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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 March 31, 2001.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from ______________ to ______________
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 MAY 11, 2001
----- ----------------------------
Common Stock, no par value 29,298,667
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PLC SYSTEMS INC.
INDEX
Part I. Financial Information:
Item 1. 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................................................9
Item 3. Quantitative and Qualitative Disclosures About Market Risk..................................13
Part II. Other Information:
Item 1. Legal Proceedings...........................................................................14
Item 2. Changes in Securities and Use of Proceeds...................................................14
Item 3. Defaults Upon Senior Securities.............................................................14
Item 4. Submission of Matters to a Vote of Security Holders.........................................14
Item 5. Other Information...........................................................................14
Item 6. Exhibits and Reports on Form 8-K............................................................14
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PLC SYSTEMS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
March 31, December 31,
2001 2000
---------- ------------
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 7,247 $ 5,726
Marketable securities............................................. 269 288
Accounts receivable, net.......................................... 1,741 1,400
Lease receivables, net............................................ 1,763 1,680
Inventories, net.................................................. 1,471 1,440
Prepaid expenses and other current assets......................... 286 259
------- -------
Total current assets.......................................... 12,777 10,793
Equipment, furniture and leasehold improvements, net................... 924 1,049
Lease receivables, net................................................. 2,377 2,836
Other assets........................................................... 359 400
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Total assets.................................................. $16,437 $15,078
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................. $ 804 $1,276
Accrued clinical costs............................................ 451 576
Accrued compensation.............................................. 353 799
Accrued expenses.................................................. 733 626
Deferred revenue.................................................. 578 531
Secured borrowings................................................ 2,055 1,975
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Total current liabilities..................................... 4,974 5,783
Secured borrowings..................................................... 2,543 3,079
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,
29,299 and 23,965 shares issued and outstanding at
March 31, 2001 and December 31, 2000, respectively................ 93,316 89,417
Accumulated deficit.................................................... (83,277) (82,101)
Accumulated other comprehensive loss................................... (1,119) (1,100)
------- -------
Total stockholders' equity........................................ 8,920 6,216
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Total liabilities and stockholders' equity............................. $16,437 $15,078
======= =======
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)
Three Months Ended
March 31,
---------------------------
2001 2000
---- ----
Revenues:
Product sales...................................................... $ 1,857 $ 894
Placement and service fees......................................... 484 848
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Total revenues................................................. 2,341 1,742
Cost of revenues:
Product sales...................................................... 994 300
Placement and service fees......................................... 154 686
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Total cost of revenues......................................... 1,148 986
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Gross profit............................................................ 1,193 756
Operating expenses:
Selling, general and administrative................................ 2,230 2,512
Research and development........................................... 240 524
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Total operating expenses....................................... 2,470 3,036
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Loss from operations.................................................... (1,277) (2,280)
Other income, net....................................................... 101 97
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Net loss................................................................ $(1,176) $(2,183)
======= =======
Basic and diluted loss per share........................................ $ (.04) $ (.10)
Shares used to compute basic and diluted
loss per share..................................................... 28,765 21,341
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)
Three Months Ended
March 31,
--------------------------
2001 2000
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Operating activities:
Net loss.......................................................... $(1,176) $(2,183)
Adjustments to reconcile net loss to net cash used for operating
activities:
Depreciation and amortization................................. 181 627
Change in assets and liabilities:
Accounts receivable......................................... (345) 689
Inventory................................................... (40) 226
Prepaid expenses and other assets........................... 12 (173)
Accounts payable............................................ (473) 556
Deferred revenue............................................ 12 (31)
Accrued liabilities......................................... (480) (347)
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Net cash used for operating activities................................. (2,309) (636)
Investing activities:
Purchase of equipment............................................. (67) (780)
Proceeds from disposition of equipment............................ 10 -
-------- --------
Net cash used by investing activities.................................. (57) (780)
Financing activities:
Net proceeds from sales of common shares.......................... 3,899 5,075
Secured borrowings................................................ (80) (46)
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Net cash provided by financing activities.............................. 3,819 5,029
Effect of exchange rate changes on cash and cash equivalents........... 68 5
-------- --------
Net increase in cash and cash equivalents.............................. 1,521 3,618
Cash and cash equivalents at beginning of period....................... 5,726 4,467
-------- --------
Cash and cash equivalents at end of period............................. $ 7,247 $ 8,085
======== ========
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
March 31, 2001
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 months ended
March 31, 2001 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2001. 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, 2000.
