<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
- ----- Exchange Act of 1934.
For the quarterly period ended July 2, 1999 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 August 3, 1999, there were 14,469,677 shares of the Registrant's Common
Stock outstanding.
1
<PAGE>
CARDIOTHORACIC SYSTEMS, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
--------
<S> <C>
Item 1. Financial Statements
Consolidated Condensed Balance Sheets as of July 2, 1999 and
January 1, 1999 3
Consolidated Condensed Statements of Operations for the three
and six months ended July 2, 1999 and July 3, 1998 4
Consolidated Condensed Statements of Cash Flows for the six
months ended July 2, 1999 and July 3, 1998 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
PART II. OTHER INFORMATION 20
SIGNATURES 24
EXHIBIT INDEX 25
</TABLE>
2
<PAGE>
Item 1. Financial Statements
CARDIOTHORACIC SYSTEMS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
July 2, January 1,
1999 1999
------------------- ------------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,944,000 $ 1,651,000
Available-for-sale securities 22,360,000 27,513,000
Trade accounts receivable, net 4,610,000 2,894,000
Inventories, net 2,930,000 963,000
Interest receivable 380,000 611,000
Prepaid expenses and other current assets 1,014,000 510,000
------------------- ------------------
Total current assets 35,238,000 34,142,000
Property and equipment, net 2,967,000 3,374,000
Available-for-sale securities 4,507,000 11,089,000
Notes receivable from officers 1,045,000 1,045,000
Other assets 120,000 116,000
------------------- ------------------
Total assets $ 43,877,000 $ 49,766,000
=================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Equipment note, current portion $ 528,000 $ 500,000
Accounts payable 1,839,000 1,871,000
Accrued liabilities 5,080,000 6,021,000
------------------- ------------------
Total current liabilities 7,447,000 8,392,000
Equipment note, less current portion 1,142,000 1,411,000
------------------- ------------------
Total liabilities 8,589,000 9,803,000
------------------- ------------------
Stockholders' equity:
Common stock, par value $0.001 14,000 14,000
Additional paid-in capital 104,010,000 103,317,000
Deferred compensation, net (695,000) (1,460,000)
Accumulated other comprehensive income (loss) (29,000) 93,000
Accumulated deficit (68,012,000) (62,001,000)
------------------- ------------------
Total stockholders' equity 35,288,000 39,963,000
------------------- ------------------
Total liabilities and stockholders' equity $ 43,877,000 $ 49,766,000
=================== ==================
</TABLE>
3
<PAGE>
CARDIOTHORACIC SYSTEMS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 2, 1999 July 3, 1998 July 2, 1999 July 3, 1998
--------------------- -------------------- ------------------- --------------------
<S> <C> <C> <C> <C>
Net sales $ 7,331,000 $ 3,817,000 $ 13,662,000 $ 6,779,000
Cost of sales 2,569,000 1,699,000 4,907,000 3,302,000
--------------------- -------------------- ------------------- --------------------
Gross profit 4,762,000 2,118,000 8,755,000 3,477,000
--------------------- -------------------- ------------------- --------------------
Operating expenses:
Research and development 2,489,000 2,675,000 5,146,000 5,352,000
Sales, marketing, general
and administrative 4,809,000 5,867,000 10,439,000 10,997,000
--------------------- -------------------- ------------------- --------------------
Total operating expenses 7,298,000 8,542,000 15,585,000 16,349,000
--------------------- -------------------- ------------------- --------------------
Loss from operations (2,536,000) (6,424,000) (6,830,000) (12,872,000)
Interest income, net 360,000 594,000 819,000 1,292,000
--------------------- -------------------- ------------------- --------------------
Net loss $ (2,176,000) $ (5,830,000) $ (6,011,000) $ (11,580,000)
===================== ==================== =================== ====================
Net loss per common share
and per common share
- assuming dilution $ (0.15) $ (0.42) $ (0.42) $ (0.84)
===================== ==================== =================== ====================
Shares used in computing
net loss per common share
and per common share
- assuming dilution 14,417,000 13,890,000 14,362,000 13,829,000
===================== ==================== =================== ====================
</TABLE>
4
<PAGE>
CARDIOTHORACIC SYSTEMS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
July 2, 1999 July 3, 1998
----------------------- ------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (6,011,000) $ (11,580,000)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 1,105,000 940,000
Amortization of notes receivable from officer 34,000
