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UNITED STATES
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 June 29, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___ to ___
Commission File No. 0-24241
V.I. TECHNOLOGIES, INC.
-----------------------
(Exact name of registrant as specified in its charter)
DELAWARE 11-3238476
- -------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
134 Coolidge Avenue, Watertown, Massachusetts 02472
---------------------------------------------------
(Address of principal executive offices)(Zip code)
Registrant's telephone number, including area code: (617) 926-1551
- -------------------------------------------------------------------------------
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 [ ]
The number of shares outstanding of each of the Registrant's classes of common
stock as of August 1, 2002:
Title of Class Shares Outstanding
Common Stock, $.01 par value 22,751,764
V. I. TECHNOLOGIES, INC.
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated balance sheets at June 29, 2002 and 3
December 29, 2001
Consolidated statements of operations for the thirteen and 4
twenty-six weeks ended June 29, 2002 and June 30, 2001
Consolidated statements of cash flows for the twenty-six 5
weeks ended June 29, 2002 and June 30, 2001
Notes to consolidated financial statements 6-8
Item 2. Management's Discussion and Analysis of 9-13
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk 14
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
V. I. TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
JUNE 29, 2002 DECEMBER 29, 2001
(UNAUDITED) (AUDITED)
------------------ -----------------
ASSETS
Current assets:
Cash and cash equivalents $ 15,322 $ 21,949
Short-term investments - 3,332
Other receivables, net 1,743 3,255
Prepaid expenses and other current assets 838 778
------------------ -----------------
Total current assets 17,903 29,314
Property, plant and equipment, net 5,211 4,303
Goodwill 325 325
Intangibles, net 3,091 3,215
Other assets, net 6,267 6,073
------------------ -----------------
Total assets $ 32,797 $ 43,230
================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligations $ 241 $ 254
Accounts payable 1,244 1,537
Accrued expenses 3,296 4,007
Deferred revenue 153 153
------------------ -----------------
Total current liabilities 4,934 5,951
Capital lease obligations, less current portion 37 159
Advances from customer 3,352 3,225
Deferred revenue 1,030 1,107
------------------ -----------------
Total liabilities 9,353 10,442
------------------ -----------------
Stockholders' equity:
Preferred stock, par value $.01 per share; authorized
1,000,000 shares; no shares issued and outstanding - -
Common stock, par value $.01 per share; authorized 45,000,000
shares; issued and outstanding 22,751,764 at June 29, 2002
and 22,730,316 at December 29, 2001 228 227
Additional paid-in-capital 141,451 141,355
Accumulated deficit (118,235) (108,794)
------------------ -----------------
Total stockholders' equity 23,444 32,788
------------------ -----------------
Total liabilities and stockholders' equity $ 32,797 $ 43,230
================== =================
The accompanying notes are an integral part of the
consolidated financial statements.
3
V. I. TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
(UNAUDITED)
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
JUNE 29, JUNE 30, JUNE 29, JUNE 30,
2002 2001 2002 2001
-------- --------- -------- ---------
Revenues:
Partner research funding $ 1,878 $ 1,493 $ 3,839 $ 3,086
Processing revenue - 7,584 - 17,210
-------- --------- -------- ---------
Net revenues 1,878 9,077 3,839 20,296
Costs and expenses:
Research and development costs 6,333 5,346 11,165 11,594
Cost of sales - 5,616 - 12,739
Selling, general and administrative expenses 1,163 2,527 2,383 4,750
-------- --------- -------- ---------
Total operating costs and expenses 7,496 13,489 13,548 29,083
-------- --------- -------- ---------
Loss from operations (5,618) (4,412) (9,709) (8,787)
Plasma Operations impairment (Note 3) - (9,875) - (9,875)
Interest (expense) income, net 126 (59) 268 (135)
-------- --------- -------- ---------
Net loss $ (5,492) $ (14,346) $ (9,441) $ (18,797)
======== ========= ======== =========
Basic and diluted net loss per share $ (0.24) $ (0.64) $ (0.42) $ (0.86)
======== ========= ======== =========
Weighted average shares used in calculation of
basic and diluted net loss per share 22,746 22,524 22,743 21,937
The accompanying notes are an integral part of the
consolidated financial statements.