2. NET LOSS PER SHARE
Basic and diluted loss per share have been computed using only the
weighted average number of common shares outstanding during the period without
giving effect to any potential future issues of common stock related to stock
option programs and warrants since their inclusion would be antidilutive.
3. COMPREHENSIVE LOSS
Total comprehensive loss for the three-month period ended March 31,
2001 amounted to $1,195,000, as compared to $2,207,000 for the three-month
period ended March 31, 2000.
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):
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PLC SYSTEMS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
March 31, December 31,
2001 2000
--------- ------------
Raw materials.................. $1,076 $ 946
Work in progress............... 136 43
Finished goods................. 259 451
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$1,471 $1,440
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At each of March 31, 2001 and December 31, 2000, inventories are stated
net of a reserve of $1,374,000 for potentially obsolete inventory.
5. LEGAL PROCEEDINGS
In July 1997, a United States Food and Drug Administration ("FDA")
advisory panel recommended against approval of the Company's application to
market the Company's first generation carbon-dioxide ("CO2") TMR laser ("HL1")
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 sought 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 were 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 February 9,
2001, the Court issued an Order approving the settlement of the federal suit and
entered a judgment of dismissal. The settlement of the federal suit did not have
a material impact on the Company's financial statements.
6. STOCKHOLDERS' EQUITY
In January 2001, the Company entered into an exclusive five-year
agreement with Edwards Lifesciences LLC, a subsidiary of Edwards Lifesciences
Corporation (collectively referred to as "Edwards"). Pursuant to the agreement,
Edwards distributes the Company's next generation CO2 TMR laser ("HL2") (which
was approved on January 9, 2001 by the FDA) and all associated TMR disposable
components to hospitals throughout the United States. In conjunction with this
agreement, the Company issued 5,333,333 shares of common stock to Edwards at
$.75 per share, resulting in net proceeds of approximately $3,900,000. Edwards
has certain preemptive rights to maintain their ownership position relative to
future stock offerings. The Company also issued to Edwards a warrant to purchase
1,000,000 shares of common stock at $1.50 per share, a warrant to purchase
1,000,000 shares of common stock at $2.50 per share, and a warrant to purchase
1,000,000 shares of common stock at $3.50 per share. These warrants expire in
January 2004, January 2005 and January 2006, respectively.
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7. LEASE RECEIVABLES
The Company has entered into third-party financing arrangements to
provide an array of lease financing alternatives to hospitals interested in
acquiring products which are not covered under the Edwards distribution
arrangement. The lease financing alternatives available complement 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 procedure payments due
from the customer after customer acceptance. 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 product, the Company recognizes
revenues, which are reported as a component of product sales. The Company
recognizes a lease receivable equal to the present value of the guaranteed
minimum lease 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, are 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
condensed consolidated statements of operations.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This quarterly report contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. For this purpose,
statements contained herein that are not statements of historical fact may be
deemed to be forward-looking statements. Without limiting the foregoing, the
words "believes", "plans", "expects", "anticipates", "intends", "estimates" and
similar expressions contain uncertainty and are intended to identify
forward-looking statements. Forward-looking statements are based on current
plans and expectations and involve known and unknown important risks and
uncertainties that could cause actual results to differ materially from those
described in the forward-looking statements. Such important factors and
uncertainties include, but are not limited to: the successful ability to secure
any required financing; the ability to convince health care professionals and
third party payers of the medical and economic benefits of the Company's
products; the absence of reimbursement for health care providers who use the
Company's products, or the risk that reimbursement, if provided, will be
inadequate; restrictions imposed by regulatory agencies such as the FDA;
competitive developments; business conditions, growth in certain market
segments, and the general economy; uncertainty that any patent protection will
exclude competitors or that the Company's products do not infringe any
intellectual property rights of others; and the risk factors incorporated herein
from the Company's annual report on Form 10-K and attached hereto as exhibit
99.1 and Item 2 and Item 3 herein.
