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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000.
COMMISSION FILE NUMBER 1-11388
PLC SYSTEMS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
YUKON TERRITORY, 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
---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT NOVEMBER 8, 2000
Common Stock, no par value 23,906,385
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PLC SYSTEMS INC.
INDEX
<TABLE>
<CAPTION>
<S> <C>
Part I. Financial Information:
Item 1. Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets (unaudited)............................................3
Condensed Consolidated Statements of Operations (unaudited)..................................4
Condensed Consolidated Statements of Cash Flows (unaudited)..................................5
Notes to Condensed Consolidated Financial Statements (unaudited).............................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............................................10-14
Item 3. Quantitative and Qualitative Disclosures About Market Risk..................................14
Part II. Other Information:
Item 1. Legal Proceedings...........................................................................15
Item 2. Changes in Securities and Use of Proceeds...................................................15
Item 3. Defaults Upon Senior Securities.............................................................15
Item 4. Submission of Matters to a Vote of Security Holders.........................................15
Item 5. Other Information...........................................................................15
Item 6. Exhibits and Reports on Form 8-K............................................................15
</TABLE>
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PLC SYSTEMS INC.
PART I. FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PLC SYSTEMS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
-------------- ---------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents......................................... $ 6,976 $ 4,467
Accounts receivable, net.......................................... 1,023 1,894
Lease receivables, net............................................ 1,450 642
Inventories....................................................... 1,685 2,348
Prepaid expenses and other current assets......................... 382 460
Total current assets.......................................... ------- ------
11,516 9,811
Equipment, furniture and leasehold improvements, net................... 2,774 3,336
Lease receivables, net................................................. 2,717 1,782
Other assets........................................................... 497 390
Total assets.................................................. ------- -------
$17,504 $15,319
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................. $ 1,032 $1,338
Accrued clinical costs............................................ 708 769
Accrued compensation.............................................. 601 653
Accrued expenses.................................................. 863 630
Deferred revenue.................................................. 63 138
Secured borrowings................................................ 1,918 824
Total current liabilities..................................... ------- ------
5,185 4,352
Secured borrowings..................................................... 2,864 2,082
Commitments and contingencies
Stockholders' equity:
Preferred stock, no par value, unlimited shares authorized, no
shares issued and outstanding..................................... - -
Common stock, no par value, unlimited shares authorized,
23,906 and 21,223 shares issued and outstanding at
September 30, 2000 and December 31, 1999, respectively............ 89,459 84,380
Accumulated deficit.................................................... (79,073) (74,691)
Accumulated other comprehensive loss................................... (931) (804)
-------- --------
9,455 8,885
--------- --------
Total liabilities and stockholders' equity............................. $17,504 $15,319
======= =======
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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PLC SYSTEMS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- ------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Product sales $ 1,712 $ 1,623 $ 5,352 $ 6,467
Placement and service fees 837 919 2,519 2,413
-------- -------- -------- --------
Total revenues 2,549 2,542 7,871 8,880
Cost of revenues:
Product sales 1,041 637 2,468 2,758
Placement and service fees 368 673 1,451 1,686
-------- -------- -------- --------
Total cost of revenues 1,409 1,310 3,919 4,444
-------- -------- -------- --------
Gross profit 1,140 1,232 3,952 4,436
Operating expenses:
Selling, general and administrative 2,237 2,182 7,199 7,801
Research and development 337 493 1,464 2,114
-------- -------- -------- --------
Total operating expenses 2,574 2,675 8,663 9,915
-------- -------- -------- --------
Loss from operations (1,434) (1,443) (4,711) (5,479)
Other income, net 117 48 329 180
-------- -------- -------- --------
Net loss $ (1,317) $ (1,395) $ (4,382) $ (5,299)
======== ======== ======== ========
Basic and diluted loss per share $ (0.06) $ (0.07) $ (0.19) $ (0.26)
Shares used to compute basic and diluted loss
per share 23,906 21,127 23,045 20,696
