -------------
Total stockholders' equity 75,398,000 79,253,000
------------- -------------
Total liabilities and stockholders' equity $ 82,339,000 $ 83,691,000
------------- -------------
------------- -------------
</TABLE>
3
See accompanying notes.
<PAGE>
CARDIOTHORACIC SYSTEMS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Three Months
Ended Ended
March 28, 1997 March 31, 1996
-------------- --------------
Net sales $ 2,112,000
Cost of sales 1,472,000
------------
Gross profit 640,000
------------
Operating expenses:
Research and development 2,051,000 $ 2,631,000
Sales, marketing, general, and administrative 4,309,000 1,082,000
------------ ------------
Total operating expenses 6,360,000 3,713,000
------------ ------------
Loss from operations (5,720,000) (3,713,000)
Interest income, net 1,016,000 39,000
------------ ------------
Net loss $ (4,704,000) $ (3,674,000)
------------ ------------
------------ ------------
Net loss per share $ (0.35) $ (0.39)
------------ ------------
------------ ------------
Shares used in computing
net loss per share 13,358,000 9,383,000
------------ ------------
------------ ------------
4
See accompanying notes.
<PAGE>
CARDIOTHORACIC SYSTEMS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 28, 1997 March 31, 1996
------------------ ------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (4,704,000) $ (3,674,000)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 214,000 7,000
Amortization of notes receivable from officer 28,000
Amortization of deferred compensation 562,000 1,725,000
Changes in operating assets and liabilities:
Trade accounts receivable (1,362,000)
Allowance for bad debts and product returns 45,000
Inventory (341,000)
Interest receivable 34,000
Prepaid expenses and other current assets (144,000) (734,000)
Other assets (8,000) (45,000)
Accounts payable 967,000 745,000
Accrued liabilities 369,000 198,000
------------ ------------
Net cash used in operating activities (4,340,000) (1,778,000)
------------ ------------
INVESTING ACTIVITIES
Purchases of property and equipment (526,000) (184,000)
Purchase of available-for-sale securities (18,873,000)
Proceeds from maturities of available-for-sale securities 22,036,000 2,583,000
------------ ------------
Net cash provided by investing activities 2,637,000 2,399,000
------------ ------------
FINANCING ACTIVITIES
Bank borrowings 1,200,000
Repayment of equipment note (33,000)
Proceeds from issuance of convertible preferred stock 996,000
Proceeds from issuance of common stock 410,000 9,000
------------ ------------
Net cash provided by financing activies 1,577,000 1,005,000
------------ ------------
Net increase (decrease) in cash and cash equivalents (126,000) 1,626,000
Cash and cash equivalents at beginning of period 5,184,000 712,000
------------ ------------
Cash and cash equivalents at end of period $ 5,058,000 $ 2,338,000
------------ ------------
------------ ------------
</TABLE>
5
<PAGE>
CARDIOTHORACIC SYSTEMS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 28, 1997
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited consolidated condensed financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and in accordance with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included.
The operating results of the interim periods presented are not necessarily
indicative of the results for the year ending January 2, 1998 or for any other
interim period. The accompanying financial statements should be read in
conjunction with the audited financial statements and notes thereto for the year
ended December 31, 1996 included in the Company's Form 10-K filed with the
Securities and Exchange Commission.
Note 2. Formation and Business of the Company
CardioThoracic Systems, Inc. (the Company) was incorporated in the state of
California on June 15, 1995 and subsequently acquired all of the intellectual
property assets of its predecessor, Informed Creation, a sole proprietorship,
and expensed the purchase price to research and development as purchased in
process research and development technology. The Company designs, develops,
manufactures and markets surgical products and systems for minimally invasive
cardiothoracic surgery.
Informed Creation (the Sole Proprietorship) designed and developed surgical
products and systems for minimally invasive surgery. The Sole Proprietorship
was formed on November 3, 1993 and from inception until the sale of its
intellectual property devoted substantially all of its efforts to develop its
products and raise capital.
Note 3. Change in Fiscal Year-End
In January 1997, the Company changed its financial reporting year from a
fiscal year of twelve calendar months ending on December 31 to a fiscal year of
52 or 53 weeks ending on the Friday closest to December 31. According, fiscal
year 1997 will end on January 2, 1998.
6
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CARDIOTHORACIC SYSTEMS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
March 28, 1997
(Unaudited)
Note 4. Available-for-Sale Securities
The Company has classified its investments as available-for-sale
securities. Available-for-sale securities are carried at fair value with
unrealized gains and losses, net of tax, reported as a separate component of
stockholders' equity. The amortized cost of available-for-sale debt securities
is adjusted for the amortization of premiums and the accretion of discounts to
maturity. Such amortization is included in interest income. Realized gains and
losses and declines in value judged to be other than temporary on
available-for-sale securities are included in interest income. The cost of
securities sold is based on the specific identification method.