4
V. I. TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
TWENTY-SIX WEEKS ENDED
JUNE 29, JUNE 30,
2002 2001
--------- ---------
Cash flows from operating activities:
Net loss $ (9,441) $ (18,797)
Adjustments to reconcile net loss to net cash used in operating
activities:
Plasma Operations impairment (Note 3) - 9,875
Depreciation and amortization 555 2,406
Accretion of discount on long-term receivables (198) -
Loss on write-off of equipment - 66
Net accretion of interest on advances from customers 127 127
Changes in operating accounts:
Trade receivables - 1,720
Other receivables, net 1,512 (1,022)
Inventory - 116
Prepaid expenses and other current assets (56) 245
Accounts payable (293) (348)
Accrued expenses (711) (1,267)
Deferred revenue (77) (62)
Due to related parties - 130
--------- ---------
Net cash used in operating activities (8,582) (6,811)
--------- ---------
Cash flows from investing activities:
Additions to property, plant and equipment (1,339) (1,177)
Proceeds from maturity of short-term investments 3,332 -
--------- ---------
Net cash provided by (used in) investing activities 1,993 (1,177)
--------- ---------
Cash flows from financing activities:
Net proceeds from issuance of common stock 97 10,543
Principal repayment of long-term debt - (672)
Principal repayment of capital lease obligations (135) (881)
--------- ---------
Net cash provided by (used in) financing activities (38) 8,990
--------- ---------
Net increase (decrease) in cash and cash equivalents (6,627) 1,002
Cash and cash equivalents at beginning of year 21,949 7,768
--------- ---------
Cash and cash equivalents at end of period $ 15,322 $ 8,770
========= =========
Supplemental disclosures of cash flow information
Capital lease obligations incurred for purchase of equipment $ - $ 259
The accompanying notes are an integral part of the
consolidated financial statements.
5
V. I. TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited consolidated financial statements of V.I.
Technologies, Inc. (the "Company" or "Vitex") have been prepared in accordance
with accounting principles generally accepted in the United States of America
for interim financial information and in accordance 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 accounting principles generally
accepted in the United States of America for complete financial statements. In
the opinion of management, all material adjustments (consisting of normal
recurring accruals) necessary for a fair presentation have been included.
Operating results for the thirteen and twenty-six weeks ended June 29, 2002 are
not necessarily indicative of the results that may be expected for the year
ending December 28, 2002. 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 29, 2001.
Presentation of Fiscal Years
For presentation purposes, the year ending December 28, 2002 and the
year ended December 29, 2001 are referred to as fiscal years 2002 and 2001,
respectively.
Revenue Recognition
Partner research funding revenue, primarily from Pall Corporation, a
shareholder, is recorded on an estimated basis when eligible research activities
are performed.
Processing revenue from the Company's Plasma Operations was recognized
in the period in which the related services were rendered and upon satisfaction
of certain quality control requirements. These revenues were not subject to
repayment or future performance obligations. The Plasma Operations were divested
in August 2001 (see Note 3).
Research and Development
All research and development costs are charged to operations as
incurred.
Net Loss Per Share
Basic net loss per share is computed by dividing the net loss by the
weighted average number of common shares outstanding. Diluted net loss per share
is the same as basic net loss per share since the inclusion of potential common
stock equivalents in the computation would be anti-dilutive. The dilutive effect
of common stock equivalents, had they been included in the computation, would
have been approximately 166,000 and 203,000 for the thirteen and twenty-six
weeks ended June 29, 2002 and 567,000 and 412,000 for the comparable periods
ended June 30, 2001.