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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PLC SYSTEMS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------
2000 1999
----- ----
<S> <C> <C>
Operating activities:
Net loss ......................................................... $(4,382) $(5,299)
Adjustments to reconcile net loss to net cash used for operating
activities:
Depreciation and amortization................................. 1,655 1,285
Change in assets and liabilities:
Accounts receivable......................................... 864 205
Inventory................................................... 662 1,015
Prepaid expenses and other assets........................... (70) 164
Accounts payable............................................ (317) (186)
Deferred revenue............................................ (75) 23
Accrued liabilities......................................... 108 (541)
------ -----
Net cash used for operating activities................................. (1,555) (3,334)
Investing activities:
Purchase of fixed assets.......................................... (1,892) (247)
Sale of fixed assets at net book value............................ 837 -
----- -----
Net cash used by investing activities.................................. (1,055) (247)
Financing activities:
Net proceeds from sales of common shares.......................... 5,079 3,777
Secured borrowings................................................ 133 288
------ -----
Net cash provided by financing activities.............................. 5,212 4,065
Effect of exchange rate changes on cash and cash equivalents........... (93) 281
------ -----
Net increase in cash and cash equivalents.............................. 2,509 765
Cash and cash equivalents at beginning of period....................... 4,467 4,846
----- -----
Cash and cash equivalents at end of period............................. $6,976 $5,611
====== ======
Non-cash financing activities:
Conversion of convertible debentures and accrued
interest into common stock...................................... $ - $ 972
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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PLC SYSTEMS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
of PLC Systems Inc. ("PLC" or the "Company") have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three and nine-month periods ended September 30, 2000
are not necessarily indicative of the results that may be expected for the year
ended December 31, 2000. Certain prior period items have been reclassified to
conform with current period presentations. These financial statements should be
read in conjunction with the consolidated financial statements and footnotes
thereto included in the Company's annual report on Form 10-K for the year ended
December 31, 1999.
2. NET LOSS PER SHARE
Basic earnings per share is computed based only on the weighted average
number of common shares outstanding during the period and excludes any dilutive
effect of options, warrants and convertible securities. Diluted earnings per
share is computed using the weighted average number of common shares outstanding
during the period, plus the dilutive effect of future issues of common stock
relating to options, warrants and convertible securities. In calculating diluted
earnings per share, the dilutive effect of options, warrants and convertible
securities is computed using the average market price for the period unless
their inclusion would be antidilutive.
3. COMPREHENSIVE LOSS
Total comprehensive loss for the three and nine-month periods ended
September 30, 2000 amounted to $1,433,000 and $4,509,000, as compared to
$1,410,000 and $5,342,000, for the three and nine-month periods ended
September 30, 1999.
4. INVENTORIES
Inventories are stated at the lower of cost or market using the
first-in, first-out (FIFO) method and consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- -------------
<S> <C> <C>
Raw materials.................. $ 913 $1,044
Work in progress............... 305 439
Finished goods................. 467 865
----- -----
$1,685 $2,348
====== ======
</TABLE>
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PLC SYSTEMS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5. LEGAL PROCEEDINGS
CARDIOGENESIS SUIT
In September 1996, CardioGenesis filed a civil lawsuit in the United
States District Court for the Northern District of California asking the court
to declare the Company's synchronization patent (U.S. Patent No. 5,125,926)
invalid and unenforceable, or, alternatively, to find that CardioGenesis's TMR
and PMR lasers do not infringe this patent. The Company filed a counterclaim
alleging that all of CardioGenesis' TMR and PMR lasers infringe U.S. Patent No.
5,125,926. In January 1997, CardioGenesis filed an opposition in the European
Patent Office to have the Company's German synchronization patent declared
invalid. In April 1997, the Company filed an infringement lawsuit against
CardioGenesis and one of its distributors in the Munich District Court alleging
that CardioGenesis's TMR and PMR lasers infringe the Company's German
synchronization patent. The PLC patents at issue in these lawsuits cover the
Company's synchronization technology, which the Company believes is a critical
factor in increasing the safety of TMR and PMR procedures.
In January 1999, the Company settled its outstanding patent
infringement litigation with CardioGenesis, who subsequently merged with Eclipse
Surgical Technologies, Inc. Under the settlement, CardioGenesis agreed that U.S.