Amortization of deferred compensation 663,000 958,000
Allowance for bad debts and product returns 65,000 62,000
Changes in operating assets and liabilities:
Trade accounts receivable (1,781,000) (686,000)
Inventory (1,967,000) (130,000)
Interest receivable 231,000 519,000
Prepaid expenses and other current assets (504,000) -
Other assets (4,000) (22,000)
Accounts payable (32,000) 541,000
Accrued liabilities (875,000) (275,000)
----------------------- ------------------------
Net cash used in operating activities (9,110,000) (9,639,000)
----------------------- ------------------------
INVESTING ACTIVITIES
Purchases of property and equipment (764,000) (967,000)
Notes receivable from officers (80,000)
Purchase of available-for-sale securities (7,834,000) (29,312,000)
Proceeds from maturities of available-for-sale securities 19,447,000 44,361,000
----------------------- ------------------------
Net cash provided by investing activities 10,849,000 14,002,000
----------------------- ------------------------
FINANCING ACTIVITIES
Repayment of equipment note (241,000) (218,000)
Proceeds from issuance of common stock 795,000 272,000
----------------------- ------------------------
Net cash provided by financing activies 554,000 54,000
----------------------- ------------------------
Net increase in cash and cash equivalents 2,293,000 4,417,000
Cash and cash equivalents at beginning of period 1,651,000 4,681,000
======================= ========================
Cash and cash equivalents at end of period $ 3,944,000 $ 9,098,000
======================= ========================
</TABLE>
5
<PAGE>
CARDIOTHORACIC SYSTEMS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
July 2, 1999
(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 December 31, 1999
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 January 1, 1999 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 on June
15, 1995 to design, develop, manufacture and market surgical products and
systems for minimally invasive cardiac surgery.
6
<PAGE>
CARDIOTHORACIC SYSTEMS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
July 2, 1999
(Unaudited)
Note 3. 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 July 2, 1999, available-for-sale securities consist of the
following:
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
U.S. Gov't notes and bonds $ 2,499,000 $ - $ (8,000) $ 2,491,000
Gov't agency notes and bonds 12,761,000 10,000 (13,000) 12,758,000
Corporate notes and bonds 11,636,000 1,000 (19,000) 11,618,000
------------ ------------ ------------- -------------
$ 26,896,000 $ 11,000 $ (40,000) $ 26,867,000
============ ============ ============= =============
</TABLE>
At January 1, 1999, available-for-sale securities consist of the
following:
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
U. S. Gov't notes and bonds $ 967,000 $ - $ - $ 967,000
Gov't agency notes and bonds 12,777,000 77,000 - 12,854,000
Corporate notes and bonds 24,765,000 20,000 (4,000) 24,781,000
------------ ------------ ------------- -------------
$ 38,509,000 $ 97,000 $ (4,000) $ 38,602,000
============ ============ ============= =============
</TABLE>
Available-for-sale securities by contractual maturity at July 2, 1999
are shown below:
<TABLE>
<CAPTION>
Amortized Estimated
Cost Fair Value
------------ ------------
<S> <C> <C>
Less than one year $ 22,361,000 $ 22,360,000
Due in one to two years 4,535,000 4,507,000
------------ ------------
$ 26,896,000 $ 26,867,000
============ ============
</TABLE>
7
<PAGE>
CARDIOTHORACIC SYSTEMS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
July 2, 1999
(Unaudited)
Note 4. Inventories
Inventories, net consist of the following:
<TABLE>
<CAPTION>
July 2, January 1,
1999 1999
----------- ------------
<S> <C> <C>
Raw materials $ 1,307,000 $ 503,000
Work in progress 544,000 146,000
Finished goods 1,079,000 314,000
----------- ------------
$ 2,930,000 $ 963,000
=========== ============
</TABLE>
Note 5. Restructuring
In the fourth quarter of fiscal 1998, the Company recorded a
restructuring charge of $736,000 in connection with the closure of its German
subsidiary. In accordance with the restructuring plan, this closure resulted in
the termination of four German employees which represented all the employees of
the German subsidiary. The charge associated with employee termination benefits
was $349,000. The balance of the restructuring charge was an $88,000 non-cash
charge for the loss on property and equipment and the write-down of other
recorded assets, $235,000 for lease cancellation expenses and $64,000 for other
exit related costs. The first half of 1999 activity in the restructuring accrual
is summarized in the following table:
<TABLE>