Other receivables, net
Other receivables, net includes amounts owing from Pall Corporation of
$1.7 million and $0.5 million at June 29, 2002 and December 29, 2001,
respectively.
6
Adoption of Accounting Pronouncements
On the first day of fiscal 2002, the Company adopted Statement of
Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets", ("SFAS 144") which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
There was no effect on the Company's financial condition or results of
operations resulting from the implementation of SFAS 144. The Company also
implemented Statement of Financial Accounting Standards No. 142 (see Note 2).
2. GOODWILL AND OTHER INTANGIBLE ASSETS
The Company adopted Statement of Financial Accounting Standards No. 142
"Goodwill and Other Intangible Assets" ("SFAS 142") on the first day of fiscal
2002. The Company's intangible assets on that date consisted of goodwill
(workforce) of $0.3 million and core technology of $3.2 million. The Company
completed the transitional impairment test and designated the fourth quarter for
its annual review of impairment.
In accordance with SFAS 142, goodwill is no longer amortized.
Previously, goodwill was amortized over five years. Had the Company accounted
for goodwill under SFAS 142 on the first day of fiscal 2001, its net loss per
share and its net loss would have been reported for the quarter and year-to-date
period as follows, in thousands for other than per share data:
Quarter Year-to-date period
ended June 30, 2001 ended June 30, 2001
------------------- -------------------
Reported net loss $ (14,346) $ (18,797)
Add back: goodwill amortization 27 54
------------------- -------------------
Adjusted net loss $ (14,319) $ (18,743)
------------------- -------------------
Reported net loss per share $ (0.64) $ (0.86)
Add back: goodwill amortization - .01
------------------- -------------------
Adjusted net loss per share $ (0.64) $ (0.85)
------------------- -------------------
Core technology is amortized over its estimated useful life of fifteen
years. At June 29, 2002 core technology was recorded at gross carrying value of
$3.7 million less accumulated amortization of $0.6 million. Amortization expense
was $62,000 and $124,000 for the thirteen and twenty-six week periods ended June
29, 2002 and June 30, 2001. In each of the next five years, it is estimated to
be approximately $247,000 per annum.
3. PLASMA OPERATIONS DIVESTITURE
In August 2001, the Company divested its Plasma Operations which were
responsible for producing intermediate plasma fractions for Bayer and for viral
inactivation of transfusion plasma for the Red Cross. The Plasma Operations
accounted for all of the Company's previously reported processing revenues. The
total value of the transaction was approximately $34.0 million and the Company
initially recorded an impairment loss of $9.9 million which was subsequently
adjusted to $6.8 million upon receipt of contingent consideration and other
adjustments.
The purchaser, Precision Pharma Services, Inc. ("Precision"), retained
a $3.0 million holdback payable to the Company on the second anniversary of the
divestiture, subject to indemnification obligations of the Company. The holdback
is recorded at its current net present value of $2.8 million in "Other assets,
net" in the consolidated balance sheet at June 29, 2002.
7
Advances from customer represent a $3.5 million continuing obligation
of the Company which Precision is required to fund at maturity in 2003. This
guaranty from Precision is recorded at current net present value of $3.4 million
and is also included in "Other assets, net" in the consolidated balance sheet at
June 29, 2002.
Unpaid divestiture costs of $0.7 million at June 29, 2002 are included
in "Accrued expenses" in the consolidated balance sheet. The Company has
guaranteed performance under capital and operating leases assumed by Precision
with total outstanding payments of approximately $0.3 million at June 29, 2002.
4. ETHANOL USAGE
The Company used ethanol within its Plasma Operations as a
concentration agent in its plasma fractionation process and in column
regeneration for the transfusion plasma process. Ethanol had been purchased by
the Company on the assumption that it is entitled to tax-exempt status based on
operations and usage in manufacturing. An application to formalize tax-exempt
status has been pending before the U.S. Bureau of Alcohol, Tobacco and Firearms
(the "Bureau") since 1998. The Bureau initiated its review in 2000 and requested
the Company to pay ethanol excise tax until a determination is made. On advice
of counsel, the Company commenced paying the excise tax in October 2000 while
the review was in process.
