================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the quarter ended March 31, 1996.
Commission file number 1-11388
PLC SYSTEMS INC.
(Exact name of registrant as specified in its charter)
BRITISH COLUMBIA, CANADA 04-3153858
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
113 CEDAR STREET, SUITE S-2, MILFORD, MASSACHUSETTS 01757
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (508) 478-5991
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 .
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the latest practical date.
Class Outstanding at May 14, 1996
Common Stock, no par value 16,436,281
================================================================================
PLC SYSTEMS INC.
INDEX
Part I. Financial Information:
Item 1.
Consolidated Balance Sheets.................................................................3
Consolidated Statements of Operations.......................................................4
Consolidated Statements of Cash Flows.......................................................5
Notes to Consolidated Financial Statements..................................................6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations.....................................7-9
Part II. Other Information:
Item 1. Legal Proceedings.....................................................................10
Item 2. Changes in Securities.................................................................10
Item 3. Defaults by the Company Upon its Senior Securities....................................10
Item 4. Submission of Matters to a Vote of Security Holders...................................10
Item 5. Other Information.....................................................................10
Item 6. Exhibits and Reports on Form 8-K..................................................... 10
-2-
ITEM 1. FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
PLC SYSTEMS INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, December 31,
1996 1995
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 4,183 $ 704
Short-term investments............................................. 11,496 6,500
Accounts receivable, net........................................... 1,811 6,749
Inventories, net .................................................. 1,961 1,789
Prepaid expenses and other current assets.......................... 778 488
-------- -------
Total current assets........................................... 20,229 16,230
Equipment, furniture and leasehold improvements, net ................. 1,722 1,692
Other assets........................................................... 312 368
------- -------
Total assets.................................................... $22,263 $18,290
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................... $ 972 $ 546
Accrued clinical costs............................................. 1,178 854
Accrued compensation............................................... 260 777
Deferred revenue................................................... 118 166
Other accrued liabilities.......................................... 377 346
-------- --------
Total current liabilities....................................... 2,905 2,689
Deferred revenue....................................................... 278 61
Capital lease obligations ............................................. 29 32
Commitments and contingencies
Stockholders' equity:
Common stock, no par value, 25,000 shares authorized, 16,419
and 15,944 shares issued and outstanding in 1996 and 1995,
respectively.................................................... 53,675 51,411
Accumulated deficit.................................................... (34,312) (35,589)
Foreign currency translation........................................... (312) (314)
--------- ----------
19,051 15,508
-------- --------
Total liabilities and stockholders' equity............................. $22,263 $18,290
======= =======
The accompanying notes are an integral part of the consolidated financial statements.
-3-
PLC SYSTEMS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three Months Ended
March 31,
1996 1995
Revenues:
Product sales..................................................... $ 4,197 $2,714
Placement and service fees........................................ 632 154
-------- --------
Total revenues................................................. 4,829 2,868
Cost of revenues:
Product sales....................................................... 1,086 1,064
Placement and service fees.......................................... 304 26
-------- ---------
Total cost of revenues......................................... 1,390 1,090
------- -------
Gross profit........................................................... 3,439 1,778
Operating expenses:
Selling, general and administrative................................. 1,451 1,017
Research and development............................................ 759 755
-------- --------
Total operating expenses......................................... 2,210 1,772
------- -------
Income from operations................................................. 1,229 6
Other income:
Interest income, net............................................... 138 157
Gain (loss) from foreign currency, net............................. (71) -
-------- ---------
67 157
-------- ---------
Income before income taxes............................................. 1,296 163
Provision for income taxes............................................. 19 -
--------- ---------
Net income............................................................. $1,277 $ 163
====== ======
Net income per share................................................... $.07 $.01
Shares used to compute net income per share............................ 17,030 17,501
The accompanying notes are an integral part of the consolidated financial statements.
-4-
PLC SYSTEMS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three Month Ended
March 31,
1996 1995
Operating activities:
Net income ......................................................... $ 1,277 $ 163
Adjustments to reconcile net income to net cash provided (used)
for operating activities:
Depreciation and amortization.................................... 236 78
Change in assets and liabilities:
Decrease (increase) in accounts receivable.................... 4,923 (2,160)
Increase in inventory......................................... (194) (197)
(Increase) decrease in prepaid expenses and other assets ..... (275) 29
Increase in accounts payable.................................. 431 251
Increase (decrease) in deferred revenue....................... 171 (17)
(Decrease) increase in accrued liabilities.................... (163) 710
--------- --------
Net cash provided (used) for operating activities...................... 6,406 (1,143)
Investing activities:
Purchase of short-term investments ................................. (11,496) (300)
Maturities of short-term investments................................ 6,500 -
Purchase of fixed assets............................................ (271) (65)
--------- --------
Net cash used for investing activities................................. (5,267) (365)
Financing activities:
Net proceeds from sales of shares................................... 2,184 -
Repayment of stockholder notes...................................... 79 56
Principal payments on capital lease obligations..................... (2) (2)
------------ ---------
Net cash provided by financing activities.............................. 2,261 54
Effect of exchange rate changes on cash and cash equivalents.......... 79 21
----------- ---------
Net (decrease) increase in cash and cash equivalents................... 3,479 (1,433)
Cash and cash equivalents at beginning of period....................... 704 3,699
---------- -------
Cash and cash equivalents at end of period............................. $ 4,183 $2,266
======== ======
The accompanying notes are an integral part of the consolidated financial statements.
