1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the quarter ended June 30, 1998.
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 NO .
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the latest practical date.
Class Outstanding at August 10, 1998
Common Stock, no par value 18,995,665
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PLC SYSTEMS INC.
INDEX
Part I. Financial Information:
Item 1.
Condensed Consolidated Balance Sheets................................................ 3
Condensed Consolidated Statements of Operations...................................... 4
Condensed Consolidated Statements of Cash Flows...................................... 5
Notes to Condensed Consolidated Financial Statements................................. 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations................................ 9-13
Item 3. Quantitative and Qualitative Disclosures About Market Risk........................ 13
Part II. Other Information:
Item 1. Legal Proceedings............................................................... 14
Item 2. Changes in Securities........................................................... 14
Item 3. Not Applicable.................................................................. 14
Item 4. Not Applicable.................................................................. 14
Item 5. Other Information............................................................... 15
Item 6. Exhibits and Reports on Form 8-K................................................ 15
Item 1. Financial Statements
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PLC SYSTEMS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, December 31,
1998 1997
------------ ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents .................................. $ 11,609 $ 3,484
Marketable securities ...................................... 986 12,845
Accounts receivable, net ................................... 489 1,337
Inventories ................................................ 3,888 2,512
Prepaid expenses and other current assets .................. 391 502
-------- --------
Total current assets ................................... 17,363 20,680
Equipment, furniture and leasehold improvements, net ........... 5,698 5,636
Other assets ................................................... 646 701
-------- --------
Total assets ............................................ $ 23,707 $ 27,017
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................... $ 1,476 $ 917
Accrued clinical costs ..................................... 1,389 1,292
Accrued compensation ....................................... 958 570
Accrued expenses ........................................... 1,246 923
Deferred revenue ........................................... 35 70
5% Convertible Debentures ................................. -- 3,819
Other accrued liabilities .................................. 70 296
-------- --------
Total current liabilities ............................... 5,174 7,887
Long Term Liabilities:
Convertible Debentures .................................... 4,641 --
Capital lease obligations ................................. 86 121
-------- --------
Total Long Term Liabilities ............................ 4,727 121
Commitments and contingencies
Stockholders' equity:
Preferred stock, no par value, 5,000 shares authorized ......... -- --
Common stock, no par value, 50,000 shares authorized, 18,996
and 18,368 shares issued and outstanding at June 30, 1998
and December 31, 1997, respectively ......................... 75,368 71,115
Accumulated deficit ............................................ (60,871) (51,533)
Foreign currency translation ................................... (691) (573)
-------- --------
13,806 19,009
-------- --------
Total liabilities and stockholders' equity ..................... $ 23,707 $ 27,017
======== ========
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 Six Months Ended
June 30, June 30,
------------------------ ------------------------
1998 1997 1998 1997
-------- -------- -------- --------
Revenues:
Product sales ....................... $ 160 $ 2,525 $ 525 $ 3,296
Placement and service fees .......... 520 897 1,100 1,714
-------- -------- -------- --------
Total revenues ..................... 680 3,422 1,625 5,010
Cost of revenues:
Product sales ........................ 364 905 516 1,241
Placement and service fees ........... 667 565 1,203 1,059
-------- -------- -------- --------
Total cost of revenues ............ 1,031 1,470 1,719 2,300
Gross profit (loss) .................... (351) 1,952 (94) 2,710
Operating expenses:
Selling, general and administrative .. 3,944 3,518 6,997 6,335
Research and development ............. 1,274 1,146 2,565 2,217
-------- -------- -------- --------
Total operating expenses ........... 5,218 4,664 9,562 8,552
-------- -------- -------- --------
Loss from operations ................... (5,569) (2,712) (9,656) (5,842)
Other income:
Interest income, net ................. 180 42 330 133
Loss from foreign currency, net ...... (13) (27) (12) (10)
-------- -------- -------- --------
167 15 318 123
-------- -------- -------- --------
Net loss ............................... $ (5,402) $ (2,697) $ (9,338) $ (5,719)
======== ======== ======== ========
Basic and diluted loss per share ....... $ (0.28) $ (0.16) $ (0.49) $ (0.36)
Shares used to compute basic and diluted
loss per share ......................... 18,984 16,632 18,869 16,021
