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 SEPTEMBER 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NO. 0-23659
VYSIS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
3100 WOODCREEK DRIVE
DOWNERS GROVE, ILLINOIS
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
60515-5400
(ZIP CODE)
36-3803405
(I.R.S. EMPLOYER IDENTIFICATION NUMBER)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (630) 271-7000
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| |
Number of shares of Common Stock, par value $.001 per share, outstanding as
of October 27, 2000: 10,144,560
<PAGE>
VYSIS, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
PART I: FINANCIAL INFORMATION
<S> <C>
ITEM 1: Financial Statements
Consolidated Balance Sheets
As of September 30, 2000 and December 31, 1999.............................. 2
Consolidated Statements of Operations
For the three months ended September 30, 2000 and 1999...................... 3
Consolidated Statements of Operations
For the nine months ended September 30, 2000 and 1999....................... 4
Consolidated Statements of Comprehensive Operations
For the three months ended September 30, 2000 and 1999...................... 5
Consolidated Statements of Comprehensive Operations
For the nine months ended September 30, 2000 and 1999....................... 6
Consolidated Statements of Cash Flows
For the nine months ended September 30, 2000 and 1999....................... 7
Notes to Consolidated Financial Statements..................................... 8
ITEM 2: Management's Discussion and Analysis of Financial Condition 15
and Results of Operations...................................................
ITEM 3: Quantitative and Qualitative Disclosure About Market Risk........................ 20
PART II: OTHER INFORMATION
ITEM 1: Legal Proceedings................................................................ 21
ITEM 2: Changes in Securities and Use of Proceeds........................................ 21
ITEM 6: Exhibits and Reports on Form 8-K................................................. 23
SIGNATURE ...................................................................................... 23
</TABLE>
1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VYSIS, INC.
(AN INDIRECT SUBSIDIARY OF BP AMOCO P.L.C.)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
-------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................................ . $ 1,166 $ 4,818
Short-term investments ................................................... . 9,509 3,597
Marketable securities .................................................... . --- 622
Accounts receivable, net ................................................. . 3,124 3,093
Other receivables ........................................................ . 405 1,963
Inventories .............................................................. . 1,891 2,012
Other current assets ..................................................... . 722 503
-------- --------
Total current assets ................................................. . 16,817 16,608
Property and equipment, net ................................................... . 2,425 2,986
Other assets .................................................................. 1,410 1,441
-------- --------
Total assets ......................................................... . $ 20,652 $ 21,035
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities ................................... $ 7,184 $ 6,153
Deferred revenue ........................................................... 200 236
-------- --------
Total current liabilities .............................................. 7,384 6,389
-------- --------
Long-term liabilities:
Deferred revenue .................................................... ... 1,014 1,155
Other long-term liability ........................................... ... 100 ---
-------- --------
Total long-term liabilities ............................................ 1,114 1,155
-------- --------
Commitment and contingencies (Notes 11 and 16)
Stockholders' equity:
Convertible preferred stock, $0.001 par value; 10,000,000 shares
authorized:
Series A; 6,200,000 shares designated; none issued and
outstanding at September 30, 2000 and December 31, 1999 ............ ... --- ---
Series B; 553,126 shares designated; none issued and outstanding
at September 30, 2000 and December 31, 1999 ............................ --- ---
Common stock, $0.001 par value; 35,000,000 shares authorized; 10,143,407
issues and outstanding at September 30, 2000;
9,945,346 issued and outstanding at December 31, 1999 .............. ... 10 10
Additional paid-in capital ................................................. 72,604 72,192
Unrealized gain on investment .............................................. --- 93
Cumulative translation adjustment .......................................... (628) (336)
Accumulated deficit ........................................................ (59,832) (58,468)
-------- --------
Total stockholders' equity ............................................. 12,154 13,491
-------- --------
Total liabilities and stockholders' equity ............................. $ 20,652 $ 21,035
======== ========
</TABLE>
See notes to the consolidated financial statements.
2
<PAGE>
VYSIS, INC.
(AN INDIRECT SUBSIDIARY OF BP AMOCO P.L.C.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
2000 1999
------- -------
<S> <C> <C>
Revenues:
Product revenue ................... .... $ 5,372 $ 3,915
License and other revenue ......... .... 114 124
------- -------
Total revenues ................ .... 5,486 4,039
Cost of goods sold ..................... .... 1,229 1,297
------- -------
Gross profit ........................... .... 4,257 2,742
------- -------
Operating expenses:
Research and development .......... .... 1,580 1,998
Acquired research-related patents . .... --- 536
Selling, general and administrative .... 3,061 3,982
------- -------
Total operating expenses ...... .... 4,641 6,516
------- -------
Loss from operations ................... .... (384) (3,774)
Gain on sale of Imaging business ....... .... --- 1,700
Gain on sale of investment ............. .... 1,190 ---
Interest income ........................ .... 144 138
Interest expense ....................... .... --- (53)
------- -------
Net income (loss) ...................... .... $ 950 $(1,989)
======= =======
Net income (loss) per share:
Basic ........................... .... $ .09 $ (0.20)
======= =======
Diluted ......................... ... $ .09 $ (0.20)
======= =======
</TABLE>
See notes to the consolidated financial statements.
3
<PAGE>
VYSIS, INC.