Patent No. 5,125,926 and related international patents of the Company are valid
and enforceable. PLC granted CardioGenesis a non-exclusive worldwide license to
the patents in exchange for payment of a license fee and ongoing royalties over
the life of the patents (at least 10 years unless the patents are all held
invalid in future lawsuits). As part of the settlement, CardioGenesis agreed to
pay the Company:
o a minimum of $2.5 million over the next 42 months; and
o license fees and ongoing royalties on sales of all covered products for
at least 10 years (unless the patents are all held invalid in future lawsuits).
CLASS ACTION SUITS
In July 1997, a U.S. Food and Drug Administration ("FDA") advisory
panel recommended against approval of the Company's application to market The
Heart Laser System in the United States. Following this recommendation, the
Company was named as defendant in 21 purported class action lawsuits filed
between August 1997 and November 1997 in the United States District Court for
the District of Massachusetts. The lawsuits seek an unspecified amount of
damages in connection with alleged violations of the federal securities laws
based on the Company's failure to obtain a favorable FDA panel recommendation in
1997. Nineteen of these complaints have been consolidated by the court into a
single action for pretrial purposes (hereafter referred to as the "federal
suit"). Two of these suits were voluntarily dismissed. The Company moved to
dismiss all claims in the federal suit. On March 26, 1999, the court issued an
order dismissing some, but not all, of the claims in the federal suit. The
parties filed cross motions for reconsideration and on October 12, 1999, the
court dismissed additional, but not all, remaining claims in the federal suit.
On October 26, 2000, the court entered a Settlement Order of Dismissal ordering
that the action be dismissed without costs and without prejudice to the right of
any party to restore the action to the docket within thirty (30) days "if
settlement is not
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PLC SYSTEMS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
consummated." The settlement process is not complete, and at this stage, the
Company cannot make a meaningful prediction of whether a settlement will be
consummated. The Company also cannot make a meaningful estimate of the amount or
range of loss that could result from an unfavorable outcome of this lawsuit, but
an unfavorable outcome could have a material adverse effect on the Company's
business, financial position and results of operations. The Company believes
that it has meritorious defenses to this litigation matter and continues to
vigorously defend itself.
The Company also was named as a defendant in a lawsuit filed in
Massachusetts Superior Court in September 1998 (hereafter referred to as the
"state suit") seeking over $2.0 million in damages for alleged negligent
misrepresentations and fraud arising from the Company's failure to obtain a
favorable FDA recommendation in 1997. The state suit settled on confidential
terms, and a Stipulation of Dismissal was filed on April 13, 2000. The
settlement of the lawsuit did not have a material impact on the Company's
financial statements.
ECLIPSE SUIT
In February 1996, PLC Medical Systems, Inc., a wholly-owned subsidiary
of the Company, filed suit against Eclipse Surgical Technologies, Inc.
("Eclipse") in the United States District Court for the District of
Massachusetts alleging copyright infringement and unfair and deceptive trade
practices based on Eclipse's misappropriation and copying of one of PLC's
confidential clinical study protocols. The Company settled this suit in April
1999 on confidential terms. The settlement of the lawsuit did not have a
material impact on the Company's financial statements.
FOCH HOSPITAL SUIT
In October 1997, the French Ministry of Health suspended commercial use
of TMR devices in France. In November 1998, a hospital in France, Centre Medico
Chirurgical Foch ("Foch Hospital"), sued the Company's Portuguese subsidiary,
PLC Sistemas Medicos Internacionais Lda., and a third party, Johnson & Johnson
Leasing GmbH, in Paris, France alleging breach of contract and seeking
reimbursement of lease payments made for The Heart Laser System. On April 18,
2000, the Tribunal de Grande Instance de Paris dismissed this suit for lack of
jurisdiction. The Company can make no assurance as to whether Foch Hospital will
appeal this decision or bring suit in another jurisdiction.