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)
Six Months Ended
June 30,
------------------------
1998 1997
-------- --------
Operating activities:
Net loss ................................................. $ (9,338) $ (5,719)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization .......................... 1,222 843
Change in assets and liabilities:
Accounts receivable ............................... 950 (1,092)
Inventories ....................................... (1,368) (682)
Prepaid expenses and other assets ................. (128) (41)
Accounts payable .................................. 558 790
Deferred revenue .................................. (35) (99)
Accrued liabilities ............................... 904 60
-------- --------
Net cash used for operating activities ....................... (7,235) (5,940)
Investing activities:
Purchase of marketable securities ....................... (1,986) --
Maturities of marketable securities ..................... 13,845 5,470
Purchase of fixed assets ................................ (1,206) (1,257)
-------- --------
Net cash provided by investing activities .................... 10,653 4,213
Financing activities:
Issuance of Convertible Debentures, net of issuance costs 4,687 --
Net proceeds from sales of common shares ................ 280 609
Principal payments on capital lease obligations ......... (33) (6)
-------- --------
Net cash provided by financing activities .................... 4,934 603
Effect of exchange rate changes on cash and cash equivalents . (227) (235)
-------- --------
Net increase in cash and cash equivalents .................... 8,125 (1,359)
Cash and cash equivalents at beginning of period ............. 3,484 3,039
-------- --------
Cash and cash equivalents at end of period ................... $ 11,609 $ 1,680
======== ========
NON-CASH FINANCING ACTIVITIES:
Conversion of Convertible Debentures and accrued
interest into Common Stock ........................... $ 3,828 --
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
June 30, 1998
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
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 six month
periods ended June 30, 1998 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1998. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Company's annual report on Form 10-K for the year ended December 31, 1997.
2. NET LOSS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings Per Share ("Statement 128") which replaced the calculation of
primary and fully diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All loss per share amounts for all periods have been
presented, and have been restated, to conform to Statement 128.
3. COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement 130, Reporting
Comprehensive Income ("Statement 130"). Statement 130 establishes new rules for
the reporting and display of comprehensive income and its components: however,
the adoption of Statement 130 had no impact on the Company's net loss or
shareholders' equity. Statement 130 requires unrealized gains or losses on the
Company's available-for-sale securities and foreign currency translation
adjustments, which prior to adoption were reported separately in shareholders'
equity, to be included in other comprehensive income. Prior year financial
statements have been reclassified to conform to the requirements of Statement
130.
Total comprehensive loss for the three and six months ended June 30,
1998 amounted to $5,442,000 and $9,455,000, as compared to $2,714,000 and
$5,883,000 for the three and six months ended June 30, 1997.
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PLC SYSTEMS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4. INVENTORIES
Inventories consist of the following (in thousands):
June 30, December 31,
1998 1997
-------- ------------
Raw materials . . . . . . . . . . . . . . . . . . $1,526 $1,141
Work in process . . . . . . . . . . . . . . . . . 467 10
Finished goods . . . . . . . . . . . . . . . . . . 1,895 1,361
------ ------
$3,888 $2,512
====== ======
5. ISSUANCE OF CONVERTIBLE DEBENTURES
a. Convertible Debentures due July 17, 2002 and August 14, 2002.
In January and February 1998, the face amount outstanding as of
December 31, 1997 and related accrued interest converted into 576,606 shares of
common stock.
b. Convertible Debentures due April 23, 2003
In April 1998, the Company entered into a $10 million financing
commitment. Under the terms of the financing, the Company received approximately
$5 million in April 1998 ("The First Tranche") from the issuance of non-interest
bearing five-year convertible debentures ("Debentures") to accredited investors.
The Debentures are convertible into Common Stock under a predetermined formula.
The First Tranche of the Debentures is convertible into common shares at the
lesser of (a) $19.53, or (b) commencing July 22, 1998, the average of the five
lowest consecutive closing bid price during a look-back period consisting of
thirty consecutive trading days prior to conversion. The maximum number of
shares of the Company's Common Stock issuable in connection with conversion of
the First Tranche is 816,327. The Company will have the right to force
conversion, in whole or in part, so long as the Company's closing bid prices of
its Common Stock has traded at or above $23.44 for a period of thirty day
consecutive trading days, with thirty days prior notice to the holder for cash
or stock, at the option of the Company.
