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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 March 31, 1997.
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 May 15, 1997
----- ---------------------------
Common Stock, no par value 16,627,537
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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
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PLC SYSTEMS INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---- ----
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................................... $ 4,722 $ 3,039
Marketable securities.............................................. 975 5,470
Accounts receivable, net........................................... 1,487 2,635
Inventories, net .................................................. 3,168 2,345
Prepaid expenses and other current assets.......................... 521 679
------- -------
Total current assets........................................... 10,873 14,168
Equipment, furniture and leasehold improvements, net ................. 5,158 4,712
Other assets........................................................... 553 537
------- -------
Total assets.................................................... $16,584 $19,417
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................... $ 524 $ 867
Accrued clinical costs............................................. 1,170 935
Accrued compensation............................................... 395 467
Deferred revenue................................................... 285 339
Other accrued liabilities.......................................... 372 315
------- -------
Total current liabilities....................................... 2,746 2,923
Capital lease obligations ............................................. 23 27
Commitments and contingencies
Stockholders' equity:
Common stock, no par value, 25,000 shares authorized, 16,628
and 16,419 shares issued and outstanding in 1997 and 1996,
respectively.................................................... 54,547 54,030
Accumulated deficit.................................................... (40,151) (37,129)
Foreign currency translation........................................... (581) (434)
------- -------
13,815 16,467
------- -------
Total liabilities and stockholders' equity............................. $16,584 $19,417
======= =======
</TABLE>
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)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------
1997 1996
---- ----
<S> <C> <C>
Revenues:
Product sales..................................................... $ 771 $ 4,197
Placement and service fees........................................ 817 632
-------- -------
Total revenues................................................. 1,588 4,829
Cost of revenues:
Product sales....................................................... 336 1,086
Placement and service fees.......................................... 494 304
-------- -------
Total cost of revenues......................................... 830 1,390
-------- ------
Gross profit........................................................... 758 3,439
Operating expenses:
Selling, general and administrative................................. 2,817 1,451
Research and development............................................ 1,071 759
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Total operating expenses......................................... 3,888 2,210
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Income (loss) from operations.......................................... (3,130) 1,229
Other income:
Interest income, net............................................... 91 138
Gain (loss) from foreign currency, net............................. 17 (71)
------- -------
108 67
------- -------
Income (loss) before income taxes...................................... (3,022) 1,296
Provision for income taxes............................................. - 19
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Net income (loss)...................................................... $(3,022) $ 1,277
======= =======
Net income (loss) per share............................................ $ (.18) $ .07
Shares used to compute net income (loss) per share..................... 16,547 17,030
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
-4-
PLC SYSTEMS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------
1997 1996
---- ----
<S> <C> <C>
Operating activities:
Net income (loss)................................................... $(3,022) $ 1,277
Adjustments to reconcile net income (loss) to net cash provided (used)
for operating activities:
Depreciation and amortization.................................... 421 236
Change in assets and liabilities:
Accounts receivable........................................... 1,182 4,923
Inventory..................................................... (806) (194)
Prepaid expenses and other assets............................ 154 (275)
Accounts payable.............................................. (355) 431
Deferred revenue.............................................. (75) 171
Accrued liabilities........................................... 219 (163)
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Net cash provided (used) for operating activities...................... (2,282) 6,406
Investing activities:
Purchase of marketable securities ............................... - (11,496)
Maturities of marketable securities.............................. 4,494 6,500
Purchase of fixed assets......................................... (857) (271)
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Net cash provided (used) for investing activities...................... 3,637 (5,267)
Financing activities:
Net proceeds from sales of shares................................ 517 2,184
Repayment of stockholder notes................................... - 79
Principal payments on capital lease obligations.................. (3) (2)
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Net cash provided by financing activities.............................. 514 2,261
Effect of exchange rate changes on cash and cash equivalents.......... (186) 79
------- -------
Net increase in cash and cash equivalents.............................. 1,683 3,479
Cash and cash equivalents at beginning of period....................... 3,039 704
------- -------
Cash and cash equivalents at end of period............................. $ 4,722 $ 4,183
======= =======
</TABLE>
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, 1997 and the statement of operations
and cash flows for the three months ended March 31, 1997 and 1996 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 as of December 31, 1996.