<CAPTION>
Charges
January 1, Against July 2,
1999 Reserve 1999
-------------- ------------- -------------
<S> <C> <C> <C>
Employee termination benefits $ 349,000 $ (117,000) $ 232,000
Property, equipment and other
asset write-down 88,000 (66,000) 22,000
Lease cancellations 235,000 (101,000) 134,000
Other exit costs 64,000 (27,000) 37,000
-------------- ------------- -------------
$ 736,000 $ (311,000) $ 425,000
============== ============= =============
</TABLE>
Note 6. Net Loss Per Share
Net loss per common share and per common share-assuming dilution, are
computed using the weighted average number of shares of common stock
outstanding. Common equivalent shares from stock options and preferred stock are
excluded from the computation of net loss per common share-assuming dilution as
their effect is antidilutive.
8
<PAGE>
CARDIOTHORACIC SYSTEMS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
July 2, 1999
(Unaudited)
Note 7. Industry and Geographic Segment Information
Management uses one measurement of profitability for its business. The
Company's cardiac surgery products are developed and marketed to cardiac
surgeons and hospitals. The Company markets its products to customers in the
United States, Canada, Europe, South America, Middle East and Asia Pacific and
operates in one business segment. All of the Company's long-lived assets are in
the United States. Revenue information by geographic area is as follows:
<TABLE>
<CAPTION>
Six Months Ended
-----------------------------
July 2, July 3,
1999 1998
----------- -----------
<S> <C> <C>
United States $12,387,000 $ 5,723,000
International 1,275,000 1,056,000
----------- -----------
Total $13,662,000 $ 6,779,000
=========== ===========
</TABLE>
Note 8. Incentive Stock Plan
In January 1999, the Company's Board of Directors approved an amendment
of the Company's Incentive Stock Plan to increase the number of shares of Common
Stock available for issuance thereunder by 500,000, to bring the total number of
shares issuable under the Incentive Stock Plan to 3,300,000. This amendment was
approved by the stockholders at the Annual Meeting of Stockholders on May 4,
1999.
9
<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 Condensed Consolidated Financial Statements and
the related Notes thereto included herein.
This report contains forward looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. The Company's future results of operations
could vary significantly from those anticipated by such statements as a
result of factors described in this Management's Discussion and Analysis of
Financial Condition and Results of Operations and under "Factors Affecting
Results of Operations".
OVERVIEW
The business of the Company commenced in November 1993 as a sole
proprietorship, Informed Creation. 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 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. The Company
began commercial sales of its products in December 1996 and has limited
experience in manufacturing, marketing and selling its products. The Company
has experienced operating losses since its inception, and, as of July 2,
1999, the Company had an accumulated deficit of approximately $68,012,000.
The development and commercialization of the Company's products will continue
to require substantial development, regulatory, sales and marketing,
manufacturing and other expenditures. The Company expects its operating
losses to continue at least through 1999 as it expends substantial resources
to continue development of its products, obtain additional regulatory
clearances or approvals, continue to market, sell and manufacture its
products, support its finance and administrative organizations and conduct
further research and development. There can be no assurance that the
Company's products will gain enough commercial acceptance to allow the
Company to generate the revenues necessary to achieve profitability.
Most of the Company's current products are designed to enable the
majority of cardiothoracic surgeons to perform minimally invasive cardiac
surgery ("MICS") on a beating heart. Accordingly, the Company's success is
dependent upon increasing acceptance of this procedure by the medical
community as a reliable, safe and cost effective alternative to existing
treatments for revascularizing blocked coronary arteries. The Company is
unable to predict how quickly MICS will be adopted by the medical community
or the number of MICS procedures that will be performed. The medical
conditions that can be treated with MICS can also be treated with widely
accepted surgical procedures such as CABG surgery and catheter-based
treatments, including balloon angioplasty, atherectomy and coronary stenting.