(AN INDIRECT SUBSIDIARY OF BP AMOCO P.L.C.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------
2000 1999
-------- --------
<S> <C> <C>
Revenues:
Product revenue ................................... $ 15,583 $ 15,552
License and other revenue ......................... 1,859 403
-------- --------
Total revenues ................................ 17,442 15,955
Cost of goods sold ..................................... 3,958 5,983
-------- --------
Gross profit ........................................... 13,484 9,972
-------- --------
Operating expenses:
Research and development .......................... 5,101 6,826
Acquired clinical trial data ...... ............... 1,500 ---
Acquired research-related patents . ............... --- 536
Selling, general and administrative ............... 9,822 12,816
Restructuring expense ............................. --- 541
-------- --------
Total operating expenses ...................... 16,423 20,719
-------- --------
Loss from operations ................................... (2,939) (10,747)
Gain on sale of Imaging business ....................... --- 1,700
Gain on sales of investments ........................... 1,190 357
Interest income ........................................ 385 508
Interest expense ....................................... --- (103)
-------- --------
Net loss ............................................... $ (1,364) $ (8,285)
======== ========
Basic and diluted net loss per share ................... $ (0.14) $ (0.84)
======== ========
</TABLE>
See notes to the consolidated financial
statements.
4
<PAGE>
VYSIS, INC.
(AN INDIRECT SUBSIDIARY OF BP AMOCO P.L.C.)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
----------------------------------
2000 1999
------- -------
<S> <C> <C>
Net income (loss) ........................................... .... $ 950 $(1,989)
Other comprehensive income (loss):
Cumulative translation adjustment ...................... .... (179) 110
Unrealized holding gain (loss) on investment ........... .... 600 (62)
Reclassification adjustment, realized gain on investment .... (1,190) ---
------- -------
Total other comprehensive income (loss) ............ .... (769) 48
------- -------
Comprehensive income (loss) ................................. .... $ 181 $(1,941)
======= =======
</TABLE>
See notes to the consolidated financial statements.
5
<PAGE>
VYSIS, INC.
(AN INDIRECT SUBSIDIARY OF BP AMOCO P.L.C.)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------
2000 1999
------- -------
<S> <C> <C>
Net loss ...................................................................... $(1,364) $(8,285)
Other comprehensive income (loss):
Cumulative translation adjustment ......................................... (292) (296)
Unrealized holding gain (loss) on investments ........... ................ 1,097 (167)
Reclassification adjustment, realized gain on investments ................ (1,190) (357)
------- -------
Total other comprehensive loss ....................................... (385) (820)
------- -------
Comprehensive loss ............................................................ $(1,749) $(9,105)
======= =======
</TABLE>
See notes to the consolidated financial statements.
6
<PAGE>
VYSIS, INC.
(AN INDIRECT SUBSIDIARY OF BP AMOCO P.L.C.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ........................................................ $ (1,364) $ (8,285)
Reconciliation of net loss to net cash used in operating
activities:
Depreciation and amortization ............................... 1,139 1,262
Effects of changes in foreign currency ...................... 69 ---
Foreign currency exchange rate losses ....................... 15 ---
Gain on sale of Imaging business ...................... ..... --- (1,700)
Gain on sales of investments .......................... ..... (1,190) (357)
Stock compensation .......................................... 13 47
Changes in assets and liabilities:
Accounts receivable .................................... (93) 2,037
Inventories ............................................ 60 (555)
Other current assets ................................... (239) (621)
Lease receivables ...................................... --- 255
Other assets ........................................... 10 108
Accounts payable and accrued liabilities ......... ..... 1,073 (2,614)
Deferred revenue ....................................... (176) 1,000
-------- --------
Net cash used in operating activities ....................... (683) (9,423)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds, net of cash sold, from French distributor ....... ..... 994 ---
Proceeds, net of transaction-related expenses, from sale of
Imaging business ............................................ 451 1,294
Proceeds from maturities of short-term investments ........ ..... 10,929 25,042
Proceeds from sales of investments ........................ ..... 1,718 457
Purchases of short-term investments ............................. (16,841) (19,324)
Purchases of property and equipment ............................. (513) (537)
Proceeds from sale of property and equipment .................... 21 ---
Increase in other assets ........................................ (50) (70)
-------- --------
Net cash (used in) provided by investing activities .. ..... (3,291) 6,862
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock option plan exercises ....................... 285 84
Expenses funded by stock issuance ......................... ..... --- 286
Expenses funded by BP Amoco ............................... ..... 115 ---
Principal payments on long-term borrowings ................ ..... --- (379)
-------- --------
Net cash provided by (used in) financing activities ... ..... 400 (9)
Effect of exchange rate changes on cash .............................. (78) (71)
-------- --------
Net decrease in cash and cash equivalents ...................... ..... (3,652) (2,641)
Cash and cash equivalents at beginning of period ..................... 4,818 4,517
-------- --------
Cash and cash equivalents at end of period ........................... $ 1,166 $ 1,876
======== ========
</TABLE>
See notes to the consolidated financial statements.
7
<PAGE>
VYSIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1--ORGANIZATION AND BUSINESS:
Vysis, Inc. ("Vysis" or the "Company") is a Genomic Disease Management
company that develops, commercializes and markets clinical products that provide
information critical to the evaluation and management of cancer, prenatal
disorders and other genetic diseases. Vysis currently markets six U.S. Food and
Drug Administration ("FDA") or foreign cleared or approved clinical ("Clinical")
products in addition to distributing over 300 Analyte Specific Reagent and
research ("ASR/Research") products through its direct sales operations in the
United States and Europe and a worldwide distribution network covering 59
countries. The Company's wholly owned subsidiary, Gene-Trak Systems Industrial
Diagnostics Corporation, manufactures and markets food testing kits based on
Deoxyribonucleic Acid ("DNA") probes.
The Company was incorporated in Delaware on April 18, 1991. The Company's
business represents the consolidation of multiple research units and programs of
the former Amoco Corporation. On December 31, 1998, Amoco Corporation merged
with the former British Petroleum Corporation, and as a result of the merger
became a wholly-owned subsidiary of BP Amoco p.l.c. As used herein, "BP Amoco"
refers to BP Amoco p.l.c. and its wholly owned subsidiaries.