At March 28, 1997, available-for-sale securities consist of the following:
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
----------- ---------- ---------- -----------
U.S. Gov't notes and bonds $16,762,000 $ 12,000 $ (24,000) $16,750,000
Gov't agency notes and bonds 11,764,000 - (29,000) 11,735,000
Corporate notes and bonds 41,567,000 1,000 (66,000) 41,502,000
----------- -------- --------- -----------
$70,093,000 $ 13,000 $(119,000) $69,987,000
----------- -------- --------- -----------
----------- -------- --------- -----------
At December 31, 1996, available-for-sale securities consist of the
following:
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
----------- ---------- ---------- -----------
U.S. Gov't notes and bonds $15,710,000 $ 47,000 $ (3,000) $15,754,000
Gov't agency notes and bonds 12,032,000 1,000 (15,000) 12,018,000
Corporate notes and bonds 45,514,000 - (13,000) 45,501,000
----------- -------- --------- -----------
$73,256,000 $ 48,000 $ (31,000) $73,273,000
----------- -------- --------- -----------
----------- -------- --------- -----------
Available-for-sale securities by contractual maturity at March 28, 1997 are
shown below:
Amortized Estimated
Cost Fair Value
----------- -----------
Less than one year $38,668,000 $38,648,000
Due in one to two years 31,426,000 31,339,000
----------- -----------
$70,094,000 $69,987,000
----------- -----------
----------- -----------
7
<PAGE>
CARDIOTHORACIC SYSTEMS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
March 28, 1997
(Unaudited)
Note 5. Inventories
Inventories consist of the following:
March 28, December 31,
1997 1996
--------- -----------
Raw materials $ 216,000 $ 87,000
Work-in-process 331,000 127,000
Finished goods 14,000 6,000
--------- ---------
$ 561,000 $ 220,000
--------- ---------
--------- ---------
Note 6. Net Loss Per Share
Except as noted below, net loss per share is computed using the weighted
average number of common shares outstanding. Common equivalent shares from
stock options and convertible preferred stock are excluded from the computation
as their effect is antidilutive except that, pursuant to the Securities and
Exchange Commission Staff Accounting Bulletins, common and common equivalent
shares issued during the period beginning twelve months prior to the Company's
April 1996 initial public offering at prices substantially below the initial
public offering price have been included in the calculation as if they were
outstanding for all periods presented prior to the effective date of the
Company's initial public offering (using the treasury stock method at the
initial offering price for stock options and the if-converted method for
convertible preferred stock).
Note 7. Recent Accounting Pronouncements
In March 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 128 (SFAS 128) "Earnings Per Share", and Statement No. 129 (SFAS
129) "Disclosures of Information about Capital Structure". These statements are
expected to be effective for the Company's first quarter in 1998 and will
require a revised presentation of earnings per share. Early adoption of the new
standards is not permitted and apart from the impact on earnings per share, the
impact will not be material to the Company's financial position or results of
operations.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion of the financial condition and results of
operations of CardioThoracic Systems, Inc. ("CTS" or the "Company") should be
read in conjunction with the Financial Statements and the related Notes
thereto included herein. The following Management's Discussion and Analysis
of Financial Condition and Results of Operations contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1993
and Section 21E of the Securities and Exchange Act of 1934. Such forward
looking statements involves risks and uncertainties. The Company's actual
results of operations could differ materially from those anticipated by such
forward-looking statements as a result of certain factors, including those
set forth below and under "Factors Affecting Operating Results".
OVERVIEW
The business of the Company was commenced in November 1993 as a sole
proprietorship, Informed Creation, and to date the business has been engaged
primarily in organizational, research and product development efforts. In June
1995, the business was incorporated and as part of the Company's initial
financing in September 1995 the Company acquired all intellectual property
assets of Informed Creation, the sole proprietorship. In April 1996, the
Company raised approximately $84.2 million through an initial public offering.
Since inception, the Company has been engaged in the development of
instruments and systems designed to allow the majority of cardiothoracic
surgeons, using their existing skills coupled with Company-sponsored training,
to perform Minimally Invasive Direct Coronary Artery Bypass ("MIDCAB") surgery,
a revascularization procedure performed on a beating heart. In December 1996,
the Company held its first Comprehensive Optimal Revascularization (COR)
training program and commenced shipments of the CTS MIDCAB System.
RESULTS OF OPERATIONS
Three months ended March 28, 1997 compared to the three months ended March
30, 1996.
Net sales of $2.1 million in the three months ended March 28, 1997 were the
result of the first full quarter of shipments of the CTS MIDCAB System as well
as a modest amount of training revenue. There were no sales in the three months
ended March 31, 1996.
Cost of sales increased to $1.5 million in the three months ended March 28,
1997 compared to none in the same period last year. This increase is primarily
the result of material costs associated with products sold, a significant
increase in personnel and other cost associated with the commencement of
manufacturing and assembly operations, manufacturing engineering and support
functions, and a materials procurement and handling function.
Research and development expenses for the three months ended March 28, 1997
were $2.1 million compared to $2.6 million for the three months ended March 31,
1996. This decrease was due to a reduction in the charge for amortization of
deferred compensation, offset somewhat by an increase in research and
development staff, patent legal costs, facility costs and increased expenditures
related to the continuing development of the instruments associated with the
ACCESS MV System, Saphenous Vein Harvesting System and valve products. The
Company expects that research and development expenses will increase throughout
1997 as the Company expands its research and development
9
<PAGE>
activities related to the ACCESS MV System, Saphenous Vein Harvesting System,
valve repair and replacement and other research efforts.
Marketing, general and administrative expenses increased to $4.3 million
for the three months ended March 28, 1997 compared to $1.1 million for the three
months ended March 31, 1996. This increase was due primarily to the hiring of
marketing and administrative personnel and consultants, the Company's COR
training programs, promotional efforts to increase market awareness of the
Company and the MIDCAB procedure, German sales and marketing costs, higher
facility costs and establishing the Company's administrative infrastructure.
The Company expects that sales and marketing and administrative expenses will
continue to increase throughout 1997 as the Company builds its sales and
marketing and administrative organizations, develops and sponsors surgeon
training programs, establishes financial and management information and control
systems, and makes expenditures to increase market awareness of the MIDCAB
procedure and the Company's products.
The Company has recorded deferred compensation of $14.0 million for the
difference between the option exercise price or restricted stock purchase price
and the deemed fair value of the Company's Common Stock for options granted and
restricted stock sold in 1995 and early 1996. The deferred compensation is
being amortized to operating expenses over the related vesting period of the
shares (one to four years) and will, therefore, continue to have an adverse
effect on the Company's results of operations. Amortization of deferred
compensation charged to operating expenses in the three months ended March 28,
1997 totaled $562,000 compared to $1.7 million for the same period last year.