6. STOCKHOLDERS EQUITY
EQUITY FINANCING
On March 28, 2000, the Company issued and sold 2,683,000 shares of
common stock to two institutional investors at a price of $2.00 per share,
resulting in proceeds to the Company (net of all issuance costs) of
approximately $5,079,000. In connection with this financing the Company issued a
placement agent a three-year warrant exercisable for 61,326 shares of common
stock at a price of $3.15 per share. 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.
STOCK OPTION PLAN
In October 2000, the Board of Directors approved the adoption of a
non-qualified stock option plan and the grant of 317,672 shares under the
plan to substantially all employees of the Company at an exercise price of
$.5625 per share.
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PLC SYSTEMS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
7. LEASE RECEIVABLES
The Company utilizes third-party financing arrangements to provide
lease financing alternatives to hospitals interested in acquiring The Heart
Laser System. The lease financing alternatives available compliment the
Company's traditional placement and sales strategies.
Under these arrangements, the Company receives payment from the leasing
company equal to the present value of guaranteed minimum payments due from the
customer after customer acceptance of The Heart Laser System. In transactions
where the Company has transferred substantially all of the risks and rewards of
ownership to the customer and the customer has accepted The Heart Laser System,
the Company recognizes revenue, which is reported as a component of product
sales. The Company recognizes a lease receivable equal to the present value of
the guaranteed minimum payments until such time as the Company can legally
isolate the lease receivables. The payment received from the leasing company is
recognized as a secured borrowing. Interest income and interest expense related
to the lease receivables and secured borrowing, respectively, is recognized over
time using the effective interest method. Equal amounts of interest income and
interest expense are included as a component of other income, net, in the
unaudited condensed consolidated statements of operations.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This quarterly report contains forward-looking statements regarding
anticipated increases in revenues, marketing of products and proposed products
and other matters. These statements, in addition to statements made in
conjunction with the words "anticipate," "expect," "intend," "believe," "seek,"
"estimate," "will" and similar expressions, are forward-looking statements that
involve a number of risks and uncertainties. Such statements are based on
management's current expectations and are subject to a number of risks and
uncertainties that could cause actual results to differ materially from these
forward-looking statements. Such factors and uncertainties include, but are not
limited to, business conditions and growth in certain market segments and the
general economy, the ability of the Company to secure any required additional
financing, an increase in competition or other competitive developments, the
lack of market acceptance of the Company's products and proposed products by
healthcare professionals and third party payers, the lack of reimbursement by
third party payers, the development of alternative treatments or procedures for
the treatment of heart disease and other risks and uncertainties indicated from
time to time in the Company's filings with the Securities and Exchange
Commission, including, without limitation, in "Item 7 - Management's Discussion
and Analysis of Financial Condition and Results of Operations - Risk Factors" of
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1999, which are expressly incorporated by reference herein. The Company
undertakes no obligation to revise any forward-looking statements to reflect
events or circumstances that may arise after the date of this report.
OVERVIEW
The Company offers placement, purchase and leasing alternatives to
customers interested in acquiring The Heart Laser System. The Company has
developed a strategy to address the challenges of marketing high cost capital
equipment by offering The Heart Laser System on a usage basis to hospitals. The
particular structure of a usage based contract, including the length of
contract, price billed per procedure and end of term options for purchase,
depends primarily on whether the hospital is willing and able to commit to a
certain minimum volume of procedures over a defined period of time. If the
hospital cannot commit to a sufficient number of procedures, The Heart Laser
System may be installed with usage fees billed as agreed upon with the hospital.
The Company refers to this type of usage arrangement as a retained placement
contract. Under a retained placement contract, placement and service fee revenue
is recorded over the term of the usage agreement and The Heart Laser System
remains the property of the Company and is depreciated over the term of the
usage agreement.
If the hospital is willing and able to commit to a sufficient number of
procedures such that the substantial risks and benefits of ownership of The
Heart Laser System have transferred to the hospital, then the Company classifies
the usage agreement as a minimum procedure sales contract. Under a minimum
procedure sales contract, the Company records product revenue, at a discounted
present value of the guaranteed minimum procedure payments, and records product
cost of sale at the time of acceptance of The Heart Laser System.