Although the Company believes that MICS has significant advantages over
competing procedures, broad-based clinical adoption of MICS will not occur
until physicians determine that the approach is an attractive alternative to
current treatments for coronary artery disease. The Company believes that
continued physician endorsements will be essential for the increasing
clinical adoption of MICS, and there can be no assurance that such
endorsements will be continued.
10
<PAGE>
Further clinical adoption will also depend upon the Company's ability to
facilitate training of additional cardiothoracic surgeons to perform MICS,
and the willingness of such surgeons to perform MICS procedures. Patient
acceptance of MICS will depend in part upon physician recommendations as well
as other factors, including the degree of invasiveness, the effectiveness of
the procedure and rate and severity of complications associated with MICS as
compared to other treatments. Even as the clinical efficacy of MICS continues
to be established, physicians may elect not to recommend the procedure unless
acceptable reimbursement from health care payors continues to be available.
Health care payor acceptance may require evidence of the cost effectiveness
of the MICS as compared to other currently available treatments. For all of
these reasons, there can be no assurance that the clinical adoption of MICS
procedures will continue to increase. Failure of MICS to achieve significant
clinical adoption would have a material adverse effect on the Company's
business, financial condition and results of operations.
Most of the Company's current products are designed for beating
heart MICS and are expected to account for the great majority of the
Company's revenues in 1999. The Company has manufactured and sold
approximately 37,000 beating heart MICS systems since January 1997, but there
can be no assurance that demand for the Company's current or future products
will be sufficient to allow profitable operations. Failure of the Company's
current and future products to be successfully commercialized at
significantly higher volumes would have a material adverse effect on the
Company's business, financial condition and results of operations.
Before the Company can market certain 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 has filed or
will be filing 510(k) premarket notifications or premarket approval ("PMA")
applications with the FDA for clearance or approval to market current
products and certain products under development. There can be no assurance
that the FDA will act favorably or quickly on the Company's submissions, or
that significant difficulties and costs will not be encountered by the
Company in its efforts to obtain FDA clearance or approval for its products
under development. 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 or PMA approval, any of which could limit the
Company's ability to market its products under development. Further, if the
Company wishes to modify a product after FDA clearance or approval, 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.
In order for the Company to market its products under development in
Europe and certain other international jurisdictions, the Company and its
distributors will have to 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. The Company has received ISO 9001 certification and
the CE Mark approval for sale of its current products. The CE Mark evidences
receipt of the regulatory approval necessary for commercialization in
European Union countries and eliminates the requirement to obtain individual
country approvals. There can be no assurance that the Company will obtain
future regulatory registrations or approvals in other such countries or that
it will not be required to incur significant costs in obtaining or
maintaining its foreign regulatory registrations
11
<PAGE>
or approvals. Delays in receipt of these registrations or approvals, failure
to receive these clearances or approvals, or the loss of received
registrations or approvals could have a material adverse effect on the
Company's business, financial condition and results of operations.
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JULY 2, 1999 COMPARED TO THE THREE AND
SIX MONTHS ENDED JULY 3, 1998.
Net sales increased 92% to $7.3 million and 102% to $13.7 million in
the three and six months ended July 2, 1999, respectively when compared to
the same periods in fiscal year 1998. The increase in net sales was due
primarily to a 78% and 88% increase in unit shipments of the Company's
beating heart products along with a 5% and 6% increase in the average selling
price per procedural unit for the three and six months ended July 2, 1999,
respectively over the three and six months ended July 3, 1998. In January
1999 the Company began shipping its next generation beating heart product,
the CTS-Registered Trademark- Access Ultima-TM- System. Other products
increased $154,000 and $205,000 in the three and six months ended July 2,
1999, respectively over the same periods last year.
Gross profit increased to $4.8 million (65% of net sales) in the
three months ended July 2, 1999 compared to $2.1 million (56% of net sales)
in the same period last year. For the six months ended July 2, 1999 gross
profit increased to $8.8 million (64% of net sales) compared to $3.5 million
(51% of net sales) for the six months ended July 3, 1998. The improvement in
gross profit percentages is primarily due to lower unit costs associated with
the CTS Access Ultima System, higher production volumes which resulted in
increased manufacturing efficiencies and higher inventory levels.