Net interest income increased to $1.0 million for the three months ended
March 28, 1997 compared to $39,000 for the three months ended March 31, 1996.
The increase was primarily due to the interest received on higher average cash
balances resulting from the completion of the Company's initial public offering
in April 1996.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed operations primarily from the
sale of equity securities. As of March 28, 1997, the Company had raised
approximately $89.7 million (net of stock issuance costs) from the sale of
equity securities. As of March 28, 1997, cash, cash equivalents and
available-for-sale securities totaled $75.0 million. The Company's cash used in
operations was $4.3 million for the three months ended March 28, 1997,
reflecting expenditures made primarily to increase research and development, to
commence marketing and sales activities, and to support its administrative
infrastructure. The Company also spent $526,000 for the purchases of property
and equipment.
The Company plans to finance its operations principally from existing cash,
cash equivalents and available-for-sale securities and interest thereon, product
revenues and, to the extent available, lines of credit. The Company currently
has an agreement with a bank for a $3.5 million line of credit fully secured by
cash, cash equivalents and available-for-sale securities, of which $1.9 million
is available at March 28, 1997. The Company also has a $2.5 million equipment
loan credit facility available to finance the purchase of certain equipment, of
which $1.7 million is available at March 28, 1997. The Company believes that
its existing cash balances and available-for-sale securities and interest
thereon, credit lines and product revenues will be sufficient to fund its
operations through 1998. The Company's capital requirements, and the
availability of product revenues, depend on numerous factors, including the
progress of the Company's product development programs, the receipt of and the
time required to obtain regulatory clearances or approvals, the resources the
Company devotes to developing, manufacturing and marketing its products, the
extent to which the Company's products
10
<PAGE>
receive market acceptance, and other factors. The Company expects to devote
substantial capital resources to research and development, to hire and develop a
direct sales force in the United States and Germany and to expand manufacturing
capacity and facilities. The timing and amount of such capital requirements
cannot be accurately predicted. Consequently, the Company may be required to
raise additional funds through public or private financing, collaborative
relationships or other arrangements. There can be no assurance that the Company
will not require additional funding or that such additional funding, if needed,
will be available on terms attractive to the Company, or at all, which could
have a material adverse effect on the Company's business, financial condition
and results of operations. Any additional equity financing may be dilutive to
stockholders, and debt financing, if available, may involve restrictive
convenants.
At March 28, 1997, the Company had approximately $8,052,000 million in
federal and in state net operating loss carryforwards, which expire in the years
2011 and 2001, respectively. Utilization of federal income tax carryforwards is
subject to certain limitations under Section 382 of the Internal Revenue Code of
1986. These annual limitations may result in expiration of net operating losses
and research and development credits before they can be fully utilized.
In March 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 128 (SFAS 128) "Earnings Per Share", and Statement No. 129 (SFAS
129) "Disclosures of Information about Capital Structure". These statements are
expected to be effective for the Company's first quarter in 1998 and will
require a revised presentation of earnings per share. Early adoption of the new
standards is not permitted and apart from the impact on earnings per share, the
impact will not be material to the Company's financial position or results of
operations.
FACTORS AFFECTING OPERATING RESULTS
LIMITED OPERATING HISTORY; HISTORY OF LOSSES AND EXPECTATION OF FUTURE
LOSSES. The Company has a limited operating history upon which evaluation of
its prospects can be made. Such prospects must be considered in light of the
substantial risks, expenses and difficulties encountered by entrants into the
medical device industry, which is characterized by an increasing number of
participants, intense competition and a high failure rate. To date, the
Company has engaged primarily in organizational and research and product
development efforts, and a number of the Company's key management and
technical personnel have only recently joined the Company. The Company has
only recently generated revenues and has very limited experience in
manufacturing, marketing or selling the CTS MIDCAB System. The Company has
experienced operating losses since its inception, and, as of March 28, 1997,
the Company had an accumulated deficit of approximately $21.8 million. The
development and commercialization of the Company's products will require
substantial development, regulatory, sales and marketing, manufacturing and
other expenditures. The Company expects its operating losses to continue at
least through 1997 as it continues to expend substantial resources to
continue development of the Company's products, obtain additional regulatory
clearances or approvals, build its marketing, sales, manufacturing and
finance organizations and conduct further research and development. There can
be no assurance that the Company's products will ever gain commercial
acceptance or that the Company will ever generate revenues sufficient to
achieve profitability.
11
<PAGE>
HIGHLY COMPETITIVE MARKET; RISK OF ALTERNATIVE THERAPIES; RISK OF REUSE.
The medical device industry and the market for treatment of cardiovascular
disease, in particular, are characterized by rapidly evolving technology and
intense competition. A number of competitors, including Johnson & Johnson,
Boston Scientific Corporation, Cordis Corporation, Guidant Corporation and
Medtronic, Inc., are currently marketing stents, catheters, lasers, drugs and
other less invasive means of treating cardiovascular disease. Many of these
less invasive treatments, as well as CABG surgery, are widely accepted in the
medical community and have a long history of safe and effective use. Many of
the Company's competitors have substantially greater capital resources, name
recognition and expertise in and resources devoted to research and
development, manufacturing and marketing and obtaining regulatory clearances
or approvals than does the Company. Furthermore, competition in the emerging
market for minimally invasive cardiothoracic surgery is expected to be
intense and to increase. Heartport, Inc., Medtronic, Inc., Research Medical
Inc. and United States Surgical Corp. are marketing or have announced that
they are developing products to be used in minimally invasive coronary
procedures. There can be no assurance that the MIDCAB procedure will replace
any current treatments. Additionally, even if it is widely adopted, there can
be no assurance that the Company's competitors will not succeed in developing
or marketing alternative procedures and technologies or competing devices to
perform the same procedure or therapeutic drugs that are more effective than
the Company's products or that render the Company's products or technologies
obsolete or not competitive. In addition, there can be no assurance that
existing products for other surgical uses will not be used in MIDCAB
procedures. Furthermore, sales of the CTS MIDCAB System could be adversely
affected by reuse of the Company's products, notwithstanding the instructions
in the Company's clinical protocols and product labeling indicating that each
of the components of the CTS MIDCAB System is a single-use device. Such
competition or reuse could have a material adverse effect on the Company's
business, financial condition and results of operations.
