<PAGE>
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
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SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 1, 2000
___ 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
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
134 Coolidge Avenue, Watertown, Massachusetts 02472
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(Address of principal executive offices)(Zip code)
Registrant's telephone number, including area code: (617) 926-1551
Former address for fiscal year 1999: 155 Duryea Road, Melville, NY 11747
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, 2000
Title of Class Shares Outstanding
Common Stock, $.01 par value 19,873,783
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V. I. TECHNOLOGIES, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
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<S> <C> <C>
Item 1. Financial Statements:
Condensed balance sheets at July 1, 2000
and January 1, 2000 3
Condensed statements of operations for
the thirteen and twenty-six weeks ended July 1, 2000
and July 3, 1999 4
Condensed statement of stockholders' equity for the
twenty-six weeks ended July 1, 2000 5
Condensed statements of cash flows for the
twenty-six weeks ended July 1, 2000 and July 3, 1999 6
Notes to condensed financial statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 13
Item 3 Quantitative and Qualitative disclosures about 13
market risk
Item 4 Submission of Matters to a vote of security holders 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 15
</TABLE>
2
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PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
V. I. TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
(In thousands, except for share and per share data)
<TABLE>
<CAPTION>
July 