In the event of a determination that the Company is not eligible for
tax exemption, the Bureau advised the Company that it would be entitled to a
drawback arrangement for alcohol usage. To date, the Company has recovered $2.6
million in drawback claims from the Bureau related to plasma fractionation. The
Bureau has disallowed drawback on the transfusion plasma process and the Company
is challenging this decision. Due to the uncertainty of securing drawback rights
on transfusion plasma, the Company has fully reserved all related tax deposits.
Management continues to pursue tax-exempt status. In the event the Company is
not granted tax exempt status, management believes that retroactive costs, if
any, would not be material to the Company's financial condition and results of
operations.
5. SUBSEQUENT EVENT - MODIFICATION OF PALL COLLABORATION
On August 6, 2002, the Company and Pall Corporation ("Pall") modified
their collaboration on the INACTINE(TM) red cell pathogen inactivation program
to permit the addition of new distribution partners to advance commercialization
of the program. Vitex acquired worldwide distribution rights previously held by
Pall and will have a one-year period in which to negotiate new partnership
agreements. At the end of the one-year period, Pall will have the option either
to reacquire rights in geographic areas not covered by new partners, subject to
renegotiation of terms, or to earn a royalty on each INACTINE(TM) treatment of
red cells.
Under the modified collaboration, Pall will continue to fund the
upcoming equity milestone investment of $4.0 million upon initiation of Phase
III clinical trials prior to December 31, 2002 and will make available to the
Company a one-year revolving credit facility of $5.0 million secured by liens on
certain of the Company's assets. Vitex will assume R&D funding responsibility
for the program unless Pall exercises its option to reacquire marketing rights.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
We are a leading developer of innovative biotechnology products
designed to improve the safety of the world's blood supply. We have designed our
proprietary INACTINE(TM) technology to inactivate a wide range of known and as
yet unknown viruses, bacteria, lymphocytes and parasites from red blood cells
while preserving the therapeutic properties of the red blood cells. The
INACTINE(TM) system has also demonstrated the ability to remove, in a highly
efficient fashion, prions that may cause "Mad Cow Disease" in cows and the human
form of the disease, variant Creutzfeldt-Jakob Disease ("vCJD"). Our lead
product candidate, INACTINE(TM) red blood cell system for pathogen reduction,
has received FDA approval to initiate Phase III clinical trials.
We are designing our INACTINE(TM) system to work with existing red
blood cell bag and collection systems and to be easily integrated into the blood
banking infrastructure.
Blood safety and availability remain a significant concern as new
pathogens are discovered and the demand for blood products continues to
increase. To reduce the risk of contamination of the blood supply with
pathogens, blood banks currently screen donors using detailed questionnaires and
screen the donated blood for five known pathogens. Although these safety
measures have increased the safety of blood products overall, the risk of
transmitting known and unknown pathogens remains. Our goal is to diminish this
risk with our INACTINE(TM) technology.
In order to accelerate product development and commercialization of our
INACTINE(TM) technology, we are actively engaged in a strategic alliance with
Pall Corporation for the development and commercialization of the INACTINE(TM)
red cell system as further discussed below under "Recent Developments". We also
have a contract development and manufacturing agreement with Haemonetics
Corporation and a collaboration with Amersham Pharmacia Biotech.
In collaboration with Oxford University, we are developing a diagnostic
test for pathogenic prions using aptamer technology. In their pathogenic form,
prions are the agents that cause Mad Cow Disease in cows and vCJD in humans,
which is 100% fatal and for which no therapy or diagnostic currently exists.