UNCERTAINTY OF CLINICAL ADOPTION OF MIDCAB PROCEDURE. The Company's CTS
MIDCAB System is designed to enable the majority of cardiothoracic surgeons,
using their existing skills coupled with Company sponsored training, to perform
the Minimally Invasive Direct Coronary Artery Bypass ("MIDCAB") procedure.
Accordingly, the Company's success is dependent upon acceptance of the MIDCAB
procedure by the medical community as a reliable, safe and cost effective
alternative to existing treatments for revascularizing blocked coronary
arteries. To date, the MIDCAB procedure has only been performed on a limited
basis by a small number of highly skilled cardiothoracic surgeons. Of the
procedures performed to date, the vast majority have been performed on a single
artery, typically the left anterior descending artery ("LAD") or, in
substantially fewer instances, the right coronary artery ("RCA"), and an
extremely limited number have been performed on the circumflex artery. A
significant percentage of coronary artery bypass graft ("CABG") procedures are
performed on multiple vessels. To date, multiple vessel MIDCAB procedures have
only been performed on an extremely limited basis, and there can be no assurance
that the MIDCAB procedure will be effectively utilized for multiple bypasses on
a more frequent basis. The Company is unable to predict how quickly, if at all,
the MIDCAB procedure will be adopted by the medical community or, if it is
adopted, the number of MIDCAB procedures that will be performed. The medical
conditions that can be treated with the MIDCAB procedure can also be treated by
widely accepted surgical procedures such as CABG surgery and catheter-based
treatments, including balloon angioplasty, atherectomy and coronary stenting.
Broad-based clinical adoption of the MIDCAB procedure will not occur until
physicians determine that the procedure is an attractive alternative to current
treatments for coronary artery disease.
The Company believes that physician endorsements will be essential for
clinical adoption of this procedure, and there can be no assurance that any such
endorsements will be obtained in a timely manner, if at all. Clinical adoption
will also depend upon the Company's ability to facilitate training of
cardiothoracic surgeons to perform minimally invasive bypass surgery on a
beating heart, and the willingness of such surgeons to perform such a procedure.
Patient acceptance of the procedure will depend in part upon physician
recommendations as well as other factors, including the degree of
12
<PAGE>
invasiveness, the effectiveness of the procedure and rate and severity of
complications associated with the procedure as compared to other treatments.
Even if the clinical efficacy of the MIDCAB procedure is established, physicians
may elect not to recommend the procedure unless acceptable reimbursement from
health care payors is available. Health care payor acceptance may require
evidence of the cost effectiveness of the MIDCAB procedure as compared to other
currently available treatments. There can be no assurance that the MIDCAB
procedure will gain clinical adoption. Failure of the MIDCAB procedure to
achieve significant clinical adoption would have a material adverse effect on
the Company's business, financial condition and results of operations.
DEPENDENCE ON THE CTS MIDCAB SYSTEM; UNCERTAINTY OF MARKET ACCEPTANCE OF
THE CTS MIDCAB SYSTEM. The CTS MIDCAB System is expected to account for the
great majority of the Company's revenues for the foreseeable future. The
Company has only recently commenced sales of the CTS MIDCAB System, and there
can be no assurance that market acceptance and demand for the CTS MIDCAB System
will be sufficient to allow profitable operations. Failure of the CTS MIDCAB
System to be successfully commercialized would have a material adverse effect on
the Company's business, financial condition and results of operations.
LACK OF REGULATORY APPROVALS. The design, manufacturing, labeling,
distribution and marketing of certain components of the CTS MIDCAB System and
the Saphenous Vein Harvesting System will be subject to extensive and
rigorous government regulation in the United States and certain other
countries where the process of obtaining and maintaining required regulatory
clearance or approvals is lengthy, expensive and uncertain. In order for the
Company to market certain of its products under development in the United
States, the Company must obtain clearance or approval from the United States
Food and Drug Administration ("FDA"). The Company intends to seek clearance
to market additional components of the CTS MIDCAB System through a 510(k)
premarket notification. The Company has been notified by the FDA that it is
exempted from filing a premarket notification for the CTS Access Platform and
the Stabilizer and is allowed to market these products in the United States.
In September 1996 the Company filed 510(k) premarket notifications for
clearance to market additional components of the CTS MIDCAB System and the
bipolar scissors. In January 1997 the Company received clearance from the FDA
to market the bipolar electrosurgical scissors. There can be no assurance
that the FDA will act favorably or quickly on the Company's remaining or
future 510(k) submissions, or that significant difficulties and costs will
not be encountered by the Company in its efforts to obtain FDA clearance or
approval. Any such difficulties could delay or preclude obtaining regulatory
clearance or approval. In addition, there can be no assurance that the FDA
will not impose strict labeling or other requirements as a condition of its
510(k) clearance, any of which could limit the Company's ability to market
its products. Further, if the Company wishes to modify a product after FDA
clearance of a 510(k) premarket notification or approval of a PMA, including
changes in indications or other modifications that could affect safety and
efficacy, additional clearances or approvals will be required from the FDA.
Failure to receive, or delays in receipt of, FDA clearances or approvals,
including delays resulting from an FDA request for clinical trials or
additional data as a prerequisite to clearance or approval, or any FDA
conditions that limit the ability of the Company to market its products under
development, could have a material adverse effect on the Company's business,
financial condition and results of operations.