On February 10, 1998, the Company completed the initial public offering of
3 million shares of its Common Stock, par value $0.001 per share, at a price of
$12.00 per share (the "Offering"). The net proceeds of the Offering after
deducting expenses were approximately $32.1 million. Concurrent with the
consummation of the Offering, the Company issued 675,000 shares of Common Stock
at $12.00 per share to BP Amoco in exchange for a reduction of $8.1 million in
the Company's note payable to BP Amoco. As of October 27, 2000, BP Amoco
beneficially owned approximately 66% of the Company's outstanding Common
Stock.
NOTE 2--FINANCIAL INFORMATION:
The unaudited interim consolidated financial statements of the Company have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. These interim
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1999, and the
Company's Quarterly Reports on Form 10-Q for the three months ended March 31,
2000 and June 30, 2000 as filed with the Securities and Exchange Commission.
8
<PAGE>
In the opinion of management, the interim consolidated financial statements
reflect all adjustments necessary for a fair presentation of the interim
periods. All such adjustments are of a normal, recurring nature. Certain amounts
in fiscal 1999 have been reclassified to conform to the fiscal 2000
presentation. These changes had no impact on previously reported results of
operations or stockholders' equity. The results of operations for the interim
periods are not necessarily indicative of the results of operations to be
expected for a full year.
NOTE 3--RECENT ACCOUNTING PRONOUNCEMENTS:
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"), which provides guidance on the recognition of revenues for various
technology access fees and license agreements. The Company has adopted SAB 101,
which had no impact on the Company's results of operations. In accordance with
SAB 101, the Company recognizes upfront nonrefundable patent license fees upon
the signing of an agreement where there is no future obligation to perform.
Ongoing patent royalty fees are recognized as revenue as earned over the life of
the agreement. Milestone payments are recognized as revenue when earned in
accordance with the terms of the agreement.
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS
133 will require the Company, to the extent it makes use of derivative financial
instruments, to record them on the balance sheet at fair value. Changes of the
fair value of derivatives will be recognized to earnings or other comprehensive
income, depending on whether the derivative is designated as part of a hedge
transaction. In June 1999, FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement 133," which postponed the effective date of SFAS 133 until calendar
year 2001. The Company anticipates that due to its current non-use of derivative
instruments, the adoption of SFAS 133 will not have a significant effect on the
Company's financial position or results of operations.
NOTE 4--COMPOSITION OF BALANCE SHEET COMPONENT:
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
-------------- -------------
<S> <C> <C>
Raw materials and supplies ............... $ 984 $1,136
Finished goods ........................... 907 876
------ ------
$1,891 $2,012
====== ======
</TABLE>
NOTE 5--CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS CLASSIFIED AS HELD TO
MATURITY:
Cash equivalents and short-term investments are classified as held to
maturity, are carried at amortized cost and are summarized as follows (in
thousands):
9
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
---------------------------------------
AMORTIZED UNREALIZED FAIR
COST GAIN (LOSS) VALUE
----------- ------------ ---------
<S> <C> <C> <C>
U.S. government agencies ................ $2,143 $ 6 $2,149
Corporate debt securities ............... 7,366 (1) 7,365
------ ------ ------
$9,509 $ 5 $9,514
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------------------------
AMORTIZED UNREALIZED FAIR
COST GAIN (LOSS) VALUE
---------- ------------- -------
<S> <C> <C> <C>
U.S. government agencies ................ $2,727 $ (11) $2,716
Corporate debt securities ............... 2,770 1 2,771
------ ------ ------
$5,497 $ (10) $5,487
====== ====== ======
</TABLE>
A summary of securities classified as held to maturity at September 30,
2000 are as follows (in thousands):
<TABLE>
<CAPTION>
AMORTIZED
DUE IN COST FAIR VALUE
------------------ ---------- -----------
<S> <C> <C>
1-90 Days ........ $2,802 $2,803
91-180 Days ...... 4,548 4,547
181-270 Days ..... 1,153 1,153
271-360 Days ..... 1,006 1,011
------ ------
$9,509 $9,514
====== ======
</TABLE>
NOTE 6--LICENSE REVENUES:
During the second quarter of 2000, the Company entered into a patent
license agreement and an option to a patent license agreement to license certain
of the Company's patent technology. Under the terms of these agreements, the
Company recognized $1,250,000 of nonrefundable license/option fees as license
revenue.
NOTE 7--ACQUIRED RESEARCH-RELATED PATENTS:
During July 1999, the Company acquired Aprogenex, Inc.'s intellectual
property portfolio for $250,000 plus the issuance of 80,291 shares of the
Company's common stock for a total value of $0.5 million. The intellectual
property portfolio included 12 United States patents which primarily relate to
diagnostic assays using the identification of fetal cells in maternal blood. The
Company has expensed the entire value of the acquired portfolio as the Company's
research has not yet established that the assays utilizing these patents has
sufficient diagnostic capability and the Company is not currently allocating
significant research expenditure to this area.
NOTE 8--GAIN ON SALE OF THE IMAGING BUSINESS:
During July 1999, the Company sold its Quips cytogenetic imaging
instrumentation ("Imaging") business, which represented nearly all of the
Company's current genetic instrument product line, to Applied Imaging Corp.
("AI") for a purchase price of
10
<PAGE>
$2,278,000 plus additional consideration of $749,000 for the purchase of certain
Imaging component inventory, resulting in a gain of $1,700,000. Of the
$3,027,000 in total consideration, the Company has received $2,248,000 in cash
and 497,368 shares of AI common stock that was valued upon its receipt at
$529,000. In addition, in accordance with the sale agreement, AI is obligated to
pay $250,000 plus interest in January 2001. See Note 9 for discussion regarding
the July 2000 sale of the AI marketable securities.