RECENT DEVELOPMENTS
On August 6, 2002, we and Pall Corporation modified our collaboration
on the INACTINE(TM) red cell pathogen inactivation program to permit the
addition of new distribution partners to advance commercialization of the
program. We acquired worldwide distribution rights previously held by Pall and
will have a one-year period in which to negotiate new partnership agreements. At
the end of the one-year period, Pall will have the option to reacquire rights in
geographic areas not covered by new partners, subject to renegotiation of terms,
or to earn a royalty on each INACTINE(TM) treatment of red cells.
Under the modified collaboration, Pall will continue to fund the
upcoming equity milestone investment of $4.0 million due upon initiation of
Phase III clinical trials prior to December 31, 2002 and will make available to
us a one-year revolving credit facility of $5.0 million secured by a lien on
certain of our assets. Going forward, we will assume R&D funding responsibility
for the program unless Pall exercises its option to reacquire marketing rights.
9
CRITICAL ACCOUNTING POLICIES
We prepare our consolidated financial statements in conformity with
generally accepted accounting principles in the United States of America, the
application of which involves estimates, assumptions and management judgments.
Our actual results could differ from these estimates. The accounting policies
most critical to the preparation of our consolidated financial statements
include the following:
Research and Development Revenue and Cost Recognition
Research and development costs are charged to operations as incurred.
Partner research funding is recognized in revenue on an estimated basis when
eligible research activities are performed.
Research and development milestone payments from collaborators are
deferred upon receipt and amortized into revenue over the life of the related
agreements.
Long-Lived Assets
Long-lived assets are recorded at cost. We assess the recoverability of
these assets whenever events or changes in circumstances indicate that asset
carrying amounts are in question. Factors which could trigger an impairment
review include significant changes in our intended use of the assets, in the
strategy of our overall business or R&D programs, or information concerning our
ability to recover long-term receivables from Precision. Our impairment review
measures undiscounted future cash flows from the asset in comparison with
carrying value and, where necessary, a provision is recorded to write-off the
excess asset carrying value over the fair value of the asset.
Contingencies
Contingencies, such as our dispute with the Bureau of Alcohol, Tobacco
and Firearms (the "Bureau") discussed in Note 4 to the consolidated financial
statements, are addressed by reviewing the relevant facts and circumstances,
seeking outside professional advice of lawyers or accountants where appropriate,
and then making and recording our best judgment of potential loss. This process
is repeated in each reporting period as circumstances evolve.
RESULTS OF OPERATIONS
Net Revenues
Partner research funding, principally from Pall Corporation, increased
by $0.4 million or 26% to $1.9 million for the quarter ended June 29, 2002 in
comparison with the second quarter of 2001. For the twenty-six weeks ended June
29, 2002, partner research funding increased $0.8 million or 24% to $3.8 million
versus $3.1 million for the prior year period. The increases reflect expanded
development efforts within the INACTINE(TM) red blood cell program.
As discussed under "Recent Developments" above, we will assume
responsibility for funding the INACTINE(TM) research and development program
going forward.
Processing revenue for the thirteen and twenty-six week periods ending
June 30, 2001 was related to the Plasma Operations which we divested in August
2001.
10
Cost of Sales
Cost of sales for the periods ended June 30, 2001 were also related to
our Plasma Operations which we divested in August 2001.
Research and Development
Research and development costs of $6.3 million for the thirteen weeks
ended June 30, 2002 increased $1.0 million or 18% from the comparative period in
the prior year. The increase was attributable to the INACTINE(TM) red cell
pathogen inactivation program where spending in the quarter included a
non-recurring $1.0 million royalty prepayment in connection with initiating an
engineering services and commercialization agreement. We have engaged an
engineering firm to develop an automated delivery system for the INACTINE(TM)
red cell program. The agreement provides a worldwide exclusive license for use
of a proven proprietary fluid management technology in the field of pathogen
inactivation. Also, we received regulatory approval to begin pivotal Phase III
clinical trials for the INACTINE(TM) red cell program during the second quarter
of 2002. We expect an increase in research and development spending in future
quarters as we move forward with these trials.