Research and development expenses in the three and six months ended
July 2, 1999 were $2.5 million and $5.1 million, respectively compared to
$2.7 million and $5.4 million in the three and six months ended July 3, 1998.
This decrease was primarily due to lower relocation costs, deferred
compensation amortization, and prototype labor and material costs offset
somewhat by higher salary costs.
The Company has entered into development and licensing agreements,
and expects to enter into additional agreements in the future, that require
milestone payments which are tied to certain events. The timing of these
milestone payments is uncertain and could have a material impact on the
operating results in the quarter and year in which they are expensed. No such
milestone payments were expensed in either the six months ended July 2, 1999
or July 3, 1998.
Sales, marketing, general and administrative expenses decreased to
$4.8 million and $10.4 million in the three and six months ended July 2,
1999, respectively compared to $5.9 million and $11.0 million in the same
periods last year, respectively. This decrease was due primarily to the
completion of the POEM study at the end of 1998, reduced travel,
entertainment, promotional, trade show and training expenses and less
deferred compensation amortization. The Company expects that quarterly sales,
marketing and administrative expenses will remain relatively flat for the
rest of 1999.
The Company has recorded deferred compensation of $14.6 million,
less cancellations of $2.2 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
12
<PAGE>
1995 and early 1996 and the deemed fair value of the Company's Common Stock
for options granted to non-employees since inception. 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
through 2000. Amortization of deferred compensation charged to operating
expenses in the three and six months ended July 2, 1999 totaled $254,000 and
$663,000, respectively compared to $475,000 and $958,000 for the same periods
last year, respectively.
Net interest income decreased to $360,000 and $819,000 in the three
and six months ended July 2, 1999, respectively compared to $594,000 and $1.3
million in the same periods last year, respectively. This decrease was
primarily due to lower average cash and investment balances.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily
from the sale of equity securities. As of July 2, 1999, the Company had
raised approximately $91.7 million (net of stock issuance costs) from the
sale of equity securities. As of July 2, 1999, cash, cash equivalents and
available-for-sale securities totaled $30.8 million. The Company's cash used
in operations was $9.1 million for the six months ended July 2, 1999,
reflecting expenditures made primarily to continue research and development
and sales and marketing activities, to support its administrative
infrastructure, payment of licensing fees and working capital investments in
accounts receivable and inventory due to higher revenue levels. The Company
also spent $764,000 for the purchases of property and equipment and $241,000
for repayment of an equipment note in the six months ended July 2, 1999.
The Company plans to finance its operations principally from
existing cash, cash equivalents and available-for-sale securities and
interest thereon, and product revenues. The Company believes that its
existing cash balances and available-for-sale securities and interest
thereon, and product revenues will be sufficient to fund its operations
through 2000. 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 receive market acceptance, and other factors.
The Company expects to devote substantial capital resources to research and
development, to support a direct sales force and marketing operation in the
United States and to continue to support its manufacturing capacity and
facilities. 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 July 2, 1999, the Company had approximately $52.9 million in
federal and $37.6 million in state net operating loss carryforwards, which
will expire in the years 2001 through 2019, if not utilized. In addition, the
Company has federal and state research and development credits of $1.5
million and $883,000, respectively. These credits will expire beginning in
2011, if not utilized. Utilization of federal income tax carryforwards is
subject to certain limitations under Section 382 of the Internal
13
<PAGE>
Revenue Code of 1986. These annual limitations may result in expiration of
net operating loss carryforwards and research and development credits before
they can be fully utilized.
IMPACT OF THE YEAR 2000 ISSUE
The year 2000 Issue is the result of computer programs written using
two digits rather than four to define the applicable year. Any of the
Company's computer programs that have date-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
The Company has completed an inventory of all mission critical
software utilized by the Company and has determined that this software is
year 2000 compliant. In late 1996 the Company acquired its manufacturing,
order entry, finance and network software from third party vendors that have
certified such software to be year 2000 compliant. The Company has no custom
software in its manufacturing or development processes, which requires
modification.
