<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 April 4, 1998 or
[ ] Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the transition period
from __________ to ___________
COMMISSION FILE NUMBER: 1-8145
THORATEC LABORATORIES CORPORATION
- -------------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
California 94-2340464
- ------------------------------------------------- -------------------------
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer
Organization) Identification No.)
6035 Stoneridge Drive, Pleasanton, California 94588
- ----------------------------------------------------- ------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (925) 847-8600
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of May 6, 1998 registrant had 20,319,328 shares of common stock
outstanding.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
THORATEC LABORATORIES CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
April 4, January 3,
1998 1998
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalent $ 5,219,138 $ 9,469,311
Short-term investments available-for-sale 5,463,262 5,390,663
Receivables 2,166,263 1,302,323
Inventories (Note 3) 4,591,219 3,901,258
Prepaid expenses and other 275,490 270,865
----------- -----------
Total current assets 17,715,372 20,334,420
Equipment and leasehold improvements, at cost 11,848,382 8,823,679
Accumulated depreciation and amortization (2,313,971) (2,154,105)
----------- -----------
Equipment and leasehold improvements - net 9,534,411 6,669,574
Other Assets 1,489,617 1,473,180
----------- -----------
TOTAL ASSETS $28,739,400 $28,477,174
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 4,040,453 2,804,400
Accrued compensation 725,343 929,920
Other 570,963 715,577
----------- -----------
Total current liabilities 5,336,759 4,449,897
Commitments
Shareholders' Equity:
Common shares, 100,000,000 authorized;
issued and outstanding 20,319,328 in 1998
and 20,172,445 in 1997 72,683,439 72,664,107
Paid-in capital 2,482,229 2,482,229
Accumulated deficit (51,755,764) (51,081,554)
Other comprehensive loss:
Unrealized loss on investments - net (1,037) (7,539)
Cumulative translation adjustments (6,226) (29,966)
----------- ------------
Total other comprehensive loss (7,263) (37,505)
----------- -----------
Total shareholders' equity 23,402,641 24,027,277
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $28,739,400 $28,477,174
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements
2
<PAGE> 3
<TABLE>
<CAPTION>
THORATEC LABORATORIES CORPORATION AND SUBSIDIARY CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
------------------------------
April 4, March 29,
1998 1997
------------ ------------
<S> <C> <C>
Revenue:
Product sales - net $ 3,503,064 $ 1,841,680
Interest and other income 199,845 203,519
------------ ------------
Total revenue 3,702,909 2,045,199
------------ ------------
Costs and expenses:
Costs of products sold 1,356,592 837,797
Research and development 1,220,060 1,222,136
Selling, general and administrative 1,800,467 1,314,420
------------ ------------
Total costs and expenses 4,377,119 3,374,353
------------ ------------
Net loss $ (674,210) $ (1,329,154)
============ ============
Basic and diluted loss per share (Note 5) $ (0.03) $ (0.07)
============ ============
Shares used to compute basic and
diluted loss per share 20,285,232 17,968,399
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
<TABLE>
<CAPTION>
THORATEC LABORATORIES CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
------------------------------
April 4, March 29,
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (674,210) $ (1,329,154)
Adjustments to reconcile net loss to net cash
used in operating activities:
Common stock options granted for services 360
Depreciation and amortization 159,866 48,663
Changes in assets and liabilities:
Receivables (863,941) (605,097)
Prepaid expenses and other (4,625) 89,339
Inventories (689,961) (162,370)
Other assets (16,437) (9,451)
Accounts payable and other liabilities (299,351) (512,322)
------------ ------------
Net cash used in operating activities (2,388,659) (2,480,032)
------------ ------------
Cash flows from investing activities:
Purchases of short-term investments
available-for-sale (5,063,978) (12,338,163)
Maturities of short-term investments
available-for-sale 4,925,000 12,700,000
Sales of short-term investments available-for-sale 72,881 4,170,783
Capital expenditures (1,814,749) (440,880)
------------ ------------
Net cash provided by (used in) investing
activities (1,880,846) 4,091,740
------------ ------------
Cash flows from financing activities:
Common stock issued upon exercise of options 19,332 12,422
------------ ------------
Net cash provided by financing activities 19,332 12,422
------------ ------------
Net increase (decrease) in cash and cash equivalents (4,250,173) 1,624,130
Cash and cash equivalents at beginning of period 9,469,311 5,348,000
------------ ------------
Cash and cash equivalents at end of period $ 5,219,138 $ 6,972,130
============ ============
Noncash Financing Transaction:
Construction costs and capital assets in
accounts payable $ 2,452,549 $ 79,215
</TABLE>
See notes to condensed consolidated financial statements.