OVERVIEW
In January 2001, the Company obtained FDA approval to market its
next generation laser, the HL2. The HL2 is less than half the weight and size
of the Company's first generation laser, the HL1, but delivers the equivalent
laser energy, wavelength and beam characteristics. The HL1 and the HL2
collectively are referred to throughout this report as the "Heart Laser
Systems".
In January 2001, the Company also entered into a strategic marketing
alliance and exclusive distribution arrangement with Edwards. Under this
arrangement, Edwards is marketing and distributing the HL2, as well as all
disposable TMR kits and accessories, to customers in the United States. The
Company intends to maintain its sales force, at least through 2001, to assist
Edwards in marketing the HL2 in the United States. The Company sells the HL2 and
TMR kits to Edwards at a discount to list price and Edwards remarkets the HL2
and TMR kits to hospitals. Edwards' sales force is principally responsible for
driving increased TMR procedures and kit utilization, as well as providing the
Company's capital sales force with HL2 sales leads.
Prior to entering into the exclusive distribution arrangement with
Edwards, the Company offered placement, purchase and leasing alternatives to
domestic and international customers interested in acquiring the Heart Laser
Systems. Beginning in 2001, Edwards will determine the best programs, including
sale, lease and rental offerings, which it believes will be most effective in
the United States in marketing the HL2 and related TMR kits to hospitals. The
Company will sell these products directly to Edwards at a discount to list price
and will generally recognize product sales at the time of shipment to Edwards.
The Company will continue with the existing programs to customers outside of the
United States as described below.
The Company expects that its revenues and gross profit in subsequent
quarters of 2001 will likely be lower than corresponding quarters in 2000
(excluding the impact on gross margin
-9-
of a non-recurring charge in the fourth quarter of 2000) as a result of the
discounted sale price of lasers and TMR procedural kits when sold to Edwards,
until such time, if ever, that Edwards' marketing efforts result in
substantially increased TMR procedural volumes and corresponding kit sales.
The Company offers placement, purchase and leasing alternatives to
customers interested in acquiring the Heart Laser Systems outside of the
Edwards arrangement. The Company has developed a strategy to address the
challenges of marketing high cost capital equipment by offering the Heart
Laser Systems 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 Systems 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 revenues are recorded
over the term of the usage agreement and the Heart Laser Systems remain the
property of the Company and are depreciated over the term of the usage
agreement.
If the hospital is willing and able to commit to a sufficient number of
procedures at a sufficient procedural fee, such that the substantial risks and
benefits of ownership of the Heart Laser Systems have transferred to the
hospital, then the Company classifies the usage agreement as a minimum procedure
sales contract (qualifying as a sales type lease). Under a minimum procedure
sales contract, the Company records product revenues, 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 Systems.
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 financing arrangements with
leasing vendors has enabled the Company to monetize future payment streams
associated 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.
The Heart Laser Systems are also sold directly to customers, and the
related sterile handpieces and other disposables are sold separately. These
sales are classified as product sales.
Customers are given the option to purchase service contracts to cover
the cost of maintaining the Heart Laser Systems 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.
A portion of the Company's operations is conducted outside of the
United States. Historically the impact of foreign currency fluctuations on the
Company's overall consolidated results of operations has not been material.
RESULTS OF OPERATIONS
Total revenues for the three-month period ended March 31, 2001 were
$2,341,000, an increase of $599,000 when compared with total revenues of
$1,742,000 for the three-month period ended March 31, 2000. Product sales for
the three-month period ended March 31, 2001 were $1,857,000, an increase of
$963,000 when compared with product sales of $894,000 for the three-
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month period ended March 31, 2000. For the three-month period ended March 31,
2001, Heart Laser System revenues and disposable revenues, both components of
product sales, increased as compared to the three-month period ended March 31,
2000 due to increased volume offset by a lower average selling price to Edwards,
as well as lower royalty revenues. Prior to 2001, the Company recorded
disposable revenues either as product sales (if the disposable kit was shipped
to a customer who had either purchased their Heart Laser System or who otherwise
qualified for sales type lease treatment) or as placement fees (if the
disposable kit was shipped to a customer with a retained placement contract). In
the first quarter of 2001, all disposable kit shipments were accounted for as
product sales since all kits were shipped to Edwards. As such, the Company
expects product sales related to disposable kits to increase in 2001 compared to
2000, while placement fee revenues are expected to decrease.