In connection with The First Tranche, the Company issued 4,864
redeemable warrants to purchase shares of its Common Stock at $19.53 per share.
If the average closing sale price of its Common Stock for any consecutive thirty
trading day period commencing April 23, 1999 exceeds the exercise price by more
than 50%, the Company has the right, exercisable at any time upon 30 days notice
to the holder, to redeem the warrant at a price of $.10 per warrant. The
warrants expire on April 23, 2003.
6. LEGAL PROCEEDINGS
In September 1996, CardioGenesis Corporation, ("CardioGenesis") filed a
civil lawsuit in the United States District Court for the Northern District of
California seeking to have the
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PLC SYSTEMS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Company's synchronization patent declared invalid, or, alternatively, asking the
court to determine whether CardioGenesis infringes on this patent. In October
1996, the Company filed an answer and counterclaim alleging that CardioGenesis
infringes on this patent. The counterclaim seeks both injunctive relief and
monetary damages against CardioGenesis. In October 1997, CardioGenesis filed an
amended complaint seeking to have the Company's synchronization patent declared
unenforceable. CardioGenesis is not seeking monetary damages from the Company.
In January 1997, CardioGenesis Corporation filed a challenge to the
Company's European synchronization patent in the European Patent Office and in
March 1997 the Company filed its response. In addition, in April 1997, the
Company filed an infringement lawsuit against CardioGenesis in the Munich
District Court alleging infringement of its synchronization patent. An oral
hearing has been scheduled in the Munich District Court on October 1, 1998.
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 in the United States District Court for the District of Massachusetts. The
suits allege violations of the federal securities laws. The plaintiffs are
seeking damages in connection with such alleged violations. Nineteen of these
complaints have been consolidated by the court into a single action for pretrial
purposes and the remaining two suits have been consolidated into one suit for
pretrial purposes. These matters are in the earliest stages of litigation and
the Company has filed motions to dismiss all of these claims. There can be no
assurance that the motions to dismiss these claims will be successful; however,
plaintiffs in the latter action have voluntarily agreed to the Company's motion
to dismiss. Management is unable to make a meaningful estimate of the amount or
range of loss that could result from an unfavorable outcome of these pending
litigation matters. It is possible that the Company's results of operations in a
particular quarter or annual period or its financial position could be
materially affected by an ultimate unfavorable outcome of this pending
litigation. The Company believes that it has valid defenses to these class
action litigation matters and intends to vigorously defend itself in these
matters.
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Item 2.
PLC SYSTEMS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This 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" and
similar expressions are forward-looking statements that involve a number of
risks and uncertainties. The following is a list of factors, among others, that
would cause actual results to differ materially from the forward-looking
statements: non-approval or delayed approval by the U.S. Food and Drug
Administration, business conditions and growth in certain market segments and
general economy, an increase in competition or other competitive developments,
lack of market acceptance of the Company's products and proposed products by
health care professionals and third party payers, lack of reimbursement by third
party payers, 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 annual report on Form 10-K for fiscal year ended
December 31, 1997 and the Company's other filings with the Securities and
Exchange Commission. 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
On April 24, 1998, a U.S. Food and Drug Administration ("FDA") Advisory
Panel (the "Panel") unanimously recommended that the Heart Laser System for
transmyocardial revacularization ("TMR") be approved to marketing for patients
who suffer from severe, stable angina and are not amenable to conventional
coronary revascularization techniques (e.g., bypass surgery and angioplasty).
As part of its recommendation, the Panel described certain labeling conditions
and post-market surveillance obligations for FDA's consideration. The Panel's
decision is not binding. The Company awaits the FDA's final action on the
application.
The Company has both a placement strategy and a direct/distributor
sales strategy for Heart Laser System purchases. The placement program enables
the Company to receive recurring revenues based on the usage of the Heart Laser
System rather than one-time revenues for the sale of each Heart Laser System.
Under the placement model, an installation fee is paid when the Heart Laser
System is installed and the Company then receives a procedure fee per use.
Sterile handpieces and other disposables are included in the procedure fee.