For the twenty-six weeks ended June 29, 2002, research and development
costs decreased $0.4 million or 4% to $11.2 million compared to the twenty-six
weeks ended June 30, 2001. These costs reflected the offsetting effects of
increased spending in the red cell program and the discontinuation of research
on plasma programs following the August 2001 divestiture of the Plasma
Operations.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased $1.4 million or
54% to $1.2 million in the second fiscal quarter of 2002 versus the prior year
period and decreased from $4.8 million to $2.4 million in the twenty-six weeks
ended June 29, 2002 versus June 30, 2001. These decreases reflect lower
administrative staffing levels required for the present scope of our operations.
Plasma Operations Impairment
In anticipation of the divestiture of the Plasma Operations, we
recorded an asset impairment charge of $9.9 million to write down the net assets
of this business to net realizable value as of June 30, 2001. The divestiture
was completed in August 2001.
Interest Income, net
Net interest income of $0.1 million and $0.3 million was earned in the
thirteen and twenty-six weeks ended June 29, 2002 respectively, versus net
interest expense of $0.1 million for both of the comparative prior year periods.
Differences were due to higher current cash balances and lower term debt
obligations.
LIQUIDITY AND CAPITAL RESOURCES
We have historically financed operations through sale of common stock,
issuance of long-term debt, capital lease financing arrangements, and research
and development funding.
At June 29, 2002, we had working capital of $13.0 million, including
cash and cash equivalents of $15.3 million, in comparison with working capital
of $23.4 million, including cash and short-term investments of $25.3 million at
December 29, 2001. Our cash balances are invested for safety of
11
principal and liquidity in money market funds and in portfolios of investment
grade corporate and U.S. government securities.
During the twenty-six weeks ended June 29, 2002, our cash and
short-term investments position decreased by $10.0 million primarily reflecting
operating losses and changes in working capital of $8.6 million and investments
in property, plant and equipment of $1.3 million.
As discussed under "Recent Developments" above, Pall Corporation is
obligated to make a $4.0 million investment in our common stock at market price
shortly after we enroll the first patient in the Phase III clinical trials for
red blood cells providing the event occurs prior to this year end. The
enrollment is now projected to occur late in the third quartr of 2002. In
addition, Pall has made available to us a revolving credit facility in the
amount of $5.0 million.
We believe that a combination of our cash and cash equivalents, the
upcoming equity milestones from Pall Corporation and the revolving credit
facility will be sufficient to meet our cash requirements during this fiscal
year.
PRO FORMA RESULTS OF OPERATIONS
The following unaudited pro forma statements of operations are based on
our historical consolidated financial statements after giving effect to the
divestiture of our Plasma Operations as if the sale had occurred on the first
day of fiscal year 2001. In deriving these unaudited pro forma statements, we
eliminated revenues, cost of sales, research and development expenses, sales and
marketing costs and interest expense associated with the Plasma Operations from
the historical financial statements. These unaudited pro forma results have been
prepared for comparative purposes only and do not purport to be indicative of
the results of operations that actually would have been reported had the
divestiture occurred on the first fiscal day of 2001, or of the future results
of operations.