Placement and service fees for the three-month period ended March 31,
2001 were $484,000, a decrease of $364,000 when compared with placement and
service fees of $848,000 for the three-month period ended March 31, 2000. The
decrease in placement fees is primarily due to all United States TMR kit
shipments being accounted for as product sales in the first quarter of 2001 as
discussed above.
Management of the Company monitors disposable kit shipments to
end-users as an important metric in evaluating its business. Management believes
kit shipments to end users, although not a direct measure, is a reasonable
indicator of the pace of the adoption of TMR as a therapy in the marketplace.
For the three-month period ended March 31, 2001, 311 disposable kits
were shipped to end users by Edwards, a decrease of 100 disposable kits from the
411 disposable kits shipped to end users during the three-month period ended
March 31, 2000. Management believes the overall decrease is attributable to the
Company's temporary shift in focus from driving kit utilization in order to
promote the successful implementation, transition and development of the Edwards
partnership.
Total gross margin for the three-month period ended March 31, 2001 was
$1,193,000, or 51% of revenues, as compared to $756,000, or 43% of revenues, for
the comparable period in 2000. In the three-month period ended March 31, 2001,
overall gross margin increased as a result of overall higher total revenues and
a favorable product mix of higher margin disposables sold to Edwards in the
period, as well as manufacturing cost savings realized in the production of the
newly designed HL2.
Selling, general and administrative expenditures were $2,230,000 for
the three-month period ended March 31, 2001, a decrease of $282,000 when
compared to expenditures of $2,512,000 in the three-month period ended March 31,
2000. This decline is mainly attributable to a decrease in corporate marketing
expenses, both domestically and internationally, and lower general and
administrative expenditures, including a reduction in certain travel and
relocation expenses.
Research and development expenditures for the three-month period ended
March 31, 2001 were $240,000, a decrease of $284,000 when compared with
expenditures of $524,000 for the three-month period ended March 31, 2000. The
reduction in research and development expenses reflects a decrease in HL2
project-related expenditures and a reduction in clinical study expenses.
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Other income for the three-month period ended March 31, 2001 was
$101,000, an increase of $4,000 when compared with other income of $97,000 in
the three-month period ended March 31, 2000. The increase is a result of higher
average cash balances offset by lower rates of interest.
The Company incurred a net loss of $1,176,000 for the three-month
period ended March 31, 2001, compared to a net loss of $2,183,000 for the
three-month period ended March 31, 2000. The smaller net loss resulted from
higher total revenues, a higher gross margin and lower overall operating
expenses in 2001 when compared to 2000.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2001, the Company had cash, cash equivalents and
marketable securities of $7,516,000.
Over the past three years, the Company incurred significant operating
losses and utilized significant amounts of cash to fund operations. During 1999
and 2000, the Company implemented a number of programs to reduce its consumption
of cash, including operating expense reductions and the establishment of third
party financing alliances to enable the Company to monetize certain of its
minimum procedure sales contracts.
In January 2001, the Company entered into a strategic marketing
alliance and exclusive distribution agreement with Edwards to distribute the new
HL2 laser and all disposable TMR kits throughout the United States. In
conjunction with this agreement, the Company received net proceeds of $3,900,000
through the sale of 5,333,333 newly issued shares of common stock at $.75 per
share and issued warrants to purchase an additional 3,000,000 shares at exercise
prices ranging from $1.50 to $3.50. See Note 6 in the notes to the condensed
consolidated financial statements.
During the three-month period ended March 31, 2001, the Company
incurred a net loss of $1,176,000, which resulted in the use of approximately
$2,309,000 of its cash resources to support operations. Cash used by investing
activities was approximately $57,000 and primarily related to the purchase of
equipment in the manufacturing area. Cash provided by financing activities
was approximately $3,819,000 and primarily related to the net proceeds of
$3,899,000 obtained from the sale of the Company's common stock to Edwards.
The Company believes that its existing cash resources will meet its
working capital requirements through December 31, 2001. However, the Company
expects that its revenues and gross profit in subsequent quarters of 2001 will
likely be lower than corresponding quarters in 2000 (excluding the impact on
gross margin of the non-recurring charge in the fourth quarter of 2000) as a
result of the discounted sale price of lasers and TMR procedural kits when sold
to Edwards, until such time, if ever, that Edwards' marketing efforts result in
substantially increased TMR procedural volumes and corresponding kit sales.