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 consists of
stock options and stock warrants. The net loss per share is calculated using the
weighted average number of shares outstanding and does not include share
equivalents.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share," which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options will be excluded. The impact is expected to
result in an increase in primary earnings per share for the three months ended
March 31, 1996 of $.01 per share. There is not expected to be a change to the
loss per share for the three months ended March 31, 1997 as a result of the new
requirements.
3. INVENTORY
Inventories consist of the following (in thousands):
March 31, December 31,
1997 1996
Raw materials . . . . . . . . . . . . $1,618 $1,043
Work in process . . . . . . . . . . . 394 306
Finished goods . . . . . . . . . . . . 1,156 996
------ ------
$3,168 $2,345
====== ======
-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 TM1
and its related components and sterile kits; placement contracts and product
sales. The Company's preferred 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 to five 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 foreign countries where credit risk is high or where health care is
not reimbursed by the government or insurance, 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 $1,588,000 for the quarter ended March 31, 1997
decreased $3,241,000 or 67% when compared to total revenues of $4,829,000 for
the quarter ended March 31, 1996. This is directly related to the mix of Heart
Lasers shipped under placement contracts. Five of the six Heart Lasers shipped
during the quarter were under placement contracts. For the quarter ended March
31, 1997, product sales of $771,000 decreased $3,426,000 or 82% when compared to
product sales of $4,197,000 for the quarter ended March 31, 1996. This decrease
was the result of the sale of one Heart Laser for the quarter ended March 31,
1997 as compared to the sale of six Heart Lasers for the quarter ended March 31,
1996.
Placement and service revenue of $817,000 for the quarter ended March
31, 1997 increased $185,000 or 29% when compared to placement and service
revenue of $632,000 for the quarter ended March 31, 1996. This increase is a
reflection of the continued adoption of the placement contract as the method of
sale for the Heart Laser.
Total gross profit decreased to $758,000 or 48% of total revenues for
the quarter ended March 31, 1997 as compared with $3,439,000 or 71% of total
revenues for the quarter ended March 31, 1996. This decrease
- ---------
1. The Heart Laser is a trademark of PLC Medical Systems, Inc.
-7-
resulted from two factors. First, total gross margin declined due to unfavorable
capacity and manufacturing variances. These variances resulted from the higher
level of overhead expenses associated with the new facility coupled with
increased staffing. The Company anticipates that after PMA approval, production
will increase to levels which will adaquately absorb manufacturing overhead and
mitigate these variances. Secondly, the higher mix of lasers placed versus sold
contributed to the decline in the gross margin. The placement contract initially
provides the Company with lower revenue than a direct sale resulting in lower
gross margin dollars.
Selling, general and administrative expenses of $2,817,000 for the
quarter ended March 31, 1997 increased $1,366,000 or 94% when compared with
$1,451,000 for the quarter ended March 31, 1996. In anticipation of the United
States launch of the Heart Laser, once FDA approval is obtained, of which no
assurance can be given, the Company has increased its domestic sales and
marketing efforts and its administrative expenses by approximately $1,066,000
for the quarter ended March 31, 1997 as compared to the same period in 1996. The
increase is primarily due to increased staffing, increased use of outside
consultants, and other overall expenses. The Company's international sales and
marketing expenses are up approximately $300,000 for the quarter ended March 31,
1997 as compared to 1996 due to its continued and increased activities in the
European and Pacific Rim markets.
Research and development expenses of $1,071,000 for the quarter ended
March 31, 1997 increased $312,000 or 41% when compared with $759,000 for the
quarter ended March 31, 1996. This increase is related to increased staffing
requirements associated with growing demands for clinical study compilation and
the development of new products. In addition, the Company continues to collect
and analyze clinical data for its submission to the FDA.
Other income of $108,000 for the quarter ended March 31, 1997 increased
$41,000 or 61% when compared to $67,000 for the quarter ended March 31, 1996.
Interest income of $91,000 for the quarter ended March 31, 1997 decreased 34%
when compared to $138,000 for the quarter ended March 31, 1996 due to a lower
cash balance in 1997 as compared with the 1996 period. With the establishment of
the Company's four new subsidiaries in 1996, the Company records transactions in
several foreign currencies. Currency fluctuations resulted in a gain of $17,000
for the quarter ended March 31, 1997 compared to a loss of $71,000 for the
quarter ended March 31, 1996.