NOTE 9--GAIN ON SALES OF INVESTMENTS:
During July 2000, the Company sold all of its marketable securities, which
consisted of AI common stock, for $1,718,000 resulting in a realized gain of
$1,190,000. During the first quarter of 1999, the Company sold its
available-for-sale investment of Incyte Pharmaceuticals, Inc. ("Incyte") common
stock for $457,000, resulting in a gain on the sale of $357,000.
NOTE 10--NET INCOME (LOSS) PER SHARE:
Basic net income (loss) per share is computed by dividing net income (loss)
(numerator) by the weighted average number of common shares outstanding
(denominator) during the period and excludes the dilutive effect of stock
options. Diluted net income (loss) per share gives effect to all dilutive
potential common shares outstanding during a period. In computing diluted net
income (loss) per share, the average stock price for the period is used in
determining the number of shares assumed to be purchased from exercise of stock
options.
The following is a reconciliation of the numerators and denominators of the
basic and diluted net income (loss) computations (in thousands, except per share
amounts) for the three and nine months ended September 30, 2000:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ----------------------------
2000 1999 2000 1999
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) ......................... $ 950 $(1,989) $(1,364) $(8,285)
====== ======= ======= =======
Denominator:
Denominator for basic net income (loss) per
share - weighted-average shares ............ 10,113 9,899 10,067 9,833
Dilutive potential common shares -
stock options .............................. 676 --- --- ---
------ ------- ------- -------
Denominator for diluted net income
(loss) per share ........................ 10,789 9,899 10,067 9,833
====== ======= ======= =======
Basic net income (loss) per share ................ $ .09 $ (0.20) $ (0.14) $ (0.84)
====== ======= ======= =======
Diluted net income (loss) per share .............. $ .09 $ (0.20) $ (0.14) $ (0.84)
====== ======= ======= =======
</TABLE>
Options to purchase 188,784 shares of common stock were outstanding at
September 30, 2000, but were not included in the computation of diluted net
income per share for the three months ended September 30, 2000 as their effect
was antidilutive.
11
<PAGE>
Options to purchase 2,091,152 shares were outstanding at September 30, 2000, but
were not included in the computation of diluted loss per share for the nine
months ended September 30, 2000 as their effect was antidilutive. Options to
purchase 2,168,460 shares were outstanding at September 30, 1999, but were not
included in the computation of diluted loss per share for the three or nine
months ended September 30, 1999 as their effect was antidilutive.
NOTE 11--ACQUIRED CLINICAL TRIAL DATA:
During May 2000, the Company entered into a collaborative agreement with
Genentech, Inc., the developer of the Herceptin(R) monoclonal antibody treatment
for metastatic breast cancer, to extend the use of the Company's PathVysion(TM)
HER-2 breast cancer test kit. In accordance with the agreement, the Company
incurred a charge of $1,500,000 for the right to utilize Genentech clinical
trials data for the Company's regulatory submission to the United States Food
and Drug Administration (FDA) to expand the use of the Company's PathVysionTM
HER-2 kit to include the use of the kit to select patients for treatment with
Herceptin. The Company has paid $1,000,000 with the remaining $500,000 due in
May, 2001. Additionally, if the FDA approves the product, the Company must make
a final additional payment of $500,000 to be paid the latter of FDA approval or
May, 2001.
NOTE 12--RESTRUCTURING:
During 1999, the Company completed two restructuring plans that included
the elimination of 25 employees in total at various levels throughout the
Company, which resulted in an aggregate restructuring charge of $918,000 in 1999
for employee severance costs, of which $514,000 was recorded during the
restructuring plan implemented during the first quarter of 1999. At September
30, 2000, the Company had paid all but $5,000 of the total 1999 charges.
NOTE 13--GAIN ON SALE OF FRENCH DISTRIBUTOR:
On December 31, 1999, the Company sold its wholly-owned French distribution
subsidiary to Applied Genetics Services, Ltd. for a purchase price in French
francs the equivalent of $1,272,000 in U.S. dollars as of December 31, 1999,
resulting in a gain of $166,000. At September 30, 2000, the Company has received
$1,014,000 and recorded a loss on foreign currency transaction of $39,000. In
accordance with the sale agreement, the Company and its foreign subsidiaries
will receive by March 2001 the remaining payments in French francs aggregating
the equivalent of $134,000 in U.S. dollars as of September 30, 2000.
NOTE 14 -- RELATED PARTY TRANSACTION:
During the first quarter of 2000, the Company received certain consulting
services provided for and paid by BP Amoco accrued at $115,000. The Company has
recorded the benefit of these services as a capital contribution with a
corresponding charge to selling, general and administrative expense.
12
<PAGE>
NOTE 15--SEGMENT AND GEOGRAPHIC INFORMATION:
The Company operates in two reportable business segments: genetic and food
testing products. The genetics business develops, commercializes, manufactures
and markets products that use nucleic acid probes for the evaluation and
management of cancer, prenatal disorders and other genetic diseases. The food
business manufactures and markets food testing kits based on DNA probes.