4
<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
April 4, 1998 and for all periods presented. The results of operations
for any interim period are not necessarily indicative of results for a
full year.
The consolidated balance sheet presented as of January 3, 1998, has been
derived from the consolidated financial statements that have been
audited by the Company's independent public accountants. The
consolidated financial statements and notes are presented as permitted
by the Securities and Exchange Commission and do not contain certain
information included in the annual consolidated financial statements and
notes of the Company. It is suggested that the accompanying condensed
consolidated financial statements to be read in conjunction with the
audited consolidated financial statements and the notes thereto
contained in the Company's Annual Report on Form 10-K for the fiscal
year ended January 3, 1998, filed with the Securities and Exchange
Commission.
The preparation of the Company's consolidated financial statements in
conformity with generally accepted accounting principles necessarily
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the consolidated balance sheet dates and the
reported amounts of revenues and expenses for the periods presented.
Certain reclassifications have been made to the 1997 amounts to conform
to the 1998 presentation.
2. RECENTLY ISSUED ACCOUNTING STANDARD
During June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" (SFAS 131), which
establishes annual and interim standards for an enterprise's operating
segments and related disclosures about it's products, services,
geographic areas, and major customers. Adoption of this Statement will
not impact the Company's consolidated financial position, results of
operations or cash flows, and any effect will be limited to the form and
content of its disclosures. Such Statement is effective for fiscal years
beginning after December 15, 1997, with earlier application permitted .
5
<PAGE> 6
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
April 4, January 3,
1998 1998
---------- ----------
<S> <C> <C>
Finished goods $1,740,847 $1,652,312
Work in process 1,261,232 803,606
Raw materials 1,589,140 1,445,340
---------- ----------
Total $4,591,219 $3,901,258
========== ==========
</TABLE>
4. COMPREHENSIVE LOSS
Effective January 4, 1998, Thoratec Laboratories Corporation adopted
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income." This Statement requires that all items recognized
under accounting standards as components of comprehensive earnings be
reported in an annual financial statement that is displayed with the
same prominence as other annual financial statements. This statement
also requires that an entity classify items of other comprehensive
earnings by their nature in an annual financial statement. For example,
other comprehensive earnings may include foreign currency translation
adjustments, unrealized gains and losses on marketable securities
classified as available-for-sale and minimum pension liability
adjustments. Annual financial statements for prior periods will be
reclassified, as required. The Company's total comprehensive loss is as
follows:
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------
April 4, March 29,
1998 1997
--------- -----------
<S> <C> <C>
Net loss $(674,210) $(1,329,154)
Other net comprehensive income:
Foreign currency translation
adjustments 23,740 (21,789)
Unrealized gain (loss) on
securities 6,502 (3,488)
--------- -----------
Other comprehensive income (loss) 30,242 (25,277)
--------- -----------
Comprehensive loss $(643,968) $(1,354,431)
========= ===========
</TABLE>
6
<PAGE> 7
5. EARNINGS PER SHARE
The Company calculates basic earnings per share (EPS) and diluted EPS in
accordance with Statement of Financial Accounting Standards No. 128,
"Earnings per Share" (SFAS 128). Basic EPS is computed by dividing net
income (loss) for the period by the weighted average number of common
shares outstanding for that period. Diluted EPS takes into account the
effect of dilutive instruments, such as stock options, and uses the
average share price for the period in determining the number of
incremental shares that are to be added to the weighted average number
of shares outstanding. Diluted EPS for the three months ended April 4,
1998 and the three months ended March 29, 1997 exclude any effect of
such instruments because their inclusion would be antidilutive.
