<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 29, 1997 or
| | Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ________________
to _________________
COMMISSION FILE NUMBER: 1-8145
THORATEC LABORATORIES CORPORATION
- --------------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
<TABLE>
<S> <C>
California 94-2340464
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(State or Other Jurisdiction of Incorporation or (I.R.S. Employer
Organization) 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 2, 1997 registrant had 18,013,236 shares of common stock
outstanding.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THORATEC LABORATORIES CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 29, December 28,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 6,972,130 $ 5,348,000
Short-term investments available-for-sale 6,095,882 10,631,990
Receivables 1,438,797 833,700
Inventories (Note 3) 2,988,590 2,826,220
Prepaid expenses and other 177,180 266,519
------------ ------------
Total current assets 17,672,579 19,906,429
Equipment and leasehold improvements, at cost 3,276,859 3,043,188
Accumulated depreciation and amortization (1,954,205) (1,908,667)
------------ ------------
Equipment and leasehold improvements - net 1,322,654 1,134,521
Other Assets 935,821 929,495
------------ ------------
TOTAL ASSETS $ 19,931,054 $ 21,970,445
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 911,857 $ 1,352,732
Accrued compensation 467,747 527,497
Other 563,209 760,326
------------ ------------
Total current liabilities 1,942,813 2,640,555
Commitments
Shareholders' Equity:
Common shares, 100,000,000 authorized;
issued and outstanding 17,974,591 in 1997
and 17,942,117 in 1996 63,531,561 63,519,139
Paid-in capital 2,472,237 2,471,877
Accumulated deficit (48,008,349) (46,679,195)
Unrealized gain on investments - net 2,163 5,651
Cumulative translation adjustment (9,371) 12,418
------------ ------------
Total shareholders' equity 17,988,241 19,329,890
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 19,931,054 $ 21,970,445
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 3
THORATEC LABORATORIES CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------
March 29, March 30,
1997 1996
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<S> <C> <C>
Revenue:
Product sales - net $ 1,841,680 $ 1,301,649
Interest and other income 203,519 38,621
------------ -----------
Total revenue 2,045,199 1,340,270
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Costs and expenses:
Costs of products sold 837,797 821,899
Research and development 1,222,136 605,587
Selling, general and administrative 1,314,420 733,055
Debt conversion expense 378,295
Interest expense 45,811
------------ -----------
Total costs and expenses 3,374,353 2,584,647
------------ -----------
Net loss $ (1,329,154) $(1,244,377)
============ ===========
Net loss per common share $ (.07) $ (.08)
============ ===========
Weighted average number of common
shares outstanding 17,968,399 15,126,390
</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 29, March 30,
1997 1996
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<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,329,154) $(1,244,377)
Adjustments to reconcile net loss to net cash used in
operating activities:
Debt conversion expense 378,295
Common stock options granted for services 360 15,000
Depreciation and amortization 48,663 30,109
Changes in assets and liabilities:
Receivables (605,097) 28,626
Prepaid expenses and other 89,339 74,635
Inventories (162,370) 27,038
Other assets (9,451) (29,929)
Accounts payable and other liabilities (433,107) 22,767
------------ -----------
Net cash used in operating activities (2,400,817) (697,836)
------------ -----------
Cash flows from investing activities:
Purchases of short-term investments available-for-sale (12,338,163)
Maturities of short-term investments available-for-sale 12,700,000
Sales of short-term investments available-for-sale 4,170,783
Capital expenditures (520,095) (44,369)
------------ -----------
Net cash provided by (used in) investing activities 4,012,525 (44,369)
------------ -----------
Cash flows from financing activities:
Common stock issued upon exercise of warrants 961,739
Common stock issued upon exercise of options 12,422 94,307
------------ -----------
Net cash provided by financing activities 12,422 1,056,046
------------ -----------
Net increase in cash and cash equivalents 1,624,130 313,841
Cash and cash equivalents at beginning of period 5,348,000 1,645,523
------------ -----------
Cash and cash equivalents at end of period $ 6,972,130 $ 1,959,364
============ ===========
Noncash Financing Transaction:
Conversion of long-term debt into common stock $ $ 1,675,000
Other Cash Flow Information:
Interest paid $ $ 45,811
</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 29, 1997 and for all periods presented. The results of operations
for any interim period are not necessarily indicative of results for a
full year.
