<PAGE> 1
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark one)
/X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 30, 1996 or
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to
---------- ----------
COMMISSION FILE NUMBER: 1-8145
THORATEC LABORATORIES CORPORATION
(Exact Name of Small Business Issuer as Specified in Its Charter)
<TABLE>
<S> <C>
California 94-2340464
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
2023 Eighth Street, Berkeley, California 94710
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (510) 841-1213
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
As of May 6, 1996 registrant had 46,759,255 shares of common stock
outstanding.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THORATEC LABORATORIES CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 30, December 30,
1996 1995
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 1,959,364 $ 1,645,523
Receivables 552,672 581,298
Inventories (Note 3) 1,347,126 1,374,164
Prepaid expenses and other 174,413 249,048
------------ ------------
Total current assets 4,033,575 3,850,033
Equipment and Leasehold Improvements, at cost 2,163,454 2,119,085
Accumulated depreciation and amortization (1,752,709) (1,725,726)
------------ ------------
Equipment and leasehold improvements - net 410,745 393,359
Other Assets 163,448 136,645
------------ ------------
TOTAL ASSETS $ 4,607,768 $ 4,380,037
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 484,070 $ 598,100
Accrued compensation 197,808 101,006
Other 384,997 343,260
------------ ------------
Total current liabilites 1,066,875 1,042,366
Long-Term Debt (Note 4) 1,675,000
Commitments
Shareholders' Equity:
Common shares, 100,000,000 authorized;
46,726,055 and 44,799,409 issued 45,855,762 42,746,421
Additional paid-in capital 2,348,689 2,333,689
Accumulated deficit (44,660,831) (43,416,454)
Cumulative translation adjustment (2,727) (985)
------------ ------------
Total shareholders' equity 3,540,893 1,662,671
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,607,768 $ 4,380,037
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
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THORATEC LABORATORIES CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
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March 30, April 1,
1996 1995
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<S> <C> <C>
Revenue:
Product sales - net $ 1,301,649 $ 939,101
Interest and Other income 38,621 9,770
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Total revenue 1,340,270 948,871
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Costs and expenses:
Cost of products sold 821,899 442,464
Research and development 605,587 335,614
Selling, general and administrative 733,055 313,936
Debt conversion expense (Note 4) 378,295
Interest expense 45,811 45,884
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Total costs and expenses 2,584,647 1,137,898
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Net Loss $(1,244,377) $ (189,027)
=========== ==========
Net loss per common share $ (.03) $ .00
=========== ==========
Weighted average number of common
shares outstanding 45,379,168 42,740,242
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 4
THORATEC LABORATORIES CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------
March 30, April 1,
1996 1995
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<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,244,377) $ (189,027)
Adjustments to reconcile net loss to net cash used in
operating activities:
Debt conversion expense 378,295
Common stock options granted for services 15,000
Depreciation and amortization 30,109 25,945
Loss on disposal of equipment 161
Changes in assets and liabilities:
Receivables, prepaid expenses and other 103,261 (163,857)
Inventories 27,038 39,700
Other assets (29,929) (98,000)
Accounts payable and other liabilities 22,767 340,452
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Net cash used in operating activities (697,836) (44,626)
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Cash flows from investing activities:
Proceeds from sale of long-term assets 500
Capital expenditures (44,369) (32,346)
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Net cash used in investing activities (44,369) (31,846)
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Cash flows from financing activities:
Common stock issued upon exercise of warrants 961,739
Common stock issued upon exercise of options 94,307 7,804
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Net cash provided in financing activities 1,056,046 7,804
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Net increase (decrease) in cash and cash equivalents 313,841 (68,668)
Cash and cash equivalents at beginning of period 1,645,523 1,026,229
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Cash and cash equivalents at end of period $ 1,959,364 $ 957,561
=========== ==========
Noncash Financing Transactions:
Conversion of long-term debt into common stock $ 1,675,000
=========== ==========
Other Cash Flow Information:
Interest paid $ 45,811 $ 45,884
=========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 5
THORATEC LABORATORIES CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The interim consolidated financial statements presented have been
prepared by Thoratec Laboratories Corporation (the Company) without
audit and, in the opinion of management, reflect all adjustments
necessary (consisting only of normal recurring adjustments) to present
fairly the financial position, results of operations and cash flows at
March 30, 1996 and for all periods presented. The results of operations
for any interim period are not necessarily indicative of results for a
full year.