The Company believes that retained placement and minimum procedure
sales contracts are appealing to hospitals when capital equipment funds are
scarce or unavailable or when it is difficult to predict early usage as is the
case with new technology such as TMR. The Company's lease financing arrangements
enable the Company to monetize future payment streams associated
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with certain agreements. If utilization becomes more predictable, the Company
expects a significant number of new accounts to opt for conventional leasing, or
direct purchase. Until such time that utilization becomes more predictable, the
Company believes that the retained placement model may be the most viable option
for certain hospitals.
The Heart Laser System is also sold to hospitals, and the related
sterile handpieces and other disposables are sold separately for each procedure.
These sales are classified as product sales.
Hospitals are given the option to purchase service contracts to cover
the cost of maintaining The Heart Laser System beyond the applicable warranty
period. These service revenues are recorded ratably over the service contract
and are classified as a component of placement and service fees.
RESULTS OF OPERATIONS
Total revenues for the three-month period ended September 30, 2000 were
$2,549,000 an increase of $7,000 when compared with total revenues of $2,542,000
for the three-month period ended September 30, 1999. Product sales for the
three-month period ended September 30, 2000 were $1,712,000 an increase of
$89,000 when compared with product sales of $1,623,000 for the three-month
period ended September 30, 1999. The 2000 period reflects a higher average
selling price on Heart Laser transactions in comparison to the 1999 period,
offset by lower royalties.
Total revenues for the nine-month period ended September 30, 2000 were
$7,871,000 a decrease of $1,009,000 when compared with total revenues of
$8,880,000 for the nine-month period ended September 30, 1999. Product sales for
the nine-month period ended September 30, 2000 were $5,352,000 a decrease of
$1,115,000 when compared with product sales of $6,467,000 for the nine-month
period ended September 30, 1999. The major factors in these decreases are the
decline in the number of Heart Laser System sales transactions recognized during
the nine-months ended September 30, 2000, as well as a lower average selling
price for The Heart Laser System in 2000 as compared to 1999. In the nine-months
ended September 30, 2000, the Company recorded 14 sales transactions, while in
the 1999 comparable period, the Company recorded 18 sales transactions.
Placement and service fees for the three and nine-months ended
September 30, 2000 were $837,000 and $2,519,000, respectively, a decrease of
$82,000 and an increase of $106,000, when compared with placement and service
fees of $919,000 and $2,413,000 for the comparable periods in fiscal 1999. In
the three months ended September 30, 2000, placement and service revenue
decreased from the comparable 1999 period due to a one-time non-recurring
placement revenue billing recognized in the three months ended September 30,
1999. The increase in placement and service revenue in the nine months ended
September 30, 2000, is due to both increased utilization of installed Heart
Laser Systems and the implementation of a redeployment strategy that moved
under-performing Heart Laser Systems to more productive sites.
Total gross margin for the three and nine-month periods ended September
30, 2000 were $1,140,000, or 45% of revenues, and $3,952,000, or 50% of
revenues, respectively, as compared to $1,232,000, or 48% of revenues, and
$4,436,000, or 50% of revenues, for the comparable periods in fiscal 1999. In
the three months ended September 30, 2000, the overall gross margin dollars
decreased as a result of a decrease in higher margin revenue components,
primarily royalties, in
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comparison to the 1999 period. In the nine-months ended September 30, 2000, the
overall gross margin dollars decreased as a result of a decrease in sales
volume.
Selling, general and administrative expenditures were $2,237,000 and
$7,199,000 for the three and nine-month periods ended September 30, 2000,
respectively, an increase of $55,000 and a decrease of $602,000 when compared to
expenditures of $2,182,000 and $7,801,000 in the comparable periods in fiscal
1999. In the three month period ended September 30, 2000, this increase was a
result of increased travel and entertainment expenditures offset by a decrease
in consulting and outside services as compared to the same period in 1999. As a
result of the Company's restructuring of its workforce in April 1999, the
Company reduced compensation, travel, entertainment and consulting expenditures
in the nine months ended September 30, 2000 as compared to the comparable 1999
period. The Company used a portion of the savings from the headcount reduction
to increase its sales and marketing expenditures in the nine-month period ended
September 30, 2000, as compared to the nine-month period ended September 30,
1999, particularly in the areas of Internet/web expansion, tradeshows,
advertising and marketing literature.