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
JUNE 29, 2002 JUNE 30, 2001 JUNE 29, 2002 JUNE 30, 2001
------------- ------------- ------------- -------------
Partner research funding $ 1,878 $ 1,493 $ 3,839 $ 3,086
------------- ------------- ------------- -------------
Costs and expenses:
Research and development costs 6,333 4,774 11,165 10,112
General and administrative expenses 1,163 2,554 2,383 4,433
------------- ------------- ------------- -------------
Total operating costs and expenses 7,496 7,328 13,548 14,545
------------- ------------- ------------- -------------
Loss from operations (5,618) (5,835) (9,709) (11,459)
Interest income, net 126 85 268 150
------------- ------------- ------------- -------------
Net loss $ (5,492) $ (5,750) $ (9,441) $ (11,309)
============= ============= ============= =============
Basic and diluted net loss per share $ (0.24) $ (0.26) $ (0.42) $ (0.52)
============= ============= ============= =============
Weighted average shares used in calculation of
basic and diluted net loss per share 22,746 22,524 22,743 21,937
12
Net Revenues
Partner research funding, principally from Pall Corporation, increased
by $0.4 million or 26% to $1.9 million for the quarter ended June 29, 2002 in
comparison with the second quarter of 2001. Partner research funding increased
$0.8 million or 24% to $3.8 million for the twenty-six weeks ended June 29, 2002
versus $3.1 million for the prior year period. These increases are due primarily
to expanded development efforts within the INACTINE(TM) red blood cell program.
As discussed under "Recent Developments" above, we will assume
responsibility for funding the INACTINE(TM) research and development program
going forward.
Research and Development
Research and development costs of $6.3 million for the thirteen weeks
ended June 30, 2002 increased $1.6 million or 33% from the comparative period in
the prior year. The increase was attributable to the INACTINE(TM) red cell
pathogen inactivation program where spending in the quarter included a $1.0
million royalty prepayment in connection with initiating an engineering services
and commercialization agreement. We have engaged an engineering firm to develop
an automated delivery system for the INACTINE(TM) red cell program. The
agreement provides a worldwide exclusive license for use of a proven proprietary
fluid management technology in the field of pathogen inactivation. Also, we
received regulatory approval to begin pivotal Phase III clinical trials for the
INACTINE(TM) red cell program during the second quarter of 2002. We expect an
increase in research and development spending in future quarters as we move
forward with these trials.
For the twenty-six weeks ended June 29, 2002, research and development
costs increased $1.1 million or 10% to $11.2 million compared to the twenty-six
weeks ended June 30, 2001. These costs reflected the effects of increased
spending in the red cell program.
General and Administrative Expenses
General and administrative expenses decreased $1.4 million or 54% in
the second fiscal quarter of 2002 to $1.2 million versus the second fiscal
quarter of 2001. General and administrative expenses also decreased $2.1 million
or 46% to $2.4 million in the twenty-six weeks ended June 29, 2002 versus the
prior year comparative period. The reduction reflects lower staffing levels
subsequent to the divestiture of the Plasma Operations.
Interest Income, net
Net interest income for the second quarter of fiscal 2002 and fiscal
2001 was consistent at $0.1 million. Net interest income for the twenty-six
weeks ended June 29, 2002 and June 30, 2001 was $0.3 million and $0.2 million,
respectively. The change for the twenty-six week period is due to higher current
cash balances and lower interest expense due to repayment of capital lease
obligations.
13
FORWARD-LOOKING STATEMENTS
This document and other documents we may file with the Securities and
Exchange Commission contain forward-looking statements. Also, our management may
make forward-looking statements orally to investors, analysts, the media and
others. Forward-looking statements express our expectations or predictions of
future events or results. They are not guarantees and are subject to many risks
and uncertainties. There are a number of factors that could cause actual events
or results to be significantly different from those described in the
forward-looking statement. Forward-looking statements might include one or more
of the following:
. anticipated clinical trial timelines or results;
. anticipated research and product development results;
. projected regulatory timelines;
. descriptions of plans or objectives of management for future
operations, products or services;
. forecasts of future economic performance; and
. descriptions or assumptions underlying or relating to any of the above
items.