The consolidated balance sheet presented as of December 30, 1995, has
been derived from the consolidated financial statements that have been
audited by the Company's independent public accountants. The
consolidated financial statements and notes are presented as permitted
by the Securities and Exchange Commission and do not contain certain
information included in the annual consolidated financial statements
and notes of the Company. It is suggested that the accompanying
condensed consolidated financial statements be read in conjunction with
the audited consolidated financial statements and the notes thereto
contained in the Company's Annual Report on Form 10-K for the fiscal
year ended December 30, 1995, filed with the Securities and Exchange
Commission.
The preparation of the Company's consolidated financial statements in
conformity with generally accepted accounting principles necessarily
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the consolidated balance sheet dates and the
reported amounts of revenues and expenses for the periods presented.
Actual results may differ from such estimates.
2. GOING CONCERN ACCOUNTING BASIS
The accompanying condensed consolidated financial statements have been
prepared on a going concern basis which contemplates the realization of
assets and the settlement of liabilities and commitments in the normal
course of business. The Company incurred a net loss of $1,244,377 and
used cash in operating activities of $697,836 for the three months
ended March 30, 1996 and, as of March 30, 1996, had an accumulated
deficit of $44,660,831. The Company expects that it will continue to
incur substantial expenses relating to its research and development
efforts and sales and marketing and that, as a result, it will incur
losses for at least the next year. The Company's working capital plus
limited revenue from product sales will not be sufficient to meet the
Company's cash needs through 1996 as presently structured. Management
recognizes that the Company must generate additional resources or
consider modifications to its research and development efforts or other
reductions in operating costs to enable it to continue operations with
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<PAGE> 6
available resources. These factors, among others, raise substantial
doubt about the Company's ability to continue as a going concern. The
condensed consolidated financial statements do not include any
adjustments relating to the recoverability and classification of
recorded asset amounts or the amounts and classification of liabilities
that might be necessary should the Company be unable to continue as a
going concern. Management's plans include several alternatives for
securing additional funds, including public and private placement of
equity which would generate sufficient resources to assure continuation
of the Company's operations and research efforts. However, no
assurances can be given that the Company will be successful in raising
additional capital. Further, there can be no assurance, assuming the
Company successfully raises additional funds, that the Company will
achieve profitability or positive cash flow. If the Company is unable
to obtain adequate additional financing, management will be required to
sharply curtail the Company's research and development efforts and to
curtail certain other of its operations.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
March 30, December 30,
1996 1995
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<S> <C> <C>
Finished goods $ 459,891 $ 397,462
Work in process 651,611 540,673
Raw materials 235,624 436,029
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Total $1,347,126 $1,374,164
========== ==========
</TABLE>
4. LONG-TERM DEBT
In the last quarter of 1994, the Company placed $1.675 million of
convertible secured debt with private lenders. The notes were
convertible into common stock at rates ranging from $1.64 to $2.125 per
share, bore interest at 11% and were due in three years. The debt was
secured by the royalties payable pursuant to the Licensing Agreement
with COBE Laboratories, Inc., all accounts receivable, equipment and
inventory. Five-year warrants to purchase 630,604 shares of Thoratec
common stock at $2.125 per share were also issued with the convertible
notes.