-5-
PLC SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The balance sheet as of March 31, 1996 and the statement of operations
and cash flows for the three months ended March 31, 1996 and 1995 are unaudited
and in the opinion of management, all adjustments necessary for a fair
presentation of such financial statements have been recorded. Such adjustments
consisted only of normal recurring items.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The year-end balance sheet data was
derived from audited financial statements, but does not include disclosures
required by generally accepted accounting principles. It is suggested that these
interim financial statements be read in conjunction with the Company's most
recent Form 10-K and Annual Report as of December 31, 1995.
2. NET INCOME PER SHARE
Net income per share is calculated using the weighted average number of
shares and share equivalents outstanding during the period. Share equivalents
consist of stock options and stock warrants.
3. INVENTORY
Inventories consist of the following (in thousands):
March 31, December 31,
1996 1995
Raw materials . . . . . . . . . . . . . . . . . . . . . $1,053 $ 644
Work in process . . . . . . . . . . . . . . . . . . . . 337 56
Finished goods . . . . . . . . . . . . . . . . . . . . . 571 1,089
-------- -------
$1,961 $1,789
====== ======
4. STOCK WARRANTS
On March 8, 1996, the Company's Form S-3 to register the common stock
underlying the warrants issued to the Company's 1992 underwriters and 1994
placement agent was declared effective by the Securities and Exchange
Commission. The warrant issued to the underwriters provided for the purchase of
145,000 shares at $6.00 per share and 72,500 shares at $4.80 per share. The
warrant issued to the placement agent provided for the purchase of 150,000
shares at $3.94 per share. At March 31, 1996, all of the placement agents shares
and all but 16,770 of the underwriters shares had been purchased generating
approximately $1,660,000 in proceeds.
-6-
ITEM 2.
- - --------------------------------------------------------------------------------
PLC SYSTEMS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company has two marketing strategies for selling the Heart Laser and
its related components and sterile kits; placement and sales. In countries where
health care is reimbursed by the government or by private insurers, the
Company's strategy is to be reimbursed for the use of the Heart Laser on a per
procedure basis under a contractual agreement whereby the customer commits to a
minimum number of procedures on a yearly basis. These contracts typically run
for a minimum of three years and allow for the customer to exceed the
contractual minimums. These contracts, referred to as placement contracts, are
preferred to the sale strategy as the Company believes that the potential
revenue stream is greater and more profitable. Sterile handpieces and other
disposables are included in the per procedure fee.
In countries where health care is not reimbursed by the government or
insurance, or where credit risk is high, the Heart Laser is sold as capital
equipment and the related sterile handpieces and other disposables are sold
separately for each procedure. The Company sells Heart Lasers directly and
through distributors. These sales are classified as product sales.
RESULTS OF OPERATIONS
Total revenues of $4,829,000 for the quarter ended March 31, 1996
increased $1,961,000 or 68% when compared to total revenues of $2,868,000 for
the quarter ended March 31, 1995. For the quarter ended March 31, 1996, product
sales of $4,197,000 increased $1,483,000 or 54% when compared to product sales
of $2,714,000 for the quarter ended March 31, 1995. This increase was the result
of the sale of six Heart Lasers for the quarter ended March 31, 1996 when
compared to four Heart Lasers sold for the quarter ended March 31, 1995.
Placement and service revenue of $632,000 for the quarter ended March
31, 1996 increased $478,000 over placement and service revenue of $154,000 for
the quarter ended March 31, 1995. This increase reflects the twelve placement
contracts in effect as of March 31, 1996 as compared to the two placement
contracts in effect as of March 31, 1995. The Company shipped one Heart Laser
under a placement contract in the quarter ended March 31, 1996. In addition,
there were $25,000 of service fees in the quarter ended March 31, 1996 as
compared to $9,500 for the quarter ended March 31, 1995.
Total gross profit increased to $3,439,000 or 71% of revenues for the
quarter ended March 31, 1996 as compared with $1,778,000 or 62% of revenues for
the quarter ended March 31, 1995. This improvement is the result of six Heart
Lasers being sold directly to customers by the Company's European subsidiary in
the quarter ended March 31, 1996 as compared with four Heart
-7-
PLC SYSTEMS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Lasers; two of which were sold directly and two of which were sold through
distributors in the quarter ended March 31, 1995. Heart Lasers sold directly to
customers typically carry a higher gross profit than those sold through
distributors.
Selling, general and administrative expenses of $1,451,000 for the
quarter ended March 31, 1996 increased $434,000 or 43% when compared with
$1,017,000 for the quarter ended March 31, 1995. The majority of this increase
is the direct result of the Company's expanded international sales operations in
Europe and Asia Pacific which accounted for approximately $168,000 or 39% of the
increase coupled with increased salary expense related to expanded staffing
domestically, increased commissions associated with higher sales volume and
increased consulting expenses.