The tables below present information (in thousands) about reported segments
for the three and nine months ended September 30, 2000 and 1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 2000
-------------------------------------
GENETICS FOOD TOTAL
-------- -------- --------
<S> <C> <C> <C>
Revenues from external
customers .............. $ 4,797 $ 689 $ 5,486
Segment income (loss) .... 989 (39) 950
Segment assets ........... 20,016 636 20,652
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1999
-------------------------------------
GENETICS FOOD TOTAL
-------- -------- --------
<S> <C> <C> <C>
Revenues from external
customers ............. $ 3,278 $ 761 $ 4,039
Segment income (loss) ... (2,019) 30 (1,989)
Segment assets .......... 23,333 741 24,074
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 2000
-------------------------------------
GENETICS FOOD TOTAL
-------- -------- --------
<S> <C> <C> <C>
Revenues from external
customers ............. $15,310 $ 2,132 $17,442
Segment loss ............ 1,232 132 1,364
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999
-------------------------------------
GENETICS FOOD TOTAL
-------- -------- --------
<S> <C> <C> <C>
Revenues from external
customers ................ $ 13,806 $ 2,149 $ 15,955
Segment income (loss) ...... (8,313) 28 (8,285)
</TABLE>
13
<PAGE>
The Company's revenues by product line for the three and nine months ended
September 30, 2000 and 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
2000 1999
------- ------
<S> <C> <C>
FDA/AFSSAFP approved clinical genetic testing products ....... $1,483 $1,012
ASR/Research genetic testing products .................... 2,762 1,893
Genetic instrument products .............................. 438 48
Genetic research grants and license revenue .............. 114 124
Distributed laboratory products .......................... --- 201
Food testing products .................................... 689 761
------ ------
Consolidated total revenues .............................. $5,486 $4,039
====== ======
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------
2000 1999
------- ------
<S> <C> <C>
FDA/AFSSAFP approved clinical genetic testing products ...... $ 4,095 $ 2,935
ASR/Research genetic testing products ................... 7,977 6,948
Genetic instrument products ............................. 1,379 2,878
Genetic research grants and license revenue ............. 1,859 403
Distributed laboratory products ......................... --- 642
Food testing products ................................... 2,132 2,149
------- -------
Consolidated total revenues ............................. $17,442 $15,955
======= =======
</TABLE>
The Company's revenues by geographic area based on location of customers
for the three and nine months ended September 30, 2000 and 1999 are as follows
(in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
2000 1999
------- ------
<S> <C> <C>
United States ...................... $2,876 $2,375
Europe, Middle East and Africa ..... 1,886 1,135
Other .............................. 724 529
------ ------
Consolidated total revenues ........ $5,486 $4,039
====== ======
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------
2000 1999
------- -------
<S> <C> <C>
United States ...................... $ 9,709 $ 7,864
Europe, Middle East and Africa ..... 5,715 6,356
Other .............................. 2,018 1,735
------- -------
Consolidated total revenues ........ $17,442 $15,955
======= =======
</TABLE>
14
<PAGE>
NOTE 16--COMMITMENT AND CONTINGENCY:
As previously disclosed in the Company's Form 10-Q for the quarter ending
June 30, 2000, the Company is named as the defendant in a declaratory judgment
suit filed in the United States District Court in the Southern District of
California (San Diego) by Gen-Probe, Inc. The suit seeks a declaration that the
Company's U.S. Patent No. 5,750,338 is invalid and not infringed by certain
products for detecting the presence of hepatitis C virus and human
immunodeficiency virus in blood specimens. The Company understands that Chiron
is currently marketing the products in Australia, France and Germany pursuant to
licenses granted by the Company to Gen-Probe and Chiron. The suit also seeks an
injunction restraining the Company from interfering with activities by Gen-Probe
and its partners regarding these and other products in development; damages and
other relief for unfair competition; and a declaration of Gen-Probe's rights and
obligations under its license to the `338 patent. The parties are taking
discovery. The trial is projected to occur in about November 2001. The Company
believes Gen-Probe's claims are without merit and intends to defend its rights
vigorously.
As also reported, the Company has filed an application to reissue the `338
patent with the United States Patent & Trademark Office. The reissue application
requests the Patent Office to supplement the claims of the issued patent with
new claims of intermediate scope. The application is pending.
Neither loss of the suit filed by Gen-Probe nor an adverse ruling by the
Patent Office to the reissue application would limit the sales or marketing of
any of the Company's present or planned products, but could result in the loss
of revenue resulting from the licenses granted to Gen-Probe and its partners and
other potential licenses granted under the `338 patent. Although there can be no
assurance as to the ultimate outcome of the suit, based upon the information
available at this time it is the opinion of the Company's management that the
outcome of this suit will not have a material adverse effect on the Company's
business, results of operations and financial condition.
The Company has a minimum purchase commitment with an instrument
manufacturer. The agreement expires at December 31, 2000 and contains a
remaining commitment of $412,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's results
and financial condition. The discussion should be read in conjunction with the
audited consolidated financial statements of the Company and notes thereto,
which were included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1999 as well as the financial statements of the Company and
notes thereto. This Quarterly Report on Form 10-Q contains certain statements
which describe the Company's beliefs concerning future business conditions and
the outlook for the Company based on currently available information. Whenever
possible, the Company has identified these "forward-looking" statements (as
defined in Section 21E of the Securities Exchange Act
15
<PAGE>
of 1934) by words such as "anticipates," "believes," "estimates," "expects," and
similar expressions. These forward-looking statements are subject to risks and
uncertainties which could cause the Company's actual results, performance and
achievements to differ materially from those expressed in or implied by these
statements. These risks and uncertainties include: the market acceptance of the
Company's clinical products; the extent to which the clinicians or laboratories
performing procedures with the Company's products are able to obtain third-party
reimbursement; the ability of the Company to successfully market and sell its
clinical products, other products and equipment; competition; compliance by the
Company with regulatory requirements and the timely receipt of necessary
governmental approvals; the Company's ability to manufacture products in
sufficient quantities; the Company's ability to maintain intellectual property
protection for its proprietary products, to defend its existing intellectual
property rights from challenges by third parties, and to avoid infringing
intellectual property rights of third parties; product liability claims; the
success of the Company's collaborators and licensees; and the Company's cost
control efforts.