Research and development expenditures for the three and nine-month
periods ended September 30, 2000 were $337,000 and $1,464,000, respectively,
decreases of $156,000 and $650,000 when compared with expenditures of $493,000
and $2,114,000 in the comparable periods in fiscal 1999. In the three month
period ended September 30, 2000, this decrease was a result of reduced
expenditures in monitoring and data collection, project materials and new
product development offset by an increase in compensation as compared to the
same period in 1999. In the nine month period ended September 30, 2000, this
decrease was a result of reduced expenditures in monitoring and data collection,
project materials and new product development and consulting and outside
services as compared to the same period in 1999.
Other income for the three and nine-month periods ended September 30,
2000 were $117,000 and $329,000, respectively, increases of $69,000 and $149,000
when compared with other income of $48,000 and $180,000 in the comparable
periods in fiscal 1999. The increases are a result of both higher average cash
balances and higher rates of interest on the invested funds.
The Company incurred a net loss of $1,317,000 and $4,382,000 for the
three and nine-month periods ended September 30, 2000, respectively, compared to
net losses of $1,395,000 and $5,299,000 for the comparable 1999 periods.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, the Company had cash and cash equivalents of
$6,976,000.
Over the past three years, the Company incurred significant operating
losses and used significant amounts of cash to fund operations. The Company is
in a critical stage in its growth as it continues to transition from a research
and development company to a commercial company with complete sales, marketing
and production capabilities.
On March 28, 2000, the Company issued and sold 2,683,000 shares of
common stock to two institutional investors at a price of $2.00 per share,
resulting in proceeds to the Company (net of all issuance costs) of
approximately $5,079,000. In connection with this financing, the Company issued
a placement agent a three-year warrant for 61,326 shares of common stock at an
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exercise price of $3.15 per share. 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.
While the Company is encouraged by its FDA approval and Medicare
coverage for TMR procedures, the historical absence of widespread reimbursement
for the TMR procedure by third party payers as well as concerns over the lack of
a consensus view on the reason or reasons why a TMR procedure relieves angina in
patients who undergo the procedure (hereafter referred to as "mechanism of
action"), has limited demand for and use of The Heart Laser System. Although
Medicare reimbursement began in July 1999, and some private insurance plans have
begun reimbursing health care providers for TMR procedures using The Heart Laser
System, the Company believes that operating losses are likely to continue until
such time as third party payers begin to provide widespread reimbursement to
healthcare providers for use of The Heart Laser System. In addition, the Company
believes that hospitals may delay the implementation of a TMR program until such
time that concerns about the lack of a known mechanism of action are satisfied,
if ever. Management believes that its existing cash resources and cash from
operations will meet working capital requirements through December 31, 2000.
However, unanticipated decreases in operating revenues or increases in expenses,
inability to monetize usage agreements or further delays in the process of third
party payers providing reimbursement to healthcare providers may adversely
impact the Company's cash position and require further cost reductions or the
need to obtain additional financing. No assurance can be given that the Company
will be successful in achieving broad commercial acceptance of The Heart Laser
System or that the Company will be able to operate profitably on a consistent
basis. The Company may need to raise additional capital to fund operations
during the next twelve months. Should additional financing not be available on
terms and conditions acceptable to the Company, additional actions may be
required that could adversely impact the Company's ability to continue to
realize assets and satisfy liabilities in the normal course of business. The
condensed consolidated financial statements set forth in this quarterly report
do not include any adjustments to reflect the possible future effects of these
uncertainties.
The Company has seen an increasing trend on the part of its hospital
customers to acquire The Heart Laser System on a usage basis rather than as a
capital equipment purchase. The Company believes that this trend is the result
of limitations many hospitals currently have on acquiring expensive capital
equipment through an outright purchase as well as competitive pressures in the
marketplace. This shift to a usage business model can result in the deferral of
both revenue and cash over a more extended timeframe than would be the case with
an outright sale of the equipment. The Company's cash position and its need for
additional financing to fund operations will be dependent in part upon the
number of hospitals that acquire The Heart Laser System on a usage basis and the
number and frequency of TMR procedures performed by these hospitals. No
assurance can be given that the Company's usage based sales model will be
successful. There can be no assurance that, should the Company require
additional financing, such financing will be available on terms and conditions
acceptable to the Company.