Forward-looking statements can be identified by the fact that they do
not relate strictly to historical or current facts. They use words such as
"anticipate", "estimate", "expect", "project", "intend", "opportunity", "plan",
"potential", "believe" or words of similar meaning. They may also use words such
as "will", "would", "should", "could" or "may". Given these uncertainties, you
should not place undue reliance on these forward-looking statements, which speak
only as of the date of this report. You should review carefully the risks and
uncertainties identified in this report and in more detail in our Annual Report
on Form 10-K. We may not revise these forward-looking statements to reflect
events or circumstances after the date of this report or to reflect the
occurrence of unanticipated events.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our company's earnings and cash flows are subject to fluctuations due
to changes in interest rates primarily from our investment of available cash and
short-term investment balances in money market funds with portfolios of
investment grade corporate and U.S. government securities. Under our current
policies, we do not use interest rate derivative instruments to manage our
exposure to interest rate changes.
14
PART II. - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 17, 2002 the Company held its Annual Meeting of Stockholders.
The following matters were approved at that meeting:
1. The election of Mr. John R. Barr, Mr. Irwin Lerner and Dr. Richard
A. Charpie as Class I Directors to serve until the 2005 Annual
Meeting of Stockholders or until their successors are elected and
qualified. There were 13,679,239 shares of common stock voted for
the election of Mr. Barr, Mr. Lerner and Dr. Charpie and 664,362
shares of common stock withheld. In addition, the terms in office
of Dr. Samuel K. Ackerman, Mr. David Tendler, Dr. Doros Platika,
Mr. Joseph Limber, Mr. Jeremy Hayward-Surry, Mr. Peter D. Parker
and Dr. Damion E. Wicker continued after the meeting.
2. An amendment to the Company's 1998 Employee Stock Purchase Plan
which increased the maximum number of shares of the Company's
common stock reserved for issuance under the 1998 Employee Stock
Purchase Plan from 89,445 to 200,000. There were 14,124,841 shares
of common stock voted for such amendment, 78,550 shares of common
stock voted against such amendment and 140,210 shares of common
stock abstained from the vote.
3. An amendment to the Company's 1998 Equity Incentive Plan which
increased the maximum number of shares of the Company's common
stock for which awards may be granted under the 1998 Equity
Incentive Plan from 3,000,000 shares to 4,000,000 shares. There
were 12,797,304 shares of common stock voted for such amendment,
1,405,825 shares of common stock voted against such amendment and
140,472 shares of common stock abstained from the vote.
4. The ratification of the appointment of KPMG LLP as the Company's
independent accountants for the current fiscal year. There were
14,314,401 shares of common stock voted for such amendment, 27,150
shares of common stock voted against such amendment and 2,050
shares of common stock abstained from the vote.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
10.42 Marketing Rights, Development, Royalty, Revolving Credit and
Security Agreement between Pall Corporation and V.I.
Technologies, Inc. dated August 6, 2002.*
10.43 Amendment No. 1 dated August 6, 2002 to Stock Purchase
Agreement dated February 19, 1998 by and between V.I.
Technologies, Inc. and Pall Corporation.*
99 Certification of Periodic Financial Report.
(b) Reports on Form 8-K
None.
* Confidential portions were omitted and filed separately with the
Securities Exchange Commission pursuant to Rule 24b-2 of the
Securities Exchange Act of 1934.
15
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.
V.I. TECHNOLOGIES, INC.
-----------------------
(Registrant)
Date: August 13, 2002 /s/ John R. Barr
---------------------
John R. Barr
President and Chief Executive Officer
Date: August 13, 2002 /s/ Thomas T. Higgins
---------------------
Thomas T. Higgins
Executive Vice President, Operations
and Chief Financial Officer
16
EXHIBIT INDEX
10.42 Marketing Rights, Development, Royalty, Revolving Credit and Security
Agreement between Pall Corporation and V.I. Technologies, Inc. dated
August 6, 2002.*
10.43 Amendment No. 1 dated August 6, 2002 to Stock Purchase Agreement dated
February 19, 1998 by and between V.I. Technologies, Inc. and Pall
Corporation. *
99 Certification of Periodic Financial Report.
* Confidential portions were omitted and filed separately with the SEC
pursuant to Rule 24b-2 of the Securities Exchange Act of 1934.