In the first quarter of 1996, all $1.675 million of these notes were
converted into 1,027,610 shares of common stock, according to the terms
of the original transaction. In connection with this conversion, the
Company reduced the exercise price of the related five-year warrants to
$1.50 per share for a thirty day period. All warrants issued in
connection with the above noted convertible secured debt (representing
641,159 shares as adjusted for antidilutive provisions) were exercised
for a total of approximately $960,000. Since all warrants were
exchanged and the exercise price reduced, $378,000 of noncash debt
conversion expense was recorded.
5. EMPLOYMENT AGREEMENT
In January 1996, the Company entered into a four-year employment
agreement with a key executive officer. This employment agreement
provides for, among other provisions, a minimum base salary, annual
bonus based on performance, severance package and the issuance of
1,000,000 non-qualified stock options. See Note 6.
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<PAGE> 7
6. OPTIONS AND WARRANTS
In the first quarter of 1996, the Directors adopted the 1996 Stock
Option Plan ("1996 SOP") and the 1996 Nonemployee Directors Stock
Option Plan ("Directors Option Plan"). The 1996 SOP consists of two
parts. Part One permits the Company to grant options to purchase up to
1,500,000 shares of common stock. During the first quarter of 1996,
115,000 options were granted at fair market value under this plan.
Part One of the 1996 SOP is subject to Shareholder approval. Part Two
relates to the Chief Executive Officer ("CEO") and permits the Company
to grant non-qualified options to the CEO to purchase up to 1,000,000
shares of common stock. During the first quarter of 1996, 1,000,000
options were granted at fair market value under this Plan. Part Two of
the 1996 SOP required Director approval only. The Directors Option
Plan permits the Company to grant options to purchase up to 450,000
shares of common stock. The Company currently has five non-employee
directors who are eligible to participate in the Directors Option
Plan and no options have been granted as of March 30, 1996. The
Directors Option Plan is subject to Shareholder approval.
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<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
Liquidity and Capital Resources
At the end of the first quarter of 1996 the Company had working capital of
$2,967,000 compared with $2,808,000 at the end of 1995. The increase in working
capital was primarily due to proceeds received upon exercise of warrants to
purchase common stock (see Note 4) partially offset by the loss from operations.
Concurrent with the warrant exercise, all $1.675 million of secured notes
payable were converted into common stock. Receivables and inventories were
essentially unchanged from the 1995 year end. Prepaid expenses and other and
accounts payable decreased due principally to scheduled receipts of prepaid
inventory items and reduction in related payables. In the first quarter of 1996,
the Company financed its operations with its own cash reserves and with proceeds
received from the exercise of common stock warrants. The Company believes it
will need additional financing in 1996 to execute its business plan and is
exploring several alternatives for securing theses funds, including public and
private placement of equity. There can be no assurance that such funds will be
available.
Note 2 to the condensed consolidated financial statements states in part that
there are conditions which raise substantial doubt about the Company's ability
to continue as a going concern. The Company needs substantial additional funds
to continue operations. The Company's continuation as a going concern is
dependent on its ability to execute its plan to secure additional financing,
improve the profitability of product lines, develop new sources of revenue
including new products, and ultimately attain successful operations.
The Company has incurred operating losses in each year since the 1981 fiscal
year and has sustained its operations from cash from product sales and various
private placements of equity and debt securities. The Company expects that its
operating expenses will increase in future periods as the Company expends
increased amounts on product manufacturing and marketing and on preclinical and
clinical testing of its graft products and continued development of the TLC-II
portable driver for the VAD System and an implantable version of the VAD. There
can be no assurance that the Company will be profitable in the future.