13
<PAGE>
In order for the Company to market its products in Europe and certain other
international jurisdictions, the Company and its distributors and agents must
obtain required regulatory registrations or approvals and otherwise comply with
extensive regulations regarding safety, efficacy and quality. These regulations,
including the requirements for registrations or approvals and the time required
for regulatory review, vary from country to country. There can be no assurance
that the Company will obtain regulatory registrations or approvals in such
countries or that it will not be required to incur significant costs in
obtaining or maintaining its foreign regulatory registrations or approvals.
Delays in receipt of registrations or approvals to market the Company's
products, failure to receive these registrations or approvals, or future loss of
previously received registrations or approvals could have a material adverse
effect on the Company's business, financial condition and results of operations.
CONTINUING GOVERNMENT REGULATION. Regulatory clearances or approvals, if
granted, may include significant limitations on the indicated uses for which the
products may be marketed. FDA enforcement policy strictly prohibits the
marketing of FDA cleared or approved medical devices for unapproved uses. In
addition, the Company's manufacturing processes will be required to comply with
the Good Manufacturing Practices ("GMP") regulations of the FDA. These
regulations include design, testing, production, control, documentation and
other requirements. Enforcement of GMP regulations has increased significantly
in the last several years, and the FDA has publicly stated that compliance will
be more strictly scrutinized. The Company's facilities and manufacturing
processes, as well as those of any future third-party suppliers, will be subject
to periodic inspection by the FDA, the California Department of Health Services
and other agencies. To date, the Company has only undergone inspection for ISO
9001 certification. Failure to comply with these and other applicable regulatory
requirements could result in, among other things, warning letters, fines,
injunctions, civil penalties, recall or seizure of products, total or partial
suspension of production, refusal of the government to grant premarket clearance
or premarket approval for devices, withdrawal of clearances or approvals and
criminal prosecution, which could have a material adverse effect on the
Company's business, financial condition and results of operations.
DEPENDENCE ON LICENSES, PATENTS AND PROPRIETARY TECHNOLOGY. The
Company's ability to compete effectively will depend in part on its ability
to develop and maintain proprietary aspects of its technology. The Company
owns two issued United States patents. The issued patents do not contain any
claims that protect the Company's products that are currently being marketed
or under development. The Company is the licensee of a United States patent
application for bipolar electrosurgical scissors that are used in the
Saphenous Vein Harvesting System, which is under development. The Company has
filed twenty-three United States patent applications. There can be no
assurance that any issued patents or any patents which may be issued as a
result of the Company's licensed patent application or United States and
international patent applications will provide any competitive advantages for
the Company's products or that they will not be successfully challenged,
invalidated or circumvented in the future. In addition, there can be no
assurance that competitors, many of which have substantial resources and have
made substantial investments in competing technologies, will not seek to
apply for and obtain patents that will prevent, limit or interfere with the
Company's ability to make, use and sell its products either in the United
States or in international markets.
14
<PAGE>
The medical device industry has been characterized by extensive litigation
regarding patents and other intellectual property rights, and companies in the
medical device industry have employed intellectual property litigation to gain a
competitive advantage. There can be no assurance that the Company will not
become subject to patent infringement claims or litigation or interference
proceedings declared by the United States Patent and Trademark Office ("USPTO")
to determine the priority of inventions. The defense and prosecution of
intellectual property suits, USPTO interference proceedings and related legal
and administrative proceedings are both costly and time-consuming. Litigation
may be necessary to enforce patents issued to the Company, to protect trade
secrets or know-how owned by the Company or to determine the enforceability,
scope and validity of the proprietary rights of others. Any litigation or
interference proceedings will result in substantial expense to the Company and
significant diversion of effort by the Company's technical and management
personnel. An adverse determination in litigation or interference proceedings to
which the Company may become a party, including any litigation that may arise
against the Company as described in "Potential Litigation" below, could subject
the Company to significant liabilities to third parties or require the Company
to seek licenses from third parties or prevent the Company from selling its
products in certain markets, or at all. Costs associated with settlements,
licensing and similar arrangements, may be substantial and could include ongoing
royalties. Furthermore, there can be no assurance that the necessary licenses
would be available to the Company on satisfactory terms, if at all. Adverse
determinations in a judicial or administrative proceeding or failure to obtain
necessary licenses could prevent the Company from manufacturing and selling its
products, which would have a material adverse effect on the Company's business,
financial condition and results of operations.
Congress enacted legislation, which became effective October 1, 1996, that
places certain restrictions on the ability of medical device manufacturers to
enforce certain patent claims, relating to surgical and medical methods, against
medical practitioners. Such limitation in the enforceability of patent claims,
relating to medical and surgical methods, against medical practitioners could
have a material adverse effect on the Company's ability to protect its
proprietary methods and procedures against medical practitioners.
In addition to patents, the Company relies on trade secrets and proprietary
know-how, which it seeks to protect, in part, through confidentiality and
proprietary information agreements. There can be no assurance that such
confidentiality or proprietary information agreements will not be breached, that
the Company would have adequate remedies for any breach, or that the Company's
trade secrets will not otherwise become known to or be independently developed
by competitors.
POTENTIAL LITIGATION. Heartport, Inc. (formerly Stanford Surgical
Technologies, Inc.), the former employer of the Company's founder and Chief
Technical Officer, Charles S. Taylor, has alleged in certain correspondence that
Mr. Taylor and the Company may have misappropriated trade secrets of the former
employer and breached confidentiality obligations to the former employer. The
former employer also claims an ownership interest in certain developments and
products of the Company. The Company has agreed to provide for the defense of
Mr. Taylor in the event that litigation is commenced. Litigation is subject to
inherent uncertainties, especially in cases where complex technical issues are
decided by a lay jury. Accordingly, no assurance can be given that if a lawsuit
is commenced it would not be decided against the Company. Such an adverse
determination could have a material adverse effect upon the Company's business,
financial condition and results of operations.