The following is a summary of the calculation of the number of shares
used in calculating basic and diluted EPS:
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------
April 4, March 29,
1998 1997
---------- -----------
<S> <C> <C>
Shares used to compute basic EPS 20,285,232 17,968,399
Add: effect of dilutive securities -- --
---------- -----------
Shares used to compute diluted EPS 20,285,232 17,968,399
========== ==========
</TABLE>
7
<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 1998 the Company had working capital of
$12,379,000 compared with $15,885,000 at the end of 1997. The decrease in
working capital was due to a decrease in cash and an increase in accounts
payable partially offset by increases in receivables and inventories. Cash was
used to support ongoing operations as well as planned expenditures on the
Company's new manufacturing facility. Receivables increased principally due to
higher sales in March compared to December. Inventories increased in preparation
for planned increases in sales activity including the planned introduction of
the Company's portable VAD driver, the TLC-II. Accounts payable increased due to
timing of construction payments related to the new manufacturing facility.
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 1998 were approximately $3,503,000
compared to $1,842,000 in the first quarter of 1997. The $1,661,000, or 90%,
increase is principally the result of increased sales of the Company's VAD
System in the United States and Europe. The increase is due to increases in the
number of domestic and European centers using the VAD System since direct sales
and marketing efforts were initiated in early 1996 and mid-1997, respectively,
as well as increases in the average selling price of the VAD System. Interest
and other income in the first quarter of 1998 were relatively unchanged when
compared to the first quarter of 1997. Cost of sales increased $519,000, or 62%,
in 1998 as a result of higher sales in 1998. Gross margin increased from 55% in
1997 to 61% in 1998 due to changes in sales mix with increased unit sales of VAD
pumps and higher average selling prices for the VAD System. Research and
development expenses for the first quarter of 1998 were relatively unchanged in
total compared to the first quarter of 1997 with spending increasing on the
Coronary Artery Bypass Graft product and decreasing on the TLC-II portable
driver and Vascular Access Graft products. Selling, general and administrative
expenses in the first quarter of 1998 increased $486,000, or 37%, compared to
the first quarter of 1997 due principally to expanded domestic and European
sales and marketing efforts, including the implementation of a direct sales
strategy in Europe, increased customer clinical support training and the
establishment of a medical advisory board.
Forward-Looking Statements
The portions of this report that relate to future plans, events or performance
are forward-looking statements. Investors are cautioned that all such statements
involve risks and uncertainties, including announcements by the Company's
competitors, risks related to the government regulatory approval processes,
delays in facility construction, delays in product development and new product
introductions, rapidly changing technology, an intensely competitive market,
market acceptance of new products, relationships with foreign distributors,
reimbursement policies and general economic conditions. These factors, and
others, are discussed more fully in the company's annual report on Form 10-K for
the fiscal
8
<PAGE> 9
year ended January 3, 1998, and the Company's other filings with the Securities
and Exchange Commission. Actual results, events or performance may differ
materially. These forward-looking statements speak only as of the date hereof.
The Company undertakes no obligation to publicly release the result of any
revisions to these forward-looking statements that may be made to reflect events
or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
9
<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.
10
<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 8, 1998 /s/ D. Keith Grossman
----------- ------------------------------------------------
D. Keith Grossman, Chief Executive Officer
Date: May 8, 1998 /s/ Cheryl D. Hess
----------- -------------------------------------------------
Cheryl D. Hess, Chief Financial Officer
11
<PAGE> 12
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Document
-------------- ---------
<S> <C>
27 Financial Data Schedule
</TABLE>
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS, STATEMENTS OF OPERATIONS AND STATEMENTS OF CASH FLOWS OF THORATEC
LABORATORIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF
1934 FOR THE QUARTERLY PERIOD ENDED APRIL 4, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-2-1999
<PERIOD-START> JAN-4-1998
<PERIOD-END> APR-4-1998
<CASH> 5,219,138
<SECURITIES> 5,463,262
<RECEIVABLES> 2,166,263
<ALLOWANCES> 0
<INVENTORY> 4,591,219
<CURRENT-ASSETS> 17,715,372
<PP&E> 11,848,382
<DEPRECIATION> (2,313,971)
<TOTAL-ASSETS> 28,739,400
<CURRENT-LIABILITIES> 5,336,759
<BONDS> 0
0
0
<COMMON> 72,683,439
<OTHER-SE> (49,280,798)
<TOTAL-LIABILITY-AND-EQUITY> 28,739,400
<SALES> 3,503,064
<TOTAL-REVENUES> 3,702,909
<CGS> 1,356,592
<TOTAL-COSTS> 1,356,592
<OTHER-EXPENSES> 3,020,527
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (674,210)
<INCOME-TAX> 0
<INCOME-CONTINUING> (674,210)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (674,210)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