Should TMR procedural volume not increase sufficiently to offset the impact of
selling lasers and kits to Edwards at a discounted price, the Company's
liquidity and capital resources will be negatively impacted. Additionally, other
unanticipated decreases in operating revenues or increases in expenses, the
inability to monetize usage agreements or further delays in third party
reimbursement to healthcare providers using the Company's products 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
-12-
the Company will be successful in achieving broad commercial acceptance of the
Heart Laser Systems 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. 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, or at all. 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 Company has seen an increasing trend on the part of its hospital
customers to acquire the Heart Laser Systems 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 as well as competitive pressures in the marketplace. This shift to a
usage business model may result in the deferral of both revenues and the receipt
of cash. 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 Heart Laser Systems on a usage basis and the number and frequency of TMR
procedures performed by these hospitals. No assurance can be given that a usage
based sales model will be successful, whether implemented by the Company or
Edwards.
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 United States dollar and foreign currencies, especially the Swiss Franc and
the German Mark. When the United States dollar strengthens against the Franc or
Mark, the value of nonfunctional currency sales decreases. When the United
States dollar weakens, the functional currency amount of sales increases. In the
past, the Company's support of its foreign operations has benefited from a
stronger United States dollar, but has been adversely affected by a weaker
United States dollar relative to major currencies worldwide. No assurance can be
given that foreign currency fluctuations in the future may not adversely affect
the Company's financial condition and results of operations. However, at the
present, 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 United States interest rates. In this regard, changes in
United States interest rates affect the interest earned on the Company's cash
equivalents and marketable securities.
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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 reference.
ITEM 2. CHANGES IN SECURITIES
(c) On January 9, 2001, the Company sold 5,333,333 shares of its
common stock for an aggregate of $4,000,000 to Edwards in connection with an
exclusive distribution agreement. In addition, the Company issued to Edwards
a warrant to purchase 1,000,000 shares of common stock at a price of $1.50
per share, a warrant to purchase 1,000,000 shares of common stock at a price
of $2.50 per share, and a warrant to purchase 1,000,000 shares of common
stock at a price of $3.50 per share. These warrants expire on January 9,
2004, January 9, 2005 and January 9, 2006, respectively. These warrants are
exercisable at any time prior to expiration at the option of the holder into
shares of the Company's common stock at the exercise prices discussed above.
These securities were exempt from registration under Section 4(2) of the
Securities Act of 1933, as amended, because there was no public offering of
the securities sold and issued. No underwriters were involved in the sale and
issuance of these securities.
ITEM 3. DEFAULTS UPON 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
10.1+ Distribution Agreement, dated January 9, 2001, by and
among the Registrant, PLC Medical Systems, Inc. and
Edwards Lifesciences LLC.
10.2 Shareholders Agreement, dated January 9, 2001, by and
between the Registrant and Edwards Lifesciences
Corporation.
- --------------------
+ Confidential treatment is requested for certain portions of this Exhibit
pursuant to Rule 406 promulgated under the Securities Act of 1933, as
amended, which portions are omitted and filed separately with the Securities
and Exchange Commission.
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99.1 Risk Factors set forth on pages 22 through 28 of the
Company's Annual Report on Form 10-K for the year
ended December 31, 2000 as filed with the Securities
and Exchange Commission.
b) Reports on Form 8-K
None.
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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: May 14, 2001 By: /s/ James G. Thomasch
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Chief Financial Officer
(Principal Financial Officer and
Chief Accounting Officer)
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
10.1+ Distribution Agreement, dated January 9, 2001, by and
among the Registrant, PLC Medical Systems, Inc. and
Edwards Lifesciences LLC.
10.2 Shareholders Agreement, dated January 9, 2001, by and
between the Registrant and Edwards Lifesciences
Corporation.
99.1 Risk Factors set forth on pages 22 through 28 of the
Company's Annual Report on Form 10-K for the year
ended December 31, 2000 as filed with the Securities
and Exchange Commission.
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+ Confidential treatment is requested for certain portions of this Exhibit
pursuant to Rule 406 promulgated under the Securities Act of 1933, as
amended, which portions are omitted and filed separately with the Securities
and Exchange Commission.
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