The consolidated balance sheet presented as of December 28, 1996, has
been derived from the consolidated financial statements that have been
audited by the Company's independent 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 28, 1996, filed with the Securities and Exchange
Commission.
The preparation of the Company's consolidated financial statements in
conformity with generally accepted accounting principles necessarily
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the consolidated balance sheet dates and the
reported amounts of revenues and expenses for the periods presented.
2. RECENTLY ISSUED ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per
Share" (SFAS 128). The Company is required to adopt SFAS 128 in the
fourth quarter of fiscal 1997 and will restate at that time earnings
per share (EPS) data for prior periods to conform with SFAS 128.
Earlier application is not permitted.
SFAS 128 replaces current EPS reporting requirements and requires a
dual presentation of basic and diluted EPS. Basic EPS excludes dilution
and is computed by dividing net income available to common shareholders
by the weighted average number of common shares outstanding during the
period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or
converted into common stock.
If SFAS 128 had been in effect during the current and prior periods,
basic EPS and diluted EPS would not have been significantly different
than primary EPS and fully diluted EPS currently reported for the
periods. Fully diluted EPS, as with diluted EPS, is not reported due to
its antidilutive effect on EPS.
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<PAGE> 6
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
March 29, December 28,
1997 1996
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<S> <C> <C>
Finished goods $1,606,358 $1,639,444
Work in process 849,717 648,622
Raw materials 532,515 538,154
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Total $2,988,590 $2,826,220
========== ==========
</TABLE>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
Liquidity and Capital Resources
At the end of the first quarter of 1997 the Company had working capital of
$15,730,000 compared with $17,266,000 at the end of 1996. The decrease in
working capital was due primarily to the use of short-term investments to
support ongoing operations as well as planned new manufacturing facility
construction activities during the first quarter of 1997. The decreases in
short-term investments, accounts payable and other accrued liabilities was
partially offset by increases in receivables and inventories. Receivables
increased principally due to higher sales in March compared to December.
Inventories increased in preparation for planned increases in sales activity.
Accounts payable and accrued liabilities decreased due to lower balances
outstanding from capital asset construction, research and development material
purchases, and other operating items.
While the Company believes it has sufficient funds for its current business plan
it expects that its operating expenses will increase in future periods as the
Company expends increased amounts on product manufacturing and marketing and on
research and development of new product lines. As a result, the Company expects
to incur net losses for at least the current year. There can be no assurance
that the Company will achieve profitability or positive cash flow.
The Company does not expect that inflation will have a material impact on its
operations.
Results of Operations
Product sales in the first quarter of 1997 were approximately $1,842,000
compared to $1,302,000 in the first quarter of 1996. The $540,000, or 42%,
increase is primarily the result of increased sales in the United States
following approval of the Company's VAD System by the Food and Drug
Administration in late 1995, the establishment of a domestic sales and marketing
organization in 1996, and the implementation of a rental program whereby
hospitals can rent certain of the Company's products. In February 1997, the
Company notified its largest European distributor of its VAD products that it
intended to expand its marketing efforts in Europe and would be terminating the
distribution agreement with the distributor effective mid-1997 and begin
distributing its VAD products directly to hospitals. European sales during the
first quarter of 1997 decreased approximately $200,000 as this distributor
reduced orders in preparation for termination of the distribution agreement with
the Company. Interest and other income increased approximately $165,000 to
$204,000 due to higher cash balances, primarily as a result of proceeds received
from the Company's public stock offering in July 1996. Cost of sales in 1997
increased $16,000, or 2%, as a result of higher sales volume partially offset by
reduced expenditures incurred to upgrade existing investigational center
equipment. Gross margins increased from 37% in 1996 to 55% in 1997 due
principally to the ability of the Company to raise selling prices of its VAD
products beginning in the second quarter of 1996. Research and development
expenses for the first quarter of 1997 increased $617,000, or 102%, compared to
the first quarter of 1996 due to increased costs associated with the development
of the Company's portable VAD driver, the TLC-II, and its graft products.
