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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 September 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)
10 FORGE PARK, FRANKLIN, MASSACHUSETTS 02038
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (508) 541-8800
----------
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 November 13, 1996
----- --------------------------------
Common Stock, no par value 16,511,807
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PLC SYSTEMS INC.
INDEX
Part I. Financial Information:
Item 1.
Consolidated Condensed Balance Sheets..........................3
Consolidated Condensed Statements of Operations................4
Consolidated Condensed Statements of Cash Flows................5
Notes to Consolidated Condensed 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........................................11
Item 6. Exhibits and Reports on Form 8-K..................... 11-12
-2-
ITEM 1. FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
PLC SYSTEMS INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .......................................... $ 4,169 $ 704
Short-term investments ............................................. 7,472 6,500
Accounts receivable, net ........................................... 863 6,749
Inventories, net ................................................... 3,199 1,789
Prepaid expenses and other current assets .......................... 1,241 488
------- -------
Total current assets ........................................... 16,944 16,230
Equipment, furniture and leasehold improvements, net ................... 3,382 1,692
Other assets ........................................................... 370 368
------- -------
Total assets .................................................... $20,696 $18,290
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................................... $ 1,176 $ 546
Accrued clinical costs .............................................. 958 854
Accrued compensation ................................................ 178 777
Deferred revenue .................................................... 96 166
Other accrued liabilities ........................................... 338 346
-------- --------
Total current liabilities ........................................ 2,746 2,689
Deferred revenue ........................................................ 230 61
Capital lease obligations ............................................... 25 32
Commitments and contingencies
Stockholders' equity:
Common stock, no par value, 25,000 shares authorized,
16,510 and 15,944 shares issued and outstanding in 1996
and 1995, respectively ................................................ 54,004 51,411
Accumulated deficit ..................................................... (35,778) (35,589)
Foreign currency translation ............................................ (531) (314)
-------- --------
17,695 15,508
-------- --------
Total liabilities and stockholders' equity .............................. $ 20,696 $ 18,290
======== ========
</TABLE>
The accompanying notes are an integral part of the
consolidated condensed financial statements.
-3-
PLC SYSTEMS INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Product sales .............................. $ 1,802 $ 1,174 $ 6,768 $ 5,052
Placement and service fees ................. 691 417 1,985 895
------------ ------------ ------------ ------------
Total revenues ........................... 2,493 1,591 8,753 5,947
Cost of revenues:
Product sales .............................. 676 818 1,936 2,474
Placement and service fees ................. 233 143 739 195
------------ ------------ ------------ ------------
Total cost of revenues .................. 909 961 2,675 2,669
Gross profit ................................. 1,584 630 6,078 3,278
Operating expenses:
Selling, general and administrative ........ 1,555 1,114 4,597 3,241
Research and development ................... 725 458 2,043 1,716
------------ ------------ ------------ ------------
Total operating expenses ................. 2,280 1,572 6,640 4,957
------------ ------------ ------------ ------------
Loss from operations ......................... (696) (942) (562) (1,679)
Other income:
Interest income, net ....................... 123 153 422 475
Gain (loss) from foreign currency, net...... 11 -- (44) --
------------ ------------ ------------ ------------
134 153 378 475
------------ ------------ ------------ ------------
Loss before income taxes ..................... (562) (789) (184) (1,204)
Provision for income taxes ................... -- -- 4 --
------------ ------------ ------------ ------------
Net loss ..................................... $ (562) $ (789) $ (188) $ (1,204)
============ ============ ============ ============
Net loss per share ........................... $ (0.03) $ (0.05) $ (0.01) $ (0.08)
Shares used to compute net loss
per share .................................. 16,499,000 15,867,000 16,331,000 15,854,000
</TABLE>
The accompanying notes are an integral part of the
consolidated condensed financial statements.
-4-
PLC SYSTEMS INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------
1996 1995
---- ----
<S> <C> <C>
Operating activities:
Net loss ................................................ $ (188) $ (1,204)
Adjustments to reconcile net loss to net cash provided
(used) for operating activities:
Depreciation and amortization ........................ 854 329
Change in assets and liabilities:
Decrease (increase) in accounts receivable ........ 5,886 (531)
Increase in inventory ............................. (1,410) (1,014)
Increase in prepaid expenses and other assets ..... (777) (301)
Increase in accounts payable ...................... 629 346
Increase (decrease) in deferred revenue ........... 100 68
(Decrease) increase in accrued liabilities ........ (504) 419
-------- --------
Net cash provided (used) for operating activities .......... 4,590 (1,888)
Investing activities:
Purchase of short-term investments ...................... (18,444) (7,000)
Maturities of short-term investments ................... 17,472 7,858
Purchase of fixed assets ................................ (2,522) (1,037)
-------- --------
Net cash used for investing activities ..................... (3,494) (179)
Financing activities:
Net proceeds from sales of shares ...................... 2,483 181
Repayment of stockholder notes .......................... 110 56
Principal payments on capital lease obligations ......... (7) (15)
-------- --------
Net cash provided by (used) financing activities ........... 2,586 222
Effect of exchange rate changes on cash and cash equivalents (217) 2
-------- --------
Net increase (decrease) in cash and cash equivalents ....... 3,465 (1,843)
Cash and cash equivalents at beginning of period ........... 704 3,699
-------- --------
Cash and cash equivalents at end of period ................. $ 4,169 $ 1,856
======== ========
</TABLE>
The accompanying notes are an integral part of the
consolidated condensed financial statements.