Typically, the revenue generated in the initial periods of a placement contract
is expected to be less than in later periods, subsequent to receipt of
anticipated Pre-Market Approval ("PMA") and increases in minimum contractual
billings. Revenues from these contracts are classified as placement fees. The
cost of the Heart Laser System is depreciated over the term of the contract.
The Heart Laser System is also sold as capital equipment and the
related sterile handpieces and other disposables are sold separately for each
procedure. The Company sells Heart Laser Systems directly and through
distributors. These sales are classified as product sales.
RESULTS OF OPERATIONS
Total revenues for the three months ended June 30, 1998 were $680,000,
a decrease of 80% when compared to $3,422,000 for the three months ended June
30, 1997. Product sales for the three months ended June 30, 1998 were $160,000,
a decrease of 94% when compared to $2,525,000 for the three months ended June
30, 1997. In the three months ended June 30, 1998, the Company shipped two Heart
Laser Systems under the placement strategy; in the 1997 period, the Company
shipped eight Heart Laser Systems, of which five were sales and three were
shipped pursuant to new placement contracts.
Total revenues for the six months ended June 30, 1998 were $1,625,000,
a decrease of 68% when compared to $5,010,000 for the six months ended June 31,
1997. Product sales for the six months ended June 30, 1998 were $525,000, a
decrease of 84% when compared to $3,296,000 for the six months ended June 30,
1997. During the first six months of 1998, the Company shipped six lasers under
the placement strategy; in 1997, the Company shipped fourteen Heart Laser
Systems, of which six were sales and eight were shipped pursuant to placement
contracts. Included in the 1998 sale amount is recognition of deferred
1. The Heart Laser is a trademark of PLC Medical Systems, Inc.
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revenue from a 1996 sale accounting for approximately 44% of product sales for
the six months ended June 30, 1998.
Placement and service fees for the three months and six months ended
June 30, 1998 were $520,000 and $1,100,000, decreases of 42% and 36% when
compared with $897,000 and $1,714,000 for the same periods in fiscal 1997.
Although the Company has increased its placement contract base, revenue dollars
have decreased. In the near term, it is expected that placement revenues will
continue to be negatively impacted until FDA approval is granted and Medicare
reimbursement is reinstated by the Health Care Financing Administration
("HCFA"). Until receipt of PMA and reinstatement of reimbursement, of which no
assurance can be given, the Company expects that future billings under placement
contracts may be negatively impacted and the effect on existing placement
contracts cannot be predicted.
In May 1997, HCFA instituted a non-coverage policy for TMR procedures
performed on Medicare patients in the United States. The HCFA announcement,
coupled with the July 28, 1997 FDA Advisory Panel recommendation of
non-approval, caused the Company to examine its requirement of contractual
minimum billings prior to FDA approval and to renegotiate substantially all of
its placement contracts, temporarily replacing contractual minimum billings with
actual usage billings.
On April 24, 1998, an FDA Advisory Panel unanimously recommended that
the Heart Laser System be approved for marketing for patients who suffer severe,
stable angina. The FDA Panel's decision is not binding. In June 1998, the FDA
completed its inspection of the Company's manufacturing facility and had no
observations of deficiencies within the plant. The Company awaits the
FDA's final action on the application. In May 1998, HCFA published proposed
medical reimbursement codes for TMR in the Federal Register although the non-
coverage policy discussed previously is still in place.
Total gross margin (loss) for the three and six month periods ended
June 30, 1998 approximated losses of 52% and 6% of revenues, down from gross
margins of 57% and 54% for the comparable periods in fiscal 1997. This decrease
resulted from two factors. First, the gross margin declined due to unfavorable
manufacturing variances. The Company anticipates that after receipt of PMA, of
which no assurance can be given, production will increase to levels which will
absorb manufacturing overhead and mitigate these variances. Second, most of the
Company's existing placement contracts are in the pre-PMA contractual minimum
billing periods, which typically require lower minimums than will be required
after receipt of PMA, of which no assurance can be given. In addition, the cost
of the laser is depreciated on a straight-line basis over the life of the
placement contract; therefore the overall depreciation on Heart Laser Systems
under existing placement contracts is greater than the corresponding revenue
generated due to the pre-PMA minimum billings. This has resulted in losses in
the 1998 periods as compared to gross profits in the 1997 periods. Until such
time that the Company sees an increase to its minimum billings on existing and
future placement contracts, the gross margin is expected to be negatively
impacted.