During the nine-months ended September 30, 2000, the Company incurred a
net loss of $4,382,000, which resulted in the use of approximately $1,555,000 of
its cash resources to support operations. Cash used by investing activities was
approximately $1,055,000 and primarily related to PLC's retained placement
contract activity. Cash provided by financing activities was approximately
$5,212,000 and primarily related to the net proceeds of $5,079,000
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obtained from the sale of the Company's common stock on March 28, 2000, offset
by an increase in secured borrowings of $133,000.
The Company and certain of its officers have been named as defendants
in 21 purported class action lawsuits filed between August 1997 and November
1997. See Note 5 in the accompanying condensed consolidated financial statements
for further discussion.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A portion of the Company's operations consists of sales activities in
foreign jurisdictions. The Company manufactures its products exclusively in the
United States and sells the products in the United States and abroad. As a
result, the Company's financial results could be significantly affected by
factors such as changes in foreign currency exchange rates or weak economic
conditions in the foreign markets in which the Company distributes its products.
The Company's operating results are exposed to changes in exchange rates between
the U.S. dollar and foreign currencies, especially the Swiss Franc and the
German Mark. When the U.S. dollar strengthens against the Franc or Mark, the
value of nonfunctional currency sales decreases. When the U.S. dollar weakens,
the functional currency amount of sales increases. Overall, the Company's
support of its foreign operations results in a benefit of a stronger U.S.
dollar, but is adversely affected by a weaker U.S. dollar relative to major
currencies worldwide. The Company does not believe that its exposure is
significant.
The Company's interest income and expense are most sensitive to changes
in the general level of U.S. interest rates. In this regard, changes in U.S.
interest rates affect the interest earned on the Company's cash equivalents as
well as interest paid on its debt as well as proceeds received on sales
financings through third party leasing arrangements.
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PLC SYSTEMS INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 5 to Notes to Condensed Consolidated Financial Statements
filed with this Form 10-Q, which is incorporated herein by this
reference.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None.
ITEM 5. OTHER INFORMATION
In connection with the Company's annual meeting for fiscal 2001, any
shareholders proposal for inclusion in the Proxy Statement must be
received on or before December 21, 2000 to the attention of Steven
Singer, Secretary of the Company, at Hale and Dorr LLP, 60 State
Street, Boston, Massachusetts, 02109.
In October 2000, the Board of Directors approved the adoption of a
non-qualified stock option plan and the grant of 317,672 shares
under the plan to substantially all employees of the Company at an
exercise price of $.5625 per share.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS
27.1 Financial Data Schedule.
99.1(1) Risk Factors set forth on pages 21 through 25 of
the Company's Annual Report on Form 10-K for the
year ended December 31, 1999 as filed with the
Securities and Exchange Commission (which is not
deemed filed except to the extent that portions
thereof are expressly incorporated by reference
herein).
b) REPORTS ON FORM 8-K
None.
------------------
(1) Incorporated herein by reference to exhibit 99.1 to the registrant's
Quarterly Report on Form 10-Q for the fiscal period ended March 31, 2000.
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<PAGE>
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.
Date: November 13, 2000 By: /s/ James G. Thomasch
---------------------------- -------------------------------------
Chief Financial Officer
(Principal Financial Officer and
Chief Accounting Officer)
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
27.1 Financial Data Schedule
99.1(1) Risk Factors set forth on pages 21 through 25 of the
Company's Annual Report on Form 10-K for the year ended
December 31, 1999 as filed with the Securities and Exchange
Commission (which is not deemed filed except to the extent
that portions thereof are expressly incorporated by
reference herein).
-----------------
(1) Incorporated herein by reference to exhibit 99.1 to the registrant's
Quarterly Report on Form 10-Q for the fiscal period ended March 31, 2000.