-5-
PLC SYSTEMS INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The balance sheet as of September 30, 1996 and the statements of
operations and cash flows for the nine months ended September 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 LOSS PER SHARE
The net loss per share is calculated using the weighted average number
of shares outstanding during the period and does not include share equivalents
as their inclusion would be antidilutive.
3. INVENTORIES
Inventories consist of the following (in thousands):
September 30, December 31,
1996 1995
---------- -------------
Raw materials $1,445 $ 644
Work in process 1,038 56
Finished goods 716 1,089
------ ------
$3,199 $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 September 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.
-6-
Item 2.
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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 three months ended September 30, 1996 were
$2,493,000, an increase of 57% when compared to $1,591,000 for the three months
ended September 30, 1995. Product sales for the three months ended September 30,
1996 were $1,802,000, an increase of 53% when compared to $1,174,000 for the
three months ended September 30, 1995. Total revenues and product sales
increased as the Company recognized revenue on three units in the three months
ended September 30, 1996 compared to two units in the period ended September 30,
1996.
Total revenues for the nine month period ended September 30, 1996 were
$8,753,000, an increase of 47% when compared to $5,947,000 for the nine months
ended September 30, 1995. Product sales for the nine month period ended
September 30, 1996 were $6,768,000, an increase of 34% when compared to
$5,052,000 for the nine months ended September 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 17 Heart Lasers shipped; nine of which
were sales as compared with 14 shipped in 1995, seven of which were sales.
Another factor in both the three and nine month increase in total
revenues is the increase in placement and service fees. Placement and service
fees for the three and nine months ended
-7-
PLC SYSTEMS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
September 30, 1996 were $691,000 and $1,985,000, respectively, an increase of
66% and 122% when compared with $417,000 and $895,000 for the same periods in
fiscal 1995. These significant increases reflect the continued acceptance of the
Company's preferred method of sale; the placement contract, which has more than
doubled over the past twelve months.
Total gross profit for the three and nine months ended September 30,
1996 approximated 64% and 69%, respectively, up from 40% and 55% for the
comparable periods in fiscal 1995. These respective increases of 24 and 14
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 expenditures were $1,555,000 and
$4,597,000 for the three and nine months ending September 30, 1996,
respectively, an increase of 40% and 42% when compared to the comparable periods
in fiscal 1995 of $1,114,000 and $3,241,000. More than a third of each of these
respective increases of $441,000 and $1,356,000 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 nine month periods. The
balance of the increases for the three and nine month periods are related to
increased domestic staffing and related operating expenses, coupled with
increased spending for consultants.
Research and development expenditures for the three and nine months
ended September 30, 1996 was $725,000 and $2,043,000, respectively, an increase
of 58% and 19% when compared to research spending of $458,000 and $1,716,000 for
the comparable periods in fiscal 1995. These respective increases of $267,000
and $327,000 reflect the increased staffing requirements associated with growing
demands for clinical study compilation and increased spending for consultants
related to health care reimbursement of the TMR procedure.
For the three and nine months ended September 30, 1996, interest income
of $123,000 and $422,000, respectively, decreased slightly when compared to
$153,000 and $475,000 for the comparable periods in fiscal 1995. These decreases
were related to lower interest rates throughout both the three and nine 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 deutschmark and the US dollar, have resulted in a $11,000
gain for the three months ended September 30, 1996 and a year to date loss of
$44,000.
The Company reported a net loss of $562,000 and $188,000 for the three
and nine months ended September 30, 1996, respectively. In addition, the Company
believes it has sufficient net operating loss carryforwards to offset taxable
income, if any, for the fiscal year ended December 31, 1996. The Company
recorded an income tax provision for the three months ended March 31,
-8-
PLC SYSTEMS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
1996 to cover the tax liability under the alternative minimum tax regulations
which can not be offset by net operating loss carryforwards. The Company
believes the provision for the nine months ended September 30, 1996 is adequate,
and accordingly, did not record a provision in the three months ended September
30, 1996.