Selling, general and administrative expenditures of $3,944,000 and
$6,997,000 for the three and six month periods ending June 30, 1998 increased
12% and 10% when compared to fiscal 1997 expenditures of $3,518,000 and
$6,335,000. The increases in the 1998 periods over the 1997 periods primarily
relate to additional sales and marketing expenses incurred in anticipation of
the receipt of the PMA, of which no assurance can be given, as well as
additional legal costs.
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Research and development expenditures for the three and six months
ended June 30, 1998 were $1,274,000 and $2,565,000, increases of 11% and 16%
when compared to spending of $1,146,000 and $2,217,000 for the comparable
periods in fiscal 1997. This increase in the 1998 periods over the 1997 periods
relates primarily to increased staffing requirements associated with growing
demands for clinical study compilation and data preparation and the development
of new products.
Interest income, net for the three and six months ended June 30, 1998
was $180,000 and $330,000 when compared to $42,000 and $133,000 for the
comparable periods in fiscal 1997. Interest income is net of interest expense.
The Company's average cash balances were higher in the 1998 periods resulting in
greater interest income in the 1998 periods. In 1998, the Company recorded
interest expense on the outstanding debentures. In the comparable period in
1997, there were no outstanding debentures. The Company records transactions in
several foreign currencies, which resulted in currency losses of $13,000 and
$12,000 for the three and six months ended June 30, 1998 as compared to losses
of $27,000 and $10,000 for the three and six months ended June 30, 1997.
The Company incurred net losses of $5,402,000 and $9,338,000 for the
three and six months ended June 30, 1998 when compared to net losses of
$2,697,000 and $5,719,000 for the comparable 1997 periods.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company had cash and cash equivalents of
$11,609,000 and marketable securities of $986,000. In April 1998, the Company
obtained a $10 million financing commitment. Under the terms of the financing,
the Company received approximately $4.7 million in net proceeds through the
issuance of convertible debentures due April 23, 2003. See Note 5 in the
accompanying condensed consolidated financial statements.
For the six months ended June 30, 1998, the Company incurred a loss of
$9,338,000 which resulted in the use of $7,235,000 to support operations. Cash
provided by investing activities was $10,653,000 related to the net maturities
of $11,859,000 of marketable securities, offset by an investment of $1,206,000
in fixed assets primarily related to its placement contract activity. Cash
provided by financing activities was $4,934,000 including $4,687,000 in net
proceeds from the issuance of convertible debt and $280,000 from the exercise of
stock options.
In anticipation of a possible FDA approval, the Company had been
increasing its overall operating expenses to be positioned to increase both its
sales activity and production capacity. In order to be adequately positioned to
meet these demands, the Company secured
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a financing commitment up to $10 million from two institutional investors. On
April 23, 1998, the Company received $5 million from the issuance of convertible
debentures due April 23, 2003, with a commitment to receive up to an additional
$5 million at the Company's option. The Company has secured this additional
capital to support a successful market launch of the Heart Laser System to
open-heart centers in the U.S. upon FDA clearance (of which no assurance can be
given). In addition, this new funding will enable the Company to conduct further
research in TMR, such as an ongoing study evaluating TMR as an adjunct to bypass
surgery, as well as to develop new products. Based upon anticipated operating
results and regulatory approval, of which no assurance can be given, the Company
believes that it has sufficient resources to meet its working capital demands
for at least the next twelve months.
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 6 in the accompanying condensed consolidated financial statements
for further discussion. The Company has insurance coverage for such legal
action. The deductible under such coverage has been incurred.
The Year 2000 Issue refers to potential problems with computer systems
or any equipment with computer chips or software that uses dates where the date
has been stored as just two digits (e.g., 97 for 1997). On January 1, 2000, any
clock or date recording mechanism incorporating date sensitive software which
uses only two digits to represent the year may recognize a date using 00 as the
year 1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruption of operations, including, among other things,
a temporary inability to process transactions, send invoices, or engage in
similar business activities. The Company is presently evaluating the impact of
the Year 2000 Issue as it affects business operations, interfaces with customers
and vendors, and contingencies related to products that have been sold that may
need to be modified. To date, the Company is unaware of any situations of
noncompliance that would materially adversely effect its operations or financial
condition. There can be no assurance, however, that instances of noncompliance
which could have a material adverse effect on the Company's operations or
financial condition will not be identified, that the systems of other companies
with which the Company transacts business will be corrected on a timely basis;
or that failure by such entities to correct a Year 2000 problem or a correction
which
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is incompatible with the Company's information systems would not have a
material adverse effect on the Company's operations and financial condition.