The Company did not record an income tax provision for the quarter ended
March 31, 1997 due to its net loss of $3,022,000. The Company believes it has
sufficient net operating loss carryforwards to offset taxable income, if any,
for the year ended December 31, 1997. Although the Company had 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.
-8-
The Company reported a net loss of $3,022,000 for the quarter ended
March 31, 1997 as compared to net income of $1,277,000 for the quarter ended
March 31, 1996. This is a result of the number of Heart Lasers sold coupled with
an increase in overall operating expenses as previously discussed. 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, 1997, the Company had cash and cash equivalents of
$4,722,000 and marketable securities of $975,000. For the quarter ended March
31, 1997, the Company incurred a loss of $3,022,000 which resulted in the use of
approximately $2,300,000 to support operations. Cash provided by investing
activities was approximately $3,600,000 principally related to the maturity of
$4,500,000 of its marketable securities offset by investment in fixed assets of
$850,000 primarily related to its placement contract activity. Cash provided by
financing activities was approximately $500,000 from the exercise of stock
options and warrants.
In February 1997, the Company's PreMarket Approval application ("PMA")
was filed by the FDA. The Company believes this to be the final stage of a
definitive process toward FDA approval, which is anticipated to occur in 1997.
With this expectation of FDA approval, the Company is preparing to increase its
production requirements, sales and marketing efforts and overall operating
expenses. In order to be well positioned to meet these upcoming demands and the
short term cash flow requirements under the placement strategy, the Company is
currently exploring both debt and equity opportunities. Unanticipated decreases
in operating revenues, increases in expenses, or a delay in the expected FDA
approval, may adversely impact the Company's cash position. The Company may seek
additional financing through the issuance and sale of debt or equity securities,
bank financing, joint ventures or by 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 FDA, given the
current uncertainties of the time required by the FDA to approve a 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 product sales and
placements. In February 1997, the Company's PMA application was filed by the
FDA. The filing of this expedited PMA application indicated that the FDA is
prepared to prioritize and commit its resources to this application through the
remaining review process. No assurance can be given that a PMA approval will be
granted in 1997, if at all. In addition, the Company must also 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 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
--- -----
11 Statement re computation of per-share earnings.
27 Financial Data Schedule.
-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:
------------------- ----------------------------
Robert I. Rudko, Ph.D., Chairman
Date: May 15, 1997 /s/ Patricia L. Murphy
-------------------- -------------------------
Patricia L. Murphy
Chief Financial Officer
-11-
EXHIBIT 11
PLC SYSTEMS INC.
CALCULATION OF NET INCOME (LOSS) PER SHARE
Three Months Ended
March 31,
---------
1997 1996
---- ----
Weighted average number of
common shares outstanding 16,547,000 16,051,000
Common stock equivalents (1) - 979,000
----------- ----------
Shares used to compute net 16,547,000 17,030,000
income (loss) per share
Net income (loss) $(3,022,000) $1,277,000
Net income (loss) per share $(.18) $0.07
(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
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THE COMPANY AS OF AND FOR THE THREE MONTH PERIOD ENDED
MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1997
<CASH> 4,722,000
<SECURITIES> 975,000
<RECEIVABLES> 1,514,000
<ALLOWANCES> (27,000)
<INVENTORY> 3,168,000
<CURRENT-ASSETS> 10,873,000
<PP&E> 7,934,000
<DEPRECIATION> (2,776,000)
<TOTAL-ASSETS> 16,584,000
<CURRENT-LIABILITIES> 2,746,000
<BONDS> 0
0
0
<COMMON> 54,547,000
<OTHER-SE> (40,732,000)
<TOTAL-LIABILITY-AND-EQUITY> 16,584,000
<SALES> 771,000
<TOTAL-REVENUES> 1,588,000
<CGS> 830,000
<TOTAL-COSTS> 3,888,000
<OTHER-EXPENSES> (17,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (91,000)
<INCOME-PRETAX> (3,022,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,022,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,022,000)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> (.18)
</TABLE>