OVERVIEW
Vysis, Inc. ("Vysis" or the "Company") is a Genomic Disease Management
company that develops, commercializes and markets clinical products that provide
information critical to the evaluation and management of cancer, prenatal
disorders and other genetic diseases. Vysis currently markets six U.S. Food and
Drug Administration ("FDA") or foreign cleared or approved clinical ("Clinical")
products in addition to distributing over 300 Analyte Specific Reagent and
research ("ASR/Research") products through its direct sales operations in the
United States and Europe and a worldwide distribution network covering 59
countries. The Company's wholly owned subsidiary, Gene-Trak Systems Industrial
Diagnostics Corporation, manufactures and markets food testing kits based on
Deoxyribonucleic Acid ("DNA") probes.
RESULTS OF OPERATIONS
Total revenues for the three and nine months ended September 30, 2000 were
$5.5 million and $17.4 million, respectively, an increase of $1.4 million, or
36%, and $1.5 million, or 9%, as compared to the three and nine months ended
September 30, 1999. Product revenue for the three months and nine months ended
September 30, 2000 was $5.4 million and $15.6 million, respectively, an increase
of $1.5 million, or 37%, and flat in comparison with prior year periods. The
increase in product revenue of $1.4 million, or 36%, for the third quarter of
2000 as compared to the prior year quarter was primarily attributable to a $0.9
million, or 46%, increase in ASR/Research genetic testing products
("ASR/Research"), a $0.5 million, or 47%, increase in FDA/AFSSAFP approved
clinical testing products ("Clinical"), and a $0.4 million, or 813%, increase in
Genetic instrument products ("Instrument") offset by a $0.2 million, or 100%,
decrease in Distributed laboratory products ("Distributed"). For the nine months
ended September 30, 2000, product revenue of $15.6 million was consistent with
the prior year period as a result of a $1.5 million, or 52%, and a $0.6 million,
or 100%, reduction in Instrument and Distributed product sales, respectively,
offset by a $1.2 million, or 40%, increase in Clinical product sales and a $1.0
million, or 15%, increase in ASR/Research product
16
<PAGE>
sales. The increase in Clinical product revenue for the three and nine months
ended September 30, 2000 was primarily due to the growth in the worldwide
adoption rate of the Company's PathVysion(TM) breast cancer and AneuVysion(R)
prenatal products. The increase in the third quarter and year-to-date 2000
ASR/Research product revenue was primarily attributable to the increase in
international shipments of previously developed ASR/Research products as well as
the worldwide sales of 19 new Research products introduced during 2000. The $0.4
million increase of Instrument revenue for the third quarter of 2000 over the
prior year quarter was primarily due to increased sales attributable to the
Company's fourth quarter 1999 introduction of its GenoSensor(TM) Reader, a
proprietary reader designed to quickly capture fluorescent image data from the
Company's microarray, and VP2000 Processor, which was designed to reduce up to
70% of the manual steps required to process a FISH (fluorescent in site
hybridization) array. For the nine months ended September 30, 2000, the
Instrument revenue reduction of $1.5 million was due to the Company selling its
Quips cytogenetic imaging instrumentation ("Imaging") business during July 1999,
which represented nearly all of its Instrument business at that time offset
partially by the aforementioned introduction of the two new Instrument products.
The decrease in Distributed product revenue of $0.2 million and $0.6 million for
the three and nine months ended September 30, 2000, respectively, resulted from
the Company's December 1999 sale of its French distribution operation, which
included the entire Distributed product line. The increase in license and other
revenue of $1.5 million for the nine months ended September 30, 2000 was
primarily due to $1.3 million of second quarter 2000 license revenue associated
with a patent license agreement and an option for a patent license agreement.
Cost of goods sold for the three and nine months ended September 30, 2000
were $1.2 million and $4.0 million, respectively, representing a decrease of
$0.1 million, or 5%, and $2.0 million, or 34%, from the respective prior year
periods. As a percentage of product revenue, product gross profit increased to
77% and 75% for the three and nine months ended September 30, 2000 respectively,
from 67% and 62% in the respective prior year periods as a result of the larger
margin Clinical and ASR/Research products representing a higher percentage of
product revenue for the three and nine months ended September 30, 2000 as
compared to the prior year periods. As a result, product gross profit was $4.1
million and $11.6 million for the three and nine months ended September 30,
2000, respectively, representing an increase of $1.5 million, or 58%, and $2.1
million, or 21%, in comparison to the prior year periods.
Research and development expenses for the three and nine months ended
September 30, 2000 were $1.6 and $5.1 million, respectively, a decrease of $0.4
million, or 21%, and $1.7 million, or 25%, as compared to the prior year
periods. The decreases were primarily due to reduced salaries and contract
research expenses resulting from the Company's 1999 restructuring plans which
included the elimination of certain positions primarily related to the deferral
of research and development on the Company's Molecular Lawn platform and the
divestiture of the Imaging business. During May 2000, the Company entered into a
collaborative agreement with Genentech, Inc., the developer of the Herceptin(R)
monoclonal antibody treatment for metastatic breast cancer, to extend the use of
the Company's PathVysionTM HER-2 breast cancer test kit. In accordance with the
agreement, the Company has incurred a charge of $1.5 million for its right to
utilize Genentech's clinical trial data for the Company's regulatory submission
to the FDA.
17
<PAGE>
During the third quarter of 1999, the Company incurred a nonrecurring charge of
$0.5 million for acquired research-related patents that primarily related to
diagnostic arrays using the identification of fetal cells in maternal blood.