Unanticipated decreases in operating revenues, increases in expenses,
or a further delay in the anticipated 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 operating losses are likely prior to such
time, if ever, as the Company receives its PMA from the FDA for the Heart Laser
System. Although the Heart Laser System has been granted "expedited review"
status by the FDA, the Company cannot project when, if at all, such approval
will be granted or that any approval will include desirable claims. Any failure
or delay in receiving any such approval would have a material adverse effect on
the Company's business, financial condition and results of operations. 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 System. No assurance can be given that the Company will be successful in
marketing the Heart Laser System or that the Company will be able to operate
profitably on a consistent basis.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
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PLC SYSTEMS INC.
Part II Other Information
ITEM 1. LEGAL PROCEEDINGS.
See Note 6 to Notes to Consolidated Financial Statements filed with
this Form 10-Q.
ITEM 2. CHANGES IN SECURITIES.
See Note 5 to Notes to Consolidated Financial Statements filed with
this Form 10-Q.
ITEM 3. DEFAULTS BY THE COMPANY UPON ITS SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
On June 30, 1998, the Company held its Annual General Meeting of Stockholders
to vote on the following proposals:
1. To elect two members of the Board of Directors. Nominees for Director were:
(a) Robert I. Rudko and (b) Edward H. Pendergast ("Proposal No. 1");
2. To consider and vote upon a special resolution approving an amendment to
the Corporation's Memorandum to increase the authorized capital of the
Corporation by the increase of the authorized shares of Common Stock, no
par value per share, from 25,000,000 to 50,000,000 and to create 5,000,000
preferred shares, no par value per share, issuable in series (the "Capital
Amendment Proposal");
3. To consider and vote upon a special resolution approving an amendment to
the Articles to provide authority to the directors of the Corporation to
appoint additional directors of the Corporation between annual general
meetings (the "Articles Amendment Proposal");
4. To consider and vote upon a special resolution approving the transfer of the
Corporation's jurisdiction on incorporation from British Columbia to the
Yukon Territory (the "Continuance Proposal").
5. To appoint Ernst & Young LLP as auditors for Fiscal Year 1999 and to
authorize the Directors to fix the remuneration to be paid to the auditors
("Proposal No. 5").
Of the 18,985,081 shares of the Company's Common Stock of record as of
May 14, 1998 able to be voted at the meeting, a total of approximately
17,058,847 shares were voted, or approximately 89.9% of the Company's issued
and outstanding shares of Common Stock entitled to vote on these matters. Each
of the proposals was adopted, with the vote total as follows:
SHARES SHARES SHARES
PROPOSAL VOTING FOR VOTING AGAINST ABSTAINING
- -------- ---------- -------------- ----------
NO. 1
(a) Robert I Rudko, Ph.D. 16,772,579 0 286,268
(b) Edward H. Pendergast 16,765,349 0 293,498
NO. 2 3,152,630 894,562 71,631
NO. 3 16,255,808 723,534 79,505
NO. 4 3,606,938 385,093 127,422
NO. 5 16,857,678 125,143 76,026
ITEM 5. OTHER INFORMATION
In connection with the Company's annual meeting for fiscal 1999, any
shareholder proposal for inclusion in the Proxy Statement must be received on
or before March 31, 1999 to the attention of Jennifer Miller, General Council,
10 Forge Park, Franklin, MA 02038.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a.) Exhibits
(I) The following exhibits are filed herewith:
Exhibit
No. Title
10a Key Employment Agreement of Robert Svikhart.
27 Financial Data Schedule.
b.) Reports on Form 8-K
None
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PLC SYSTEMS INC.
Part II Other Information
(Continued)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PLC SYSTEMS INC.
Registrant
Date: August 14, 1998 By: /s/ Robert Svikhart
------------------------- -------------------------------
Robert Svikhart
(Chief Financial Officer)
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