EARLY STAGE OF DEVELOPMENT AND COMMERCIALIZATION; NO ASSURANCE OF ABILITY
TO MANAGE GROWTH. The Company believes that the CTS MIDCAB System could address
a large potential market. There can be no assurance that the Company's marketing
efforts will result in significant demand for the CTS MIDCAB System, or that
demand for the Company's products will increase.
15
<PAGE>
Even if demand for the Company's products does increase, there can be no
assurance that the Company will be able to develop the necessary
manufacturing capability; build and train the necessary manufacturing, sales
and marketing teams; attract, retain and integrate the required key
personnel; or implement the financial and management systems to meet growing
demand for its products. Failure of the Company to successfully manage its
growth would have a material adverse effect on the Company's business,
financial condition and results of operations.
DEPENDENCE UPON KEY PERSONNEL. The Company's ability to operate
successfully depends in significant part upon the continued service of certain
key scientific, technical, managerial and finance personnel, and its continuing
ability to attract and retain additional highly qualified scientific, technical,
managerial and finance personnel. Competition for such personnel is intense, and
there can be no assurance that the Company can retain such personnel or that it
can attract or retain other highly qualified scientific, technical, managerial
and finance personnel in the future, including key manufacturing, sales and
marketing personnel. The loss of key personnel or the inability to hire or
retain qualified personnel could have a material adverse effect upon the
Company's business, financial condition and results of operations. In addition,
many employees of the Company, including a number of its key scientific,
technical and managerial personnel, are subject to the terms of confidentiality
agreements with respect to proprietary information of their former employers.
The failure of these employees to comply with the terms of their agreements
with, or other obligations to, such former employers could result in assertion
of claims against the Company and such employees, which, if successful, could
restrict their role with the Company and have a material adverse effect on the
Company's business, financial condition and results of operations.
DEPENDENCE UPON SCIENTIFIC ADVISORS. The Company has established a
Scientific Advisory Board including cardiothoracic surgery opinion leaders,
prominent surgeons and leading interventional cardiologists who the Company
believes have performed the vast majority of MIDCAB procedures. Members of the
Scientific Advisory Board consult with the Company regarding research and
development efforts at the Company, but are employed elsewhere on a full-time
basis. As a result, they can only spend a limited amount of time on the
Company's affairs. Although the Company has entered into consulting agreements,
with terms ranging from six months to four years, and confidentiality agreements
with each of the members of its Scientific Advisory Board, there can be no
assurance that the consulting and confidentiality agreements between the Company
and each of the members of the Scientific Advisory Board will not be terminated
or breached, and there can be no assurance that any of such agreements will be
renewed upon expiration.
LIMITED SALES, MARKETING AND DISTRIBUTION EXPERIENCE. The Company
currently has a small sales and marketing organization. The Company intends to
sell the CTS MIDCAB System in the United States and certain European countries
through a direct sales force. In other markets, the Company intends to sell its
products primarily through distributors or by means of collaborative
arrangements. There can be no assurance that the Company will be able to build a
larger direct sales force or marketing organization, that maintaining a direct
sales force or marketing organization will be cost effective, or that the
Company's sales and marketing efforts will be successful. There can be no
assurance that the Company will be able to maintain agreements with distributors
or collaborative arrangements, or that such distributors or collaborators will
devote adequate resources to selling the Company's products under development.
The Company has entered into distribution agreements for the sale of its
products in certain countries; therefore the Company will be dependent upon the
efforts of these third parties, and there can be no assurance that such efforts
will be successful. Failure to build an effective sales and marketing
organization or to establish effective distribution or collaborative
relationships could have a material adverse effect on the Company's business,
financial condition and results of operations.
16
<PAGE>
NO MANUFACTURING EXPERIENCE; SCALE-UP RISK. The Company has no experience
manufacturing its products in the volumes that would be necessary for the
Company to achieve significant commercial sales. There can be no assurance that
reliable, high-volume manufacturing can be established or maintained at
commercially reasonable costs. Companies often encounter difficulties in scaling
up production, including problems involving production yield, quality control
and assurance, and shortages of qualified personnel. In addition, the Company's
manufacturing facilities will be subject to GMP regulations, international
quality standards and other regulatory requirements. Difficulties encountered by
the Company in manufacturing scale-up or failure by the Company to implement and
maintain its facilities in accordance with GMP regulations, international
quality standards or other regulatory requirements could entail a delay or
termination of production, which could have a material adverse effect on the
Company's business, financial condition and results of operations.
POTENTIAL COMPONENT SHORTAGES; DEPENDENCE ON SOLE SOURCES OF SUPPLY. The
Company contracts with third parties for the manufacture of certain components
or the performance of certain processes involved in the manufacturing cycle.
Some of these components and processes may only be available from single-source
vendors. Any prolonged supply interruption or yield problems experienced by the
Company due to a single-source vendor could have a material adverse effect on
the Company's ability to manufacture its products under development until a new
source of supply is qualified. As the Company increases production, it may from
time to time experience lower than anticipated yields or production constraints,
resulting in delayed product shipments, which could have a material adverse
effect on the Company's business, financial condition and results of operation.