Selling, general and administrative expenses in the first quarter of 1997
increased $581,000, or 79%, compared to the first quarter of 1996, due to
expanded domestic and international marketing and
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sales efforts, corporate and legal expenses associated with trademark and patent
submissions, investor relations and annual report preparation, and general
support needed for expected growth. There was no debt conversion expense or
interest expense in the first quarter of 1997 because all $1,675,000 of
convertible notes issued in 1994 were converted into common stock in the first
quarter of 1996.
Forward-Looking Statements
The portions of this report that relate to future plans, events or performance
are forward-looking statements. Investors are cautioned that all such statements
involve risks and uncertainties, including announcements by the Company's
competitors, risks related to the government regulatory approval processes,
delays in facility construction, delays in product development and new product
introductions, rapidly changing technology, an intensely competitive market,
market acceptance of new products, relationships with foreign distributors,
reimbursement policies and general economic conditions. These factors, and
others, are discussed more fully in the Company's Form 10-K dated February 14,
1997 and the Company's other filings with the Securities and Exchange
Commission. Actual results, events or performance may differ materially. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof. The Company undertakes no obligation to
publicly release the result of any revisions to these forward-looking statements
that may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K
See Exhibit Index on the page immediately preceding exhibits.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter.
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<PAGE> 10
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 7, 1997 /s/ D. KEITH GROSSMAN
------------------ ---------------------------------------------
D. Keith Grossman, Chief Executive Officer
Date: May 7, 1997 /s/ CHERYL D. HESS
------------------ ---------------------------------------------
Cheryl D. Hess, Chief Financial Officer
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EXHIBIT INDEX
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<CAPTION>
Exhibit Number Document
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<S> <C>
11 Statement Re: Computation of Per-Share Earnings
27 Financial Data Schedule
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<PAGE> 1
Exhibit 11
STATEMENT RE: COMPUTATION OF PER-SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------
March 29, March 30,
1997 1996
------------ ------------
<S> <C> <C>
Number of common shares
outstanding for entire period 17,942,117 14,933,136
Weighted average number
of shares issued upon conversion
of convertible notes and exercise
of warrants 183,381
Weighted average number of shares
issued upon exercise of options
26,282 9,873
------------ ------------
Weighted average number of common
shares outstanding 17,968,399 15,126,390
============ ============
Net loss $ (1,329,154) $ (1,244,377)
============ ============
Net loss per common share $ (.07) $ (.08)
============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q OF
THORATEC LABORATORIES CORPORATION FOR THE QUARTER ENDED MARCH 29, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY
PERIOD ENDED MARCH 29, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-START> DEC-29-1996
<PERIOD-END> MAR-29-1997
<CASH> 6,972,130
<SECURITIES> 6,095,882
<RECEIVABLES> 1,438,797
<ALLOWANCES> 0
<INVENTORY> 2,988,590
<CURRENT-ASSETS> 17,672,579
<PP&E> 3,276,859
<DEPRECIATION> (1,954,205)
<TOTAL-ASSETS> 19,931,054
<CURRENT-LIABILITIES> 1,942,813
<BONDS> 0
0
0
<COMMON> 63,531,561
<OTHER-SE> (45,543,320)
<TOTAL-LIABILITY-AND-EQUITY> 19,931,054
<SALES> 1,841,680
<TOTAL-REVENUES> 2,045,199
<CGS> 837,797
<TOTAL-COSTS> 837,797
<OTHER-EXPENSES> 2,536,556
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,329,154)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,329,154)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,329,154)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