Research and development expenditures of $759,000 increased $4,000 or
less than 1% for the quarter ended March 31, 1996 when compared with $755,000
for the quarter ended March 31, 1995. This small increase is the net result of
the offset between increased salary expense for expanded staffing offset by a
small decrease in spending for scientific subsidies.
Other income of $67,000 for the quarter ended March 31, 1996 decreased
$90,000 or 57% when compared to $157,000 for the quarter ended March 31, 1995.
This decrease is the result of lower interest income due to lower interest rates
throughout the quarter ended March 31, 1996 as compared to the quarter ended
March 31, 1995 coupled with a $71,000 foreign currency loss related to the
Company's European subsidiary.
Although the Company has sufficient net operating loss carryforwards to
offset income taxes for the quarter ended March 31, 1996, the provision for
income taxes represents the tax liability under the alternative minimum tax
regulations which cannot be offset by net operating loss carryforwards. There
was no provision for income tax for the quarter ended March 31, 1995.
Net income of $1,277,000 and net income per share of $.07 for the
quarter ended March 31, 1996 reflect the positive impact of the number of Heart
Lasers sold directly by the Company's European subsidiary when compared to net
income of $163,000 and net income per share of $.01 for the quarter ended March
31, 1995. The Company believes that the number and mix of Heart Lasers sold
versus shipped under placement contracts will vary from quarter to quarter. This
will impact the Company's results of operations prior to receipt of major
regulatory approvals. The Company prefers to use the placement contract strategy
whenever possible as it believes that the potential long term revenue stream is
greater and more profitable. International health care reimbursement does not
always make this placement strategy practicable outside the United States.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had cash and cash equivalents of
$4,183,000 and short-term
-8-
PLC SYSTEMS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
investments of $11,496,000. At April 30, 1996, the Company had cash and cash
equivalents of $3,136,000 and short-term investments of $11,451,000.
During the quarter ended March 31, 1996, the Company received
approximately $1,660,000 in proceeds from the exercise of stock warrants coupled
with $524,000 in proceeds from the exercise of stock options and $79,000 from
the repayment of shareholder loans. Cash provided by operations approximated
$6,400,000 principally from the collection of the $5,700,000 receivable from the
IMATRON Japan Contract and the quarterly profit of $1,277,000. As a result, the
Company invested an additional $5,000,000 in short term investments.
Approximately $271,000 was used to acquire capital equipment, principally
related to an investment in the placement laser shipped to Spain.
The Company believes that existing cash balances are sufficient to meet
working capital and capital expenditure requirements through fiscal 1997.
However, unanticipated decreases in operating revenues or increases in expenses
may adversely impact the Company's cash position. In the future, the Company may
seek additional financing through issuance and sale of debt or equity
securities, bank financing, joint ventures or other means. The availability of
such financing and the reasonableness of any related terms in comparison to
market conditions cannot be assured.
The Company believes that periodic operating losses are possible until
such time as the Company receives its PMA from the FDA for the Heart Laser. The
Company submitted its PMA application in April 1995. Although the Heart Laser
has been granted "expedited review" status by the Food and Drug Administration
("FDA"), given the current uncertainties of the time required by the FDA to
approve a Premarket Approval ("PMA") application, the Company cannot project
when, if at all, such approval would be granted. Until PMA approval, continued
profitability will likely be determined by the number of international shipments
and the related mix of sales and placements. In addition, the Company must also
successfully obtain approval from the FDA for sale of the Heart Laser in the
United States, obtain regulatory approval from and market the Heart Laser in
certain additional foreign markets, and convince health care professionals,
third party payors and the general public of the medical and economic benefits
of the Heart Laser. No assurance can be given that the Company will be
successful in marketing the Heart Laser or that the Company will be able to
operate profitably on a consistent quarterly basis.
-9-
PLC SYSTEMS INC.
Part II Other Information
ITEM 1. LEGAL PROCEEDINGS.
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS BY THE COMPANY UPON ITS SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a.) The following exhibits are filed herewith:
Exhibit
No. Title
10a Employee Agreement by and between the Company and Patricia L.
Murphy.
10b 1993 Formula Stock Option Plan, as amended.
11 Statement re Computation of Income Per Share.
27 Financial Data Schedule.
b.) Reports on Form 8-K. The Company filed a Current Report on Form
8-K on March 1, 1996, reporting information contained in the
Company's press release with respect to its financial results
for the fourth quarter and year ended December 31, 1995.
-10-
PLC SYSTEMS INC.
Part II Other Information
(Continued)
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.
PLC SYSTEMS INC.
Registrant
Date: May 15, 1996 /s/ M. Lee Hibbs
------------------- -------------------
M. Lee Hibbs
(President and Chief Executive Officer)
Date: May 15, 1996 /s/ Patricia L. Murphy
-------------------- -------------------------
Patricia L. Murphy
(Chief Financial Officer)
-11-