UNCERTAINTY RELATING TO THIRD-PARTY REIMBURSEMENT. In the United States,
health care providers, such as hospitals and physicians, that purchase medical
devices, such as the Company's products, generally rely on third-party payors,
principally Medicare, Medicaid and private health insurance plans, to reimburse
all or part of the cost of the procedure in which the medical device is being
used. Reimbursement for cardiovascular surgery, including CABG surgery, using
devices that have received FDA approval has generally been available in the
United States. In addition, certain health care providers are moving toward a
managed care system in which such providers contract to provide comprehensive
health care for a fixed cost per person. The Company is unable to predict what
changes will be made in the reimbursement methods utilized by third-party health
care payors. The Company could be adversely affected by changes in reimbursement
policies of government or private health care payors, particularly to the extent
any such changes affect reimbursement for the procedures in which the Company's
products are intended to be used. Failure by physicians, hospitals and other
potential users of the Company's products under development to obtain sufficient
reimbursement from health care payors for the procedure in which the Company's
products are intended to be used or adverse changes in government and private
third-party payors' policies toward reimbursement for such procedures could have
a material adverse effect on the Company's business, financial condition and
results of operations.
Market acceptance of the Company's products in international markets will
be dependent, in part, upon the availability of reimbursement within prevailing
health care payment systems. Reimbursement and health care payment systems in
international markets vary significantly by country, and include both government
sponsored health care and private insurance. The Company intends to seek
international reimbursement approvals, although there can be no assurance that
any such approvals will be obtained in a timely manner, if at all, and failure
to receive international reimbursement approvals could have a material adverse
effect on market acceptance of the Company's products in the international
markets in which such approvals are sought.
17
<PAGE>
RISKS RELATING TO INTERNATIONAL OPERATIONS. The Company plans to market
its products in international markets. Changes in overseas economic conditions,
currency exchange rates, foreign tax laws, or tariffs or other trade regulations
could have a material adverse effect on the Company's business, financial
condition and results of operations. The anticipated international nature of the
Company's business is also expected to subject it and its representatives,
agents and distributors to laws and regulations of the foreign jurisdictions in
which they operate or the Company's products are sold. The regulation of medical
devices in a number of such jurisdictions, particularly in the European Union,
continues to develop and there can be no assurance that new laws or regulations
will not have an adverse effect on the Company's business, financial condition
and results of operations. In addition, the laws of certain foreign countries do
not protect the Company's intellectual property rights to the same extent as do
the laws of the United States.
PRODUCT LIABILITY RISK; LIMITED INSURANCE COVERAGE. The development,
manufacture and sale of medical products entail significant risk of product
liability claims and product recalls. The Company's current product liability
insurance coverage limits are $3,000,000 per occurrence and $3,000,000 in the
aggregate, and there can be no assurance that such coverage limits are adequate
to protect the Company from any liabilities it might incur in connection with
the development, manufacture and sale of its products. In addition, the Company
may require increased product liability coverage as product sales increase.
Product liability insurance is expensive and in the future may not be available
to the Company on acceptable terms, if at all. A successful product liability
claim or series of claims brought against the Company in excess of its insurance
coverage or a product recall could have a material adverse effect on the
Company's business, financial condition and results of operations.
POSSIBLE FUTURE CAPITAL REQUIREMENTS. The Company's capital requirements
depend on numerous factors, including the progress of the Company's product
development programs, the receipt of and the time required to obtain regulatory
clearances or approvals, the resources the Company devotes to developing,
manufacturing and marketing its products, the extent to which the Company's
products generate market acceptance and demand, and other factors. The Company
expects to devote substantial capital resources for research and development, to
hire and develop a larger direct sales force in the United States and to expand
manufacturing capacity and facilities. The timing and amount of such capital
requirements cannot be accurately predicted. Consequently, the Company may be
required to raise additional funds through public or private financing,
collaborative relationships or other arrangements. There can be no assurance
that the Company will not require additional funding or that such additional
funding, if needed, will be available on terms attractive to the Company, or at
all, which could have a material adverse effect on the Company's business,
financial condition and results of operations. Any additional equity financing
may be dilutive to stockholders, and debt financing, if available, may involve
restrictive covenants.
POTENTIAL VOLATILITY OF STOCK PRICE. The stock markets have experienced
price and volume fluctuations that have particularly affected medical technology
companies, resulting in changes in the market prices of the stocks of many
companies that may not have been directly related to the operating performance
of those companies. Such broad market fluctuations may adversely affect the
market price of the Company's Common Stock. In addition, the market price of the
Common Stock may be highly volatile. Factors such as variations in the Company's
financial results, comments by securities analysts, announcements of
technological innovations or new products by the Company or its competitors,
changing government regulations and developments with respect to FDA
submissions, patents, proprietary rights or litigation may have a significant
adverse effect on the market price of the Common Stock.
18
<PAGE>
SIGNIFICANT RESTRICTIONS ON CHANGE OF CONTROL. The Company has adopted a
number of anti-takeover measures. The Company has adopted a Preferred Shares
Rights Agreement, sometimes referred to as a poison pill, designed to prevent
hostile takeovers not approved by the Board of Directors. In addition, the
company is authorized to issue 5,100,000 shares of undesignated Preferred
Stock. Such shares of Preferred Stock may be issued by the Company without
stockholder approval upon such terms as the Company's Board of Directors may
determine. The issuance of Preferred Stock may have the effect of delaying,
deferring or preventing a change in control of the Company, may discourage
bids for the Company's Common Stock at a premium over the market price of the
Common Stock and may adversely affect the market price of and the voting and
other rights of, the holders of Common Stock. At present, the Company has no
plans to issue any of the Preferred Stock.
19
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8 - K.
a) Exhibits
3.2(1) Restated Certificate of Incorporation.
3.3(6) Bylaws of Registrant (as amended)
3.4(5) Certificate of Designations of Rights, Preferences and
Privileges of Series A Participating Preferred Stock
3.5(5) Preferred Shares Rights Agreement, dated as of
February 14, 1997
4.1(1) Specimen Common Stock Certificate.
10.1(1) Form of Indemnification Agreement between the
Company and each of its directors and officers.
10.2(6) Incentive Stock Plan and form of Agreements
thereunder (as amended).