The net loss of $562,000 for the three months ended September 30, 1996
decreased 29% when compared to the net loss of $789,000 for the three months
ended September 30, 1995. For the nine months ended September 30, 1996, the
Company had a net loss of $188,000 as compared with a net loss of $1,204,000 for
the nine months ended September 30, 1995. The improvements for both periods are
directly related to the increase in Heart Laser sales offset by increased
operating expenses as previously discussed.
The Company continued to expand its international operations with the
incorporation of two wholly-owned subsidiaries, PLC Medical Systems AG in
Switzerland and PLC Medical Systems Asia/Pacific Pte Ltd. in Singapore.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company had cash and cash equivalents of
$4,169,000 and short-term investments of $7,472,000. During the nine months
ended September 30, 1996, cash provided by operations approximated $4,600,000
from the collection of $5,900,000 of accounts receivable, principally the
$5,700,000 IMATRON Japan contract offset by investment in inventory. The Company
received approximately $1,660,000 in proceeds from the exercise of stock
warrants coupled with $823,000 in proceeds from the exercise of stock options
and $110,000 from the repayment of shareholder loans. The Company used
$2,500,000 to acquire capital equipment, principally related to an investment in
the placement lasers coupled with leasehold improvements related to the
Company's new facility. In addition, the Company invested an additional
$1,000,000 in short-term investments. On September 3, 1996, the Company moved
into its new facility in Franklin, Massachusetts under a five year operating
lease totaling approximately $1,482,000.
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.
-9-
PLC SYSTEMS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
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,
future 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.
-10-
PLC SYSTEMS INC.
Part II Other Information
ITEM 1. LEGAL PROCEEDINGS.
In September 1996, as previously reported, CardioGenesis Corporation
("CardioGenesis") filed a civil lawsuit in the United States District
Court seeking to have a certain patent of the Company's subsidiary,
PLC Medical Systems, Inc. ("PLC Medical") U.S. Patent No. 5,125,926
declared invalid, or, alternatively, asking the court to determine
whether CardioGenesis infringes PLC Medical's patent. In October
1996, the Company and PLC Medical filed an answer and counterclaim
alleging that CardioGenesis is infringing U.S. Patent No. 5,125,926
issued to PLC Medical. The counterclaim seeks both injunctive relief
and monetary damages against CardioGenesis.
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.) Exhibits
(I) The following exhibits are filed herewith:
Exhibit
No. Title
------- -----
11 Statement re computation of per-share earnings.
b.) Reports on Form 8-K. The Company filed a Current Report on Form
8-K on September 25, 1996, reporting information contained in
the Company's press release
-11-
with respect to the notification of the Food and Drug
Administration allowing the Company to halt the randomization of
patients to medical management in multi-center Transmyocardial
Revascularization clinical trials.
The Company also reported a copy of a Complaint for declaring
relief of patent invalidity and non-infringement filed September
10, 1996, CardioGenesis Corporation vs. PLC Systems Inc.
-12-
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: November 14, 1996 /s/ Patricia L. Murphy
------------------------- -------------------------
Patricia L. Murphy
(Chief Financial Officer)
-13-
EXHIBIT 11
PLC SYSTEMS INC.
CALCULATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- ------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average number of
common shares outstanding .. 16,499,000 15,867,000 16,331,000 15,854,000
Common stock equivalents (1) -- -- -- --
------------ ------------ ------------ ------------
Shares used to compute net
loss per share ............. 16,499,000 15,867,000 16,331,000 15,854,000
Net loss ................... $ (562,000) $ (789,000) $ (188,000) $ (1,204,000)
Net loss per share ......... $ (0.03) $ (0.05) $ (0.01) $ (0.08)
</TABLE>
(1) The net loss per share is calculated using the weighted average number of
shares outstanding during the period and does not include common stock
equivalents as their inclusion would be antidilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 4,169,000
<SECURITIES> 7,472,000
<RECEIVABLES> 891,000
<ALLOWANCES> (28,000)
<INVENTORY> 3,199,000
<CURRENT-ASSETS> 16,944,000
<PP&E> 5,800,000
<DEPRECIATION> (2,418,000)
<TOTAL-ASSETS> 20,696,000
<CURRENT-LIABILITIES> 2,746,000
<BONDS> 0
0
0
<COMMON> 54,004,000
<OTHER-SE> (36,309,000)
<TOTAL-LIABILITY-AND-EQUITY> 20,696,000
<SALES> 1,802,000
<TOTAL-REVENUES> 2,493,000
<CGS> 909,000
<TOTAL-COSTS> 2,280,000
<OTHER-EXPENSES> (11,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (123,000)
<INCOME-PRETAX> (562,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (562,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (562,000)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
