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 June 30, 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 August 9, 1996
----- -----------------------------
Common Stock, no par value 16,455,219
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....................................7-10
Part II. Other Information:
Item 1. Legal Proceedings.....................................................................11
Item 2. Changes in Securities.................................................................11
Item 3. Defaults by the Company Upon its Senior Securities....................................11
Item 4. Submission of Matters to a Vote of Security Holders...................................11
Item 5. Other Information.....................................................................12
Item 6. Exhibits and Reports on Form 8-K..................................................... 12
ITEM 1. FINANCIAL STATEMENTS
PLC SYSTEMS INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, December 31,
1996 1995
---- ----
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 4,307 $ 704
Short-term investments..................................... 9,441 6,500
Accounts receivable, net................................... 829 6,749
Inventories, net .......................................... 2,889 1,789
Prepaid expenses and other current assets.................. 1,152 488
------- -------
Total current assets.................................... 18,618 16,230
Equipment, furniture and leasehold improvements, net ......... 2,302 1,692
Other assets................................................... 346 368
------- -------
Total assets............................................ $21,266 $18,290
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................... $ 1,406 $ 546
Accrued clinical costs..................................... 852 854
Accrued compensation....................................... 194 777
Deferred revenue........................................... 79 166
Other accrued liabilities.................................. 394 346
------- -------
Total current liabilities............................... 2,925 2,689
Deferred revenue............................................... 254 61
Capital lease obligations ..................................... 27 32
Commitments and contingencies
Stockholders' equity:
Common stock, no par value, 25,000 shares authorized, 16,455
and 15,944 shares issued and outstanding in 1996 and 1995,
respectively............................................... 53,786 51,411
Accumulated deficit............................................ (35,215) (35,589)
Foreign currency translation................................... (511) (314)
------- -------
18,060 15,508
------- -------
Total liabilities and stockholders' equity..................... $ 21,266 $ 18,290
======== ========
The accompanying notes are an integral part of the consolidated
financial statements.
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PLC SYSTEMS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1996 1995 1996 1995
---- ---- ---- ----
Revenues:
Product sales................................. $ 769 $1,164 $4,966 $3,878
Placement and service fees.................... 662 323 1,294 477
------ ------ ------ ------
Total revenues .......................... 1,431 1,487 6,260 4,355
Cost of revenues:
Product sales................................. 174 592 1,260 1,656
Placement and service fees.................... 202 25 506 51
------ ------ ------ ------
Total cost of revenues...................... 376 617 1,766 1,707
Gross profit................................... 1,055 870 4,494 2,648
Operating expenses:
Selling, general and administrative........... 1,591 1,110 3,042 2,127
Research and development...................... 559 503 1,318 1,258
------ ------ ------ ------
Total operating expenses.................... 2,150 1,613 4,360 3,385
------ ------ ------ ------
Income (loss) from operations.................. (1,095) (743) 134 (737)
Other income:
Interest income, net.......................... 161 165 299 321
Gain (loss) from foreign currency, net........ 16 - (55) -
------ ------ ------ ------
177 165 244 321
------ ------ ------ ------
Income (loss) before income taxes.............. (918) (578) 378 (416)
Provision for income taxes..................... (15) - 4 -
------ ------ ------ ------
Net income (loss).............................. $ (903) $ (578) $ 374 $ (416)
====== ====== ====== ======
Net income (loss) per share.................... $(0.05) $(0.04) $ 0.02 $(0.03)
Shares used to compute net income (loss)
per share..................................... 16,441,000 15,849,000 17,214,000 15,847,000
The accompanying notes are an integral part of the consolidated
financial statements.
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PLC SYSTEMS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six Months Ended
June 30,
-------------------
1996 1995
Operating activities: ---- ----
Net income (loss).................................. $ 374 $(416)
Adjustments to reconcile net income to net cash
provided (used) for operating activities:
Depreciation and amortization..................... 524 164
Change in assets and liabilities:
Decrease (increase) in accounts receivable...... 5,920 (128)
Increase in inventory........................... (1,100) (1,170)
Increase in prepaid expenses and other assets... (654) (62)
Increase in accounts payable.................... 860 327
Increase (decrease) in deferred revenue......... 106 (11)
(Decrease) increase in accrued liabilities...... (538) 611
------- ------
Net cash provided (used) for operating activities.... 5,492 (685)
Investing activities:
Purchase of short-term investments................. (16,442) (8,181)
Maturities of short-term investments............... 13,501 7,857
Purchase of fixed assets........................... (1,122) (264)
------- ------
Net cash used for investing activities............... (4,063) (588)
Financing activities:
Net proceeds from sales of shares.................. 2,264 37
Repayment of stockholder notes..................... 110 56
Principal payments on capital lease obligations.... (4) (4)
------- -------
Net cash provided by financing activities............ 2,370 89
Effect of exchange rate changes on cash
and cash equivalents............................. (196) 34
------- -------
Net increase(decrease) in cash and cash equivalents.. 3,603 (1,150)
Cash and cash equivalents at beginning of period..... 704 3,699
------- -------
Cash and cash equivalents at end of period........... $ 4,307 $2,549
======= =======
The accompanying notes are an integral part of the consolidated
financial statements.