10.3(1) Director Option Plan and form of Director
Stock Option Agreement thereunder.
10.4(1) Employee Stock Purchase Plan and forms of
agreements thereunder.
10.5(6) Nonstatutory Stock Option Plan and form of
Nonstatutory Stock Option Agreement thereunder
(as amended).
10.6(1) Form of Employment, Confidential Information
and Invention Assignment Agreement.
10.8(1) Consulting Agreement, dated June 30, 1995,
between the Company and Federico Benetti, M.D.
20
<PAGE>
10.9(1) Assignment Agreement, dated June 30, 1995 (as amended by
Amendment Agreement dated August 31, 1995), between the
Company and Federico Benetti, M.D.
10.10(1) Employment Letter Agreement, dated September 5, 1995,
between the Company and Charles S. Taylor.
10.11(1) Assignment Agreement, dated September 7, 1995,
between the Company and Charles S. Taylor.
10.12(1) Shareholder Rights Agreement dated September 8, 1995
(as amended January 3, 1996) between the Company and
certain holders of the Registrant's securities.
10.13(1) Letter Agreement regarding Heartport trade
secret allegations, dated October 11, 1995,
between the Company and Charles S. Taylor.
10.14(1) Assignment, Assumption of Lease and Consent,
dated November 9, 1995, between the Company and
Cardiovascular Concepts, Inc. ("CVC") for the
premises located at 3260 Alpine Road, Portola
Valley, California 94028.
10.16(1) Promissory Note, dated December 4, 1995,
between the Company and Ivan Sepetka.
10.17(1) Consent to Assignment, dated December 22,
1995, among the Company, Viking Partners, Inc.
("Viking"), CVC and Fogarty Engineering, Inc.
for the premises located at 3260 Alpine Road,
Portola Valley, California 94028.
10.19(1) First Amendment to Assignment, Assumption of
Lease and Consent, dated December 22, 1995,
between the Company and CVC for the premises
located at 3260 Alpine Road, Portola Valley,
California 94028.
10.21(1) Consulting Agreement, dated February 21, 1996,
between the Company and Thomas J. Fogarty, M.D.
10.22(1) Development and License Agreement, dated
February 19, 1996, between the Company and
Enable Medical Corp.
10.23(1) Employment Letter Agreement, dated March 15,
1996, between the Company and Steve M. Van Dick.
10.24(1) Lease dated March 29, 1996 for space located
at 10600 North Tantau Avenue, Cupertino, California between
the Company and Spieker Properties, L.P.
10.25(2) Employment Letter Agreement, dated February 22, 1996,
between the Company and Thomas Afzal.
10.26(2) Employment Letter Agreement, dated March 13, 1996, between
the Company and Robert Rosenbluth.
21
<PAGE>
10.27(3) Employment Agreement, dated April 19, 1996, between the
Company and Steve Van Dick.
10.28(3) Promissory Note for $300,000 dated April 29, 1996, between
the Company and Thomas Afzal.
10.29(3) Promissory Note for $35,000 dated May 20, 1996, between the
Company and Michael J. Billig.
10.30(3) Promissory Note for $55,000 dated June 5, 1996, between the
Company and Thomas Afzal.
10.31(4) Promissory Note for $750,000 and Security Agreement dated
August 16, 1996, between the Company and Richard Ferrari.
10.32(6) Promissory Note for $200,000 dated December 3, 1996, between
the Company and Steve Van Dick.
11.1 Calculation of net loss per share.
27.1 Financial Data Schedule
(1) Incorporated herein by reference to the
same-numbered exhibit previously filed with the
Company's Registration Statement on Form S-1
(Registration No. 333-1840).
(2) Incorporated herein by reference to the
same-numbered exhibit previously filed with the
Company's Form 10-Q for the period ended March 31,
1996.
(3) Incorporated herein by reference to the
same-numbered exhibit previously filed with the
Company's Form 10-Q for the period ended June 30,
1996.
(4) Incorporated herein by reference to the
same-numbered exhibit previously filed with the
Company's Form 10-Q for the period ended September
30, 1996.
(5) Incorporated herein by reference to the Company's
Registration Statement on Form 8-A, filed with the
Securities and Exchange Commission on
February 28, 1997.
(6) Incorporated herein by reference to the
same-numbered exhibit previously filed with the
Company's Form 10-K for the period ended
December 31, 1996.
b) Reports on Form 8 - K
None
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 16, 1997 CARDIOTHORACIC SYSTEMS, INC.
/S/ Richard M. Ferrari
-------------------------------------
Richard M. Ferrari
President and Chief Executive Officer
/S/ Steve Van Dick
-------------------------------------
Steve Van Dick
Vice President, Finance and Chief
Financial Officer (Principal Financial
and Accounting Officer)
23
<PAGE>
EXHIBIT INDEX
Exhibit Page
Number Exhibit Description Number
- ------- ------------------- ---------
11.1 Calculation of net loss per share. 25
27.1 Financial Data Schedule 26
24
<PAGE>
EXHIBIT 11.1
CardioThoracic Systems, Inc.
Re: Computations of Net Loss Per Share
Three Months Ended Three Months Ended
March 28, 1997 March 31, 1996
------------------ ------------------
Net loss $ (4,704,000) $ (3,674,000)
------------- -------------
------------- -------------
Weighted average common
shares outstanding 13,358,000 2,717,000
Shares related to SAB No. 55,
64, and 83 - 6,666,000
------------- -------------
Total weighted average
common shares outstanding 13,358,000 9,383,000
------------- -------------
------------- -------------
Net loss per share $ (0.35) $ (0.39)
------------- -------------
------------- -------------
25
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<SECURITIES> 38,648,000
<RECEIVABLES> 1,495,000
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<PP&E> 3,273,000
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<COMMON> 116,071,000
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