Selling, general and administrative expenses for the three and nine months
ended September 30, 2000 were $3.1 million and $9.8 million, respectively, a
decrease of $0.9 million, or 23%, and $3.0 million, or 23%, in comparison to the
prior year. The third quarter and year-to-date reductions were due to a decrease
of $0.9 million and $3.4 million, respectively, in selling expense primarily due
to the reduction in the number of sales and marketing employees as a result of
divesting the Imaging business and modifying the European organization to use
distributors in France and Italy as well as a decline in bad debt expense and
the elimination of certain positions during the 1999 restructurings. For the
nine months ended September 30, 2000, the reduction in selling expenses were
partially offset by an increase of $0.4 million in general and administrative
expenses primarily due to higher litigation expenses.
During the first quarter of 1999, the Company implemented the first of two
restructuring plans in 1999. The Company eliminated 20 positions at various
levels throughout the Company during March 1999, which resulted in a $0.5
million restructuring charge for employee severance costs.
During July 2000, the Company sold all of its marketable securities, which
consisted of AI common stock, for $1.7 million, resulting in a gain on the sale
of investment of $1.2 million. The gain on the sale of investments for the nine
months ended September 30, 1999 was $0.4 million that resulted from the $0.5
million sale of the Company's investment in Incyte common stock.
Interest income for the three and nine months ended September 30, 2000 was
$0.1 million and $0.4 million, respectively, which was relatively consistent
with comparable prior year periods primarily as a result of the significant
decline in the use of cash for operating activities.
INCOME TAXES
Prior to the completion of the Company's Offering, the results of
operations were included in the consolidated income tax returns of BP Amoco;
accordingly, the domestic net operating losses through February 10, 1998 have
been utilized by BP Amoco in its consolidated income tax returns and are not
available to offset the Company's future taxable income. Subsequent to the
Offering, the Company has filed separate federal income tax returns. As the
Company was in a loss position for the nine months ended September 30, 1999 and
2000, no federal provision is recorded. For state income taxes, the Company's
results of operations will continue to be included with BP Amoco, due to its 66
percent ownership interest in the Company, in those states where required by
state tax law. Under state tax laws in a number of states, including Illinois
(the state in which much of the Company's business is taxed), the Company is
required by law to be included in BP Amoco's unitary state tax returns as long
as BP Amoco owns or controls 50 percent or more of the voting equity. For
unitary state filings, the tax sharing agreement with BP Amoco requires BP Amoco
to pay the Company the incremental tax savings, if any,
18
<PAGE>
received by BP Amoco as a result of including the Company's results of
operations in such filings. The agreement also requires the Company to pay BP
Amoco the incremental tax liability, if any, incurred by BP Amoco as a result of
including the Company's results of operations in such filings. As a result of BP
Amoco's apportionment factors combined with minimal U.S. based tax losses, the
Company has not recorded any state tax benefit for the three and nine months
ended September 30, 2000. For state income taxes in non-unitary states, the
Company has not recorded any benefit as a result of its year-to-date loss
position.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities for the nine months ended September
30, 2000 was $0.7 million, a decrease of $8.7 million over the prior year,
driven primarily by the $7.8 million reduction in operating losses and $2.3
million reduction in working capital requirements offset by a $1.2 million
reduction in deferred revenue as compared to the prior year.
Net cash used in investing activities for the nine months ended September
30, 2000 was $3.3 million, resulting primarily from the purchase, net of
maturities, of short-term investments offset by the proceeds from the sale of
the AI stock and divestiture of the French distribution subsidiary. During the
prior year, the $6.7 million of net cash flows provided by investing activities
resulted primarily from maturities, net of purchases, of short-term investments
as well as from the proceeds from the sale of the Imaging business.
Net cash provided by financing activities for the nine months ended
September 30, 2000 was $0.4 million, an increase of $0.4 million over the prior
year primarily due to the elimination of debt payments.
At September 30, 2000, the Company had cash, cash equivalents and
short-term investments of $10.7 million and an accumulated deficit of $59.8
million. Since its inception, the Company has experienced operating losses. For
the three and nine months ended September 30, 2000, operating losses were $0.4
million and $2.9 million, respectively, which represented an improvement of $3.4
million and $7.8 million as compared to the respective prior year periods. In
order to preserve the Company's cash position and to reduce cash used in
operating activities, the Company implemented during the first quarter of 1999 a
restructuring plan that resulted in the elimination of 20 positions in the U.S.,
including open positions, thereby reducing ongoing expenditures approximately
$1.6 million. During the third quarter of 1999, the Company sold its Imaging
business to AI for total consideration of $3.0 million. Of the $3.0 million in
total consideration, the Company has received $2.2 million in cash and 497,368
shares of AI common stock that was valued upon its receipt at $0.5 million.
During July 2000, the Company sold these securities for $1.7 million. In
addition, AI is further obligated to pay $0.3 million in January 2001. Upon
completion of the Imaging business sale, the Company refocused on its core
technologies and during the fourth quarter of 1999 eliminated 37 positions,
including open positions as well as certain positions previously associated with
the Imaging business, thereby reducing ongoing annual cash expenditures by
approximately $2.7 million. At September 30, 2000, the Company has paid
19
<PAGE>
substantially all of the severance costs related to the 1999 restructuring
plans. In addition, the Company sold during December 1999 its French
distribution subsidiary for approximately $1.1 million, which has been adjusted
for the effect of foreign currency translation. As of September 2000, the
Company has received $1.0 million with the remaining balance of $0.1 million due
by March 2001.