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PLC SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The balance sheet as of June 30, 1996 and the statement of operations
and cash flows for the six months ended June 30, 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 (LOSS) PER SHARE
Net income per share is calculated using the weighted average number of
shares and share equivalents outstanding during the period which consist of
stock options and stock warrants. The net loss per share is calculated using the
weighted average number of shares outstanding during the period and does not
include share equivalents.
3. INVENTORY
Inventories consist of the following (in thousands):
June 30, December 31,
1996 1995
-------- ---------
Raw materials.......................... $1,408 $ 644
Work in process........................ 508 56
Finished goods......................... 973 1,089
------ ------
$2,889 $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 June 30, 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.
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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. Revenues from these contracts
are classified as placement fees.
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 for the quarter ended June 30, 1996 were $1,431,000, a
decrease of 4% when compared to $1,487,000 for the quarter ended June 30, 1995.
Product sales for the quarter ended June 30, 1996 were $769,000, a decrease of
34% when compared to $1,164,000 for the quarter ended June 30, 1995. The major
factor in both of these quarterly decreases is the comparison of a sale of a
Heart Laser through a distributor in the quarter ended June 30, 1996 as compared
with the direct sale of a Heart Laser which was recorded in the quarter ended
June 30, 1995.
Total revenues for the six month period ended June 30, 1996 were
$6,260,000, an increase of 44% when compared to $4,355,000 for the six months
ended June 30, 1995. Product sales for the six month period ended June 30, 1996
were $4,966,000, an increase of 28% when compared to $3,878,000 for the six
months ended June 30, 1995. The major factors in both of these year to date
increases are the number of Heart Lasers shipped and the method of sale. In
1996, there were 11 Heart Lasers shipped; seven of which were sales as compared
with six shippped in 1995, five of which were sales.
Another factor in the year to date increase in total revenues is the
increase in placement and service fees. Placement and service fees for the
quarter and six months ended June 30, 1996 were $662,000 and $1,294,000,
respectively, an increase of 105% and 171% when compared with $323,000 and
$477,000 for the same periods in fiscal 1995. These significant increases
reflect the
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PLC SYSTEMS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
continued acceptance of the Company's preferred method of sale; the placement
contract, which has increased five fold over the past twelve months.
Total gross profit for the three and six month periods ended June 30,
1996 approximated 74% and 72%, respectively, up from 59% and 61% for the
comparable periods in fiscal 1995. These respective increases of 15 and 11
percentage points reflect the higher margins associated with the increased
number of direct sales of Heart Lasers in 1996 coupled with the higher margins
generated under placement contracts.
Selling, general and administrative spending of $1,591,000 and
$3,042,000 for the three and six month periods ending June 30, 1996 increased
43% from both of the comparable periods in fiscal 1995 of $1,110,000 and
$2,127,000. More than half of each of these respective increases of $481,000 and
$915,000 are a reflection of the investment the Company has made in its
international sales and marketing efforts in Europe and the Pacific Rim for both
the three and six month periods. The balance of the increases for the three and
six month periods are related to increased domestic staffing and increased
spending for consultants related to health care reimbursement of the TMR
procedure.
Research and development spending for the three and six months ended
June 30, 1996 was $559,000 and $1,318,000, respectively, an increase of 11% and
5% when compared to research spending of $503,000 and $1,258,000 for the
comparable periods in fiscal 1995. These respective increases of $56,000 and
$60,000 reflect the continued increase in spending for scientific subsidies made
to further the study of transmyocardial revascularization.
For the three and six month periods ended June 30, 1996, interest
income of $161,000 and $299,000, respectively, decreased slightly when compared
to $165,000 and $321,000 for the comparable periods in fiscal 1995. These
decreases were related to lower interest rates throughout both the three and six
month periods in 1996 as compared to the comparable periods in 1995. With the
establishment of the Company's subsidiary in Germany, currency fluctuations
between the German deutchmark and the US dollar, have resulted in a $16,000 gain
for the quarter ended June 30, 1996 and a year to date loss of $55,000.