The Company has completed a survey of its current suppliers in
regard to year 2000 readiness. All critical suppliers have provided
assurances that the year 2000 will not cause a disruption in the flow of
materials to the Company. The Company currently has no plans to contact its
customers concerning their year 2000 readiness. The Company's products have
no date sensitive software or embedded chip technology. The Company has sold
its products to over 500 hospitals and distributors worldwide and no one
customer represents more than 10% of the Company's revenue.
Virtually all of the computer hardware currently owned by the
Company is year 2000 compliant and in any event non-compliant computer
hardware will be replaced, if necessary.
Based on the Company's assessment, it believes that there will be no
material impact on the operations of the Company due to the year 2000 issue.
As a result the Company is not developing any formal contingency plans.
The costs incurred to date to determine the impact of the year 2000
issue are immaterial and no significant future costs are anticipated.
FINANCIAL RISK MANAGEMENT
As a Company with international sales, the Company faces exposure to
adverse movements in foreign currency exchange rates. These exposures may
change over time as the Company's international business grows and the
Company's business practices evolve and could have a material adverse effect
on the Company's business, financial condition and results of operations. All
of the Company's international sales are currently denominated in U.S.
dollars. An increase in the value of the U.S. dollar relative to foreign
currencies could make the Company's products more expensive and therefore,
reduce demand for the products or force the Company to reduce its selling
price. Reduced demand or lower selling prices could have a material adverse
effect on the Company's business, financial condition and results of
operations. Currently, the Company does not hedge against any foreign
currencies.
14
<PAGE>
The Company maintains an investment portfolio of various issuers,
types and maturities. These securities are classified as available-for-sale,
and consequently, are recorded on the balance sheet at fair value with
unrealized gains or losses reported as a separate component of stockholders'
equity. At any time, a sharp rise in interest rates could have a material
adverse effect on the fair value of the Company's investment portfolio.
Conversely, declines in interest rates could have a material adverse effect
on the interest earnings of the Company's investment portfolio. Currently,
the Company does not hedge these interest rate exposures.
FACTORS AFFECTING RESULTS OF OPERATIONS
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 companies, including Johnson
& Johnson, Boston Scientific 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. Furthermore, competition in the emerging market for minimally
invasive cardiac surgery is intense and is expected to increase. Medtronic,
Inc., Genzyme Surgical Products Corp., Johnson & Johnson, Guidant
Corporation, Baxter International, Inc., Heartport, Inc. and United States
Surgical Corp. are marketing or have announced that they are developing
products to be used in MICS procedures. There can be no assurance that MICS
procedures will replace any current treatments. Additionally, even if MICS
procedures are widely adopted, there can be no assurance that the Company's
competitors will not succeed in developing or marketing alternative
procedures and technologies, competing devices to perform the same
procedures, 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 MICS procedures.
Furthermore, sales of the Company's products could be adversely affected by
reuse, notwithstanding the instructions in the Company's clinical protocols
and product labeling indicating that certain components of the Company's
products are single-use devices. Such competition or reuse could have a
material adverse effect on the Company's business, financial condition and
results of operations.
LIMITED SALES, MARKETING AND DISTRIBUTION EXPERIENCE. The Company
currently has a small sales and marketing organization when compared to most
of its competitors. The Company sells its products in the United States
through a direct sales force. In certain international markets, the Company
sells its products through distributors. 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 that such distributors will
devote adequate resources to selling the Company's products. Since the
Company has entered into distribution agreements for the sale of its products
in certain countries, it will be dependent upon the efforts of these third
parties, and there can be no assurance that such efforts will be successful.
Failure to maintain or grow an effective direct sales and marketing
organization or to maintain effective distributors could have a material
adverse effect on the Company's business, financial condition and results of
operations.
15
<PAGE>
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 twenty-two issued United States patents and one issued German patent.
Additionally, the Company has fifty-one United States patent applications and
various foreign patent applications pending. The Company is the licensee of a
United States patent and several related pending applications for a heart
valve insertion and stapling device, and a United States patent application
for bipolar electrosurgical scissors. Additionally, the Company has acquired
exclusive rights to a United States Patent covering methods of minimally
invasive vessel harvesting and to another covering devices and methods for
endoscopic surgery.