The Company believes that its current cash and short-term investment
position, and the interest to be earned thereon, will be sufficient to fund the
Company's operations through, at least, the end of year 2001. The Company's
estimate of the time period for which cash funds will be adequate to fund its
operations is a forward looking estimate subject to risks and uncertainty, and
actual results may differ materially. The Company's requirements for additional
capital will depend on many factors, including growth in product revenue;
payments received under existing and potential collaborative agreements; the
availability of government research grant payments; the progress of the
Company's collaborative and independent research and development projects; the
costs of preclinical and clinical trials for the Company's products; the
prosecution, defense and enforcement of patent claims and other intellectual
property rights; costs of product liability claims; and the development of
manufacturing, sales and marketing capabilities. To the extent capital
resources, including payments from existing and possible future collaborative
agreements and grants, together with the net proceeds of the Offering are
insufficient to meet future capital requirements, the Company will have to raise
additional funds to continue the development of its technologies and operation
of its businesses. There can be no assurance that such funds will be available
on favorable terms, or at all. To the extent that additional capital is raised
through the sale of equity or convertible debt securities, the issuance of such
securities could result in dilution to the Company's shareholders. If adequate
funds are not available, the Company may be required to curtail operations or to
obtain funds through entering into collaborative agreements on unattractive
terms. The Company's inability to raise capital as and when needed would have a
material adverse effect on the Company's business, financial condition and
results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to market risk associated with changes in foreign
currency exchange rates and interest rates. The Company's exchange rate risk is
limited to its European operations. The Company's foreign currency exchange rate
risk results primarily from the foreign currency translation of its foreign
operations' financial results and from the foreign operations' intercompany
purchases of inventory. The majority of the intercompany purchases are to be
paid for within standard payment terms of 30 days. Sales throughout the rest of
the world are denoted in U.S. dollars. For the three and nine months ended
September 30, 2000, the foreign exchange rates utilized to translate the
Company's international subsidiaries' local currency financial results into U.S.
dollars declined 14% and 13%, respectively, as compared to the prior year
periods due to the strengthening of the U.S. dollar against the local currency
of these subsidiaries which resulted in a $0.2 million and $0.5 million
reduction in net earnings for the three and nine months ended September 30,
2000, respectively, in comparison to the prior year periods. The foreign
currency translation loss included in shareholders' equity resulting from the
translation of the financial statements of the Company's international
subsidiaries into U.S. dollars increased
20
<PAGE>
by $0.2 million and $0.3 million for the three and nine months ended September
30, 2000, respectively. Interest rate exposure is primarily limited to the $9.5
million of short-term investments owned by the Company. Such securities are debt
instruments which generate interest income for the Company on excess cash
balances. The Company does not actively manage the risk of interest rate
fluctuations; however, such risk is mitigated by the relatively short term, less
than 12 months, nature of these investments.
The Company does not consider the present rate of inflation to have a
significant impact on its business.
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As previously disclosed in the Company's Form 10-Q for the quarter ending
June 30, 2000, the Company is named as the defendant in a declaratory judgment
suit filed in the United States District Court in the Southern District of
California (San Diego) by Gen-Probe, Inc. The suit seeks a declaration that the
Company's U.S. Patent No. 5,750,338 is invalid and not infringed by certain
products for detecting the presence of hepatitis C virus and human
immunodeficiency virus in blood specimens. The Company understands that Chiron,
Inc. is currently marketing the products in Australia, France and Germany
pursuant to licenses granted by the Company to Gen-Probe and Chiron. The suit
also seeks an injunction restraining the Company from interfering with
activities by Gen-Probe and its partners regarding these and other products in
development; damages and other relief for unfair competition; and a declaration
of Gen-Probe's rights and obligations under its license to the `338 patent. The
parties are taking discovery. The trial is projected to occur in about November
2001. The Company believes Gen-Probe's claims are without merit and intends to
defend its rights vigorously.
As also reported, the Company has filed an application to reissue the `338
patent with the United States Patent & Trademark Office. The reissue application
requests the Patent Office to supplement the claims of the issued patent with
new claims of intermediate scope. The application is pending.
Neither loss of the suit filed by Gen-Probe nor an adverse ruling by the
Patent Office to the reissue application would limit the sales or marketing of
any of the Company's present or planned products, but could result in the loss
of revenue resulting from the licenses granted to Gen-Probe and its partners and
other potential licenses granted under the `338 patent. Although there can be no
assurance as to the ultimate outcome of the suit, based upon the information
available at this time it is the opinion of the Company's management that the
outcome of this suit will not have a material adverse effect on the Company's
business, results of operations and financial condition.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In connection with the IPO (see Note 1 of the Notes to Consolidated
Financial Statements for further discussion), the Company received net proceeds
of $32.1 million from the sale of 3,000,000 shares of its Common Stock. From the
closing date of the
21
<PAGE>
IPO, February 10, 1998, to September 30, 2000, the Company used such net
offering proceeds as follows (in millions):
<TABLE>
<S> <C>
Repayment of note payable-BP Amoco ...................................................... 2.0
Acceleration of product development, expansion of sales and marketing capabilities
and funding of increased working capital requirements and ongoing operations ....... 30.1
----
Total ................................................................................... $ 32.1
=======
</TABLE>
Each of these amounts is a reasonable estimate of the application of the
net offering proceeds. This use of proceeds does not represent a material change
in the use of proceeds described in the Prospectus for the Offering. Other than
the repayment of a note payable to BP Amoco in the amount of $2 million, none of
such amounts (with the exception of salaries and directors' fees and working
capital advances to affiliates incurred in the ordinary course of business)
represented direct or indirect payments to (i) directors or officers of the
Company or their associates, (ii) persons owning 10% or more of any class of
equity securities of the Company or (iii) affiliates of the Company.
22
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
Exhibit 27.1, Financial Data Schedule (included only in the electronic
filing of this document).
REPORTS ON FORM 8-K
There were no Form 8-K reports filed during the quarter.
SIGNATURE
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.
VYSIS, INC.
Date: November 13, 2000 By: /s/ JOHN R. SLUIS
------------------------------------------
Name: John R. Sluis
TITLE: SR. VICE PRESIDENT, FINANCE
AND CHIEF FINANCIAL OFFICER
23