Although the Company believes it has sufficient net operating loss
carryforwards to offset income taxes for the fiscal year ended December 31,1996,
a provision for income tax was made in the first quarter of 1996 to cover the
tax liability under the alternative minimum tax regulations which cannot be
offset by net operating loss carryforwards. With the $1,095,000 operating loss
incurred in the quarter ended June 30, 1996, this provision was subsequently
adjusted. There was no provision for income taxes in the quarter and six month
period ended June 30, 1995 due to the operating losses incurred in both periods.
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PLC SYSTEMS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
The net loss of $903,000 for the quarter ended June 30, 1996 increased
56% when compared to the net loss of $578,000 for the quarter ended June 30,
1995. This was the direct result of shipping more Heart Lasers under placement
contracts coupled with increased operating expenses associated with the
Company's investment in its international subsidiaries and the continued
investment in TMR scientific subsidies. The Company's preferred method of sale
is the placement contract as management believes the long term revenue and
profit potential is greater under this method as compared with the sale method.
For the six month period ended June 30, 1996, the Company had a net profit of
$374,000 as compared with a net loss of $416,000 for the six month period ended
June 30, 1995. This improvement is directly related to the increase in Heart
Laser sales coupled with the improved mix of direct sales in the six months
ended June 30, 1996 as compared to the six months ended June 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company had cash and cash equivalents of
$4,307,000 and short-term investments of $9,441,000. During the six months ended
June 30, 1996, the Company received approximately $1,660,000 in proceeds from
the exercise of stock warrants coupled with $604,000 in proceeds from the
exercise of stock options and $110,000 from the repayment of shareholder loans.
Cash provided by operations approximated $5,500,000 from the collection of
$5,900,000 of accounts receivable, principally the $5,700,000 IMATRON Japan
contract offset by investment in inventory. As a result, the Company invested an
additional $2,900,000 in short term investments. Approximately $1,122,000 was
used to acquire capital equipment, principally related to an investment in the
placement lasers coupled with leasehold improvements related to the Company's
new facility. On June 19, 1996, the Company signed a five year operating lease
totalling approximately $1,482,000 for its new facility in Franklin,
Massachusetts.
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
after 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.
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PLC SYSTEMS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
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.
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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.
On June 14, 1996, the Company held its Annual General Meeting of
Stockholders to vote on the following proposals:
1. To elect three members of the Board of Directors. Nominees for
Director were: (a) Harold P. Capozzi; (b) Dr. H.B. Brent Norton; and
(c) Dr. Roberts A. Smith ("Proposal No.1");
2. To approve an amendment to the Corporation's 1995 Stock Option Plan
to increase the number of shares of Common Stock that have been
reserved for issuance pursuant to the plan from 700,000 to 1,400,000
("Proposal No. 2");
3. To appoint Ernst & Young LLP as auditors for Fiscal Year 1996 and to
authorize the Directors to fix the remuneration to be paid to the
auditors ("Proposal No. 3").
Of the 16,436,281 shares of the Company's Common Stock of record as of
April 26, 1996 able to be voted at the meeting, a total of approximately
10,747,215 shares were voted, or approximately 65.4% of the Company's issued and
outstanding shares of Common Stock entitled to vote on these matters. Each of
the proposals was adopted, with the vote total as follows:
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PLC SYSTEMS INC.
Part II Other Information - Continued
SHARES SHARES SHARES
PROPOSAL VOTING FOR VOTING AGAINST ABSTAINING
-------- ---------- -------------- ----------
NO. 1
(a) Harold P. Capozzi 10,658,101 0 89,114
(b) Dr. H.B. Brent Norton 10,664,786 0 82,429
(c) Dr. Roberts A. Smith 10,665,136 0 82,079
NO. 2 9,725,288 922,189 99,738
NO. 3 10,674,035 35,660 37,520
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a.) Exhibits
(I) The following exhibits are filed herewith:
Exhibit
No. Title
------- -----
10a Form of Key Employee Agreement of Robert I. Rudko.
10b Form of Key Employee Agreement of Max L. Hibbs.
10c Lease by and between Aetna Insurance Co. and PLC Medical
Systems, Inc. dated June 19, 1996.
11 Statement re computation of per-share earnings.
27 Financial Data Schedule.
b.) Reports on Form 8-K
None
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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: August 13, 1996 /s/ Patricia L. Murphy
----------------------- -------------------------
Patricia L. Murphy
(Chief Financial Officer)
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