Results of Operations
In December 1995, the Company received FDA approval for its VAD System as a
bridge to heart transplant. Sales of the Thoratec(R) VAD System in the first
quarter of 1996 were 39% higher than product sales in the first quarter of 1995
primarily as a result of the FDA approval and the establishment of a domestic
sales organization in late 1995 and early 1996. Domestic sales increased 96% in
the first quarter of 1996 over the first quarter of 1995. Interest and other
income increased in 1996 due to higher cash balances and a government project
grant supporting the development of the skeletal muscle powered VAD System. Cost
of sales increased 86% in 1996 as a result of the higher sales volume in 1996
and approximately $100,000 incurred to upgrade existing investigational center
equipment. Research and development expenses for the first quarter increased 80%
in 1996 compared to 1995 due to increased costs associated with the development
of the Company's portable VAD driver, the TLC-II, and its graft
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<PAGE> 9
products. Selling, general and administrative expenses increased 134% in 1996
over 1995, principally as a result of establishing the domestic sales and
marketing organization, higher recruiting costs for both marketing and
administrative personnel, and general support needed for expected growth. In
order to induce early conversion of the 641,159 warrants, the Company
temporarily reduced the exercise price from $2.09 (as adjusted for antidilutive
provisions) to $1.50 and recorded a $378,000 noncash debt conversion expense in
the first quarter of 1996.
The Company expects profitability will continue to be adversely impacted by
various fixed costs until all its current products have received pre-market
approval in the United States and approval for sale in its major international
markets. The Thoratec(R) VAD System continues to be sold under an IDE for
recovery of the natural heart. The Company does not expect that inflation will
have a material impact on its operations.
Forward Looking Statements
Statements in this report regarding the Company's belief and expectation for
needed future financing, exploration of financing alternatives, future expense
levels and adverse impact on profitability are forward looking statements.
Actual results could differ materially due to a variety of factors, including
product development schedules, the timing of regulatory approvals for the
Company's products and those of competitors, product announcements and
introductions by competitors.
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<PAGE> 10
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K
See Exhibit Index on the page immediately preceding exhibits.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter.
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<PAGE> 11
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
THORATEC LABORATORIES CORPORATION
Date: May 10, 1996 /s/ D. Keith Grossman
----------------- ------------------------------------------
D. Keith Grossman, Chief Executive Officer
Date: May 10, 1996 /s/ Cheryl D. Hess
----------------- ------------------------------------------
Cheryl D. Hess, Chief Financial Officer
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<PAGE> 12
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Document
- -------------- --------
<S> <C>
11 Statement Re: Computation of Per-Share Earnings
27 Financial Data Schedule
</TABLE>
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<PAGE> 1
Exhibit 11
STATEMENT RE: COMPUTATION OF PER-SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------
March 30, April 1,
1996 1995
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<S> <C> <C>
Number of common shares
outstanding for entire period 44,799,409 42,730,831
Weighted average number
of shares issued upon conversion of
convertible notes and exercise of
warrants 550,144
Weighted average number of
shares issued upon exercise of
options 29,615 9,411
----------- -----------
Weighted average number of
common shares outstanding 45,379,168 42,740,242
=========== ===========
Net loss $(1,244,377) $ (189,027)
=========== ===========
Net loss per common share $ (.03) $ .00
=========== ===========
</TABLE>
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> MAR-30-1996
<EXCHANGE-RATE> 1
<CASH> 1,959,364
<SECURITIES> 0
<RECEIVABLES> 552,672
<ALLOWANCES> 0
<INVENTORY> 1,347,126
<CURRENT-ASSETS> 4,033,575
<PP&E> 2,163,454
<DEPRECIATION> 1,752,709
<TOTAL-ASSETS> 4,607,768
<CURRENT-LIABILITIES> 1,066,875
<BONDS> 0
0
0
<COMMON> 45,855,762
<OTHER-SE> (42,314,869)
<TOTAL-LIABILITY-AND-EQUITY> 4,607,768
<SALES> 1,301,649
<TOTAL-REVENUES> 1,340,270
<CGS> 821,899
<TOTAL-COSTS> 821,899
<OTHER-EXPENSES> 1,716,937
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 45,811
<INCOME-PRETAX> (1,244,377)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,244,377)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,244,377)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