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 applications
or pending United States and foreign patent applications will provide any
competitive advantages for the Company's products or that they will not be
successfully challenged, invalidated or designed around 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.
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 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 proceeding to which the
Company becomes 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 limitations on 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.
16
<PAGE>
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.
CONTINUING GOVERNMENT REGULATION. Regulatory clearances or
approvals, if granted, may include significant limitations on the indicated
uses for which the Company's 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 are
required to comply with the Good Manufacturing Practices ("GMP") regulations
of the FDA which are currently referred to as Quality System Regulations.
These regulations include design, testing, production, control, documentation
and other requirements. Enforcement of Quality System 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. The Company has
received ISO 9001 certification, has obtained its California Device
Manufacturing license and has successfully undergone a facility inspection by
the FDA. 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, any of which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
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
in late 1995 and again in September 1997 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 has
also claimed in such correspondence 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.
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 until a new source of supply is qualified. Many of the Company's
components are molded parts that require custom tooling which is manufactured
and maintained by third party vendors. Should such custom tooling be damaged
it could result in a supply interruption that could have a material adverse
effect on the Company's ability to manufacture its products until a new tool
is manufactured. Also, the Company's new product development efforts and the
timeliness of new product launches could be significantly affected by tooling
vendors ability to meet completion and quality commitments on the manufacture
of custom tooling. As the Company
17
<PAGE>
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.
LIMITED 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 profitable operations. 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 are 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.
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, if any,
may 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 to obtain sufficient
reimbursement from health care payors for the procedures 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
is 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.
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 $5,000,000 per occurrence and $5,000,000 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
18
<PAGE>
insurance 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
No change has occurred since the filing by the Registrant on Form
10-K for the year ended January 1, 1999. Reference is made to Part II, Item
7A, Quantitative and Qualitative Disclosures About Market Risk, in the
Registrant's Annual Report on Form 10-K for the year ended January 1, 1999.
19
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
The following information is provided as an amendment to the
initial report on Form SR, "Report of Sales and Securities and Use of
Proceeds Therefrom", regarding the use of proceeds from the sale of
securities under the Company's Registration Statement Form S-1
(333-1840), which was declared effective on April 18, 1996 (CUSIP
number 141907). The information provided is for the period from April
18, 1996 through July 2, 1999.
<TABLE>
<CAPTION>
Use of Proceeds Amount
--------------- ------
<S> <C>
Construction of plant, building and facilities $ -
Purchase and installation of machinery and equipment 7,092,000
Purchase of real estate -
Acquisition of other businesses -
Repayment of indebtedness -
Working capital 8,429,000
Cost of operations 39,086,000
Temporary Investment
--------------------
Cash 2,802,000
Commercial paper, notes and bonds 26,867,000
</TABLE>
All amounts above represent estimates of direct or indirect payments
to third parties.
The amounts below were paid directly to officers of the Company.
<TABLE>
<CAPTION>
Use of Proceeds Amount
--------------- ------
<S> <C>
Loans to officers $ 655,000
</TABLE>
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
(a) The annual meeting of shareholders was held on May 4,
1999.
(b) The matters voted upon at the meeting and results of
the voting with respect to those matters were as
follows:
20
<PAGE>
(1) Election of one Class II director:
<TABLE>
<CAPTION>
For Withheld
---------- --------
<S> <C> <C>
Thomas C. McConnell 12,293,006 150,529
</TABLE>
(2) Approve amendment to the Incentive Stock
Plan to increase the number of shares of
Common Stock reserved for issuance
thereunder by 500,000 shares to a new total
of 3,300,000 shares.
<TABLE>
<S> <C> <C>
For 11,470,519 Against 910,605 Abstain 62,411
---------- ------- ------
</TABLE>
(3) Confirm appointment of
PricewaterhouseCoopers LLP as the
independent auditors of the Company for the
fiscal year ending December 31, 1999.
<TABLE>
<S> <C> <C>
For 12,418,769 Against 7,430 Abstain 17,336
---------- ----- ------
</TABLE>
The foregoing matters are described in detail in the Company's
definitive proxy statement dated April 1, 1999 for the Annual
Meeting of Shareholders held May 4, 1999.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8 - K.
a) Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Description
------- ------------------------------------------------------------
<S> <C>
3.2(1) Restated Certificate of Incorporation.
3.3(7) Bylaws (as amended).
3.4(4) Certificate of Designations of Rights, Preferences and
Privileges of Series A Participating Preferred Stock
3.5(4) Preferred Shares Rights Agreement, dated as of
February 14, 1997.
3.6(7) Certificate of Amendment to Restated Certificate of Incorporation.
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(8) Incentive Stock Plan and forms 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(5) Nonstatutory Stock Option Plan and form of Nonstatutory Stock Option
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- ------------------------------------------------------------
<S> <C>
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.
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.
10.17(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.
10.27(2) Employment Agreement, dated April 19, 1996, between the Company and
Steve Van Dick.
10.29(2) Promissory Note for $35,000 dated May 20, 1996, between the Company
and Michael Billig.
10.31(3) Promissory Note for $750,000 and Security Agreement dated August 16,
1996, between the Company and Richard Ferrari.
10.32(5) Promissory Note for $200,000 dated December 3, 1996, between the
Company and Steve Van Dick.
10.33(6) Employment Letter Agreement, dated February 25, 1997, between the
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- ------------------------------------------------------------
<S> <C>
Company and Jeffrey Gold.
10.34(7) Employment Letter Agreement, dated July 17, 1997, between the Company
and Geoffrey Dillon.
10.35(7) Employment Letter Agreement, dated November 24, 1997, between the
Company and Richard Lotti.
10.36(8) 1998 Nonstatutory Stock Option Plan and forms of Agreements thereunder.
10.37(9) 1998 Employee Stock Purchase Plan and forms of agreements thereunder.
27.1 Financial Data Schedule
</TABLE>
- --------------
(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 June
30, 1996.
(3) 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.
(4) 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.
(5) 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.
(6) Incorporated herein by reference to the same-numbered exhibit
previously filed with the Company's Form 10-Q for the period ended June
27, 1997.
(7) Incorporated herein by reference to the same-numbered exhibit
previously filed with the Company's Form 10-K for the period ended
January 2, 1998.
(8) Incorporated herein by reference to the Company's Registration
Statement on Form S-8, filed with the Securities and Exchange
Commission on May 27, 1998.
(9) Incorporated herein by reference to the Company's Registration
Statement on Form S-8, filed with the Securities and Exchange
Commission on January 22, 1999.
- --------------
b) Reports on Form 8-K
None
23
<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: August 12, 1999 CARDIOTHORACIC SYSTEMS, INC.
/s/ Richard M. Ferrari
----------------------------------------
Richard M. Ferrari
President and Chief Executive Officer
/s/ Steven M. Van Dick
----------------------------------------
Steven M. Van Dick
Vice President, Finance and Chief
Financial Officer (Principal Financial
and Accounting Officer)
24
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
- ------- ---------------------------------------------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
25
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS INCLUDED IN OUR QUARTERLY REPORT FOR THE PERIOD ENDING JULY 2, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-02-1999
<PERIOD-END> JUL-02-1999
<CASH> 3,944,000
<SECURITIES> 22,360,000
<RECEIVABLES> 5,096,000
<ALLOWANCES> (486,000)
<INVENTORY> 2,930,000
<CURRENT-ASSETS> 35,238,000
<PP&E> 7,342,000
<DEPRECIATION> (4,375,000)
<TOTAL-ASSETS> 43,877,000
<CURRENT-LIABILITIES> 7,447,000
<BONDS> 0
0
0
<COMMON> 104,024,000
<OTHER-SE> (68,736,000)
<TOTAL-LIABILITY-AND-EQUITY> 43,877,000
<SALES> 13,662,000
<TOTAL-REVENUES> 13,662,000
<CGS> 4,907,000
<TOTAL-COSTS> 4,907,000
<OTHER-EXPENSES> 15,585,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 107,000
<INCOME-PRETAX> (6,011,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,011,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,011,000)
<EPS-BASIC> (.42)
<EPS-DILUTED> (.42)
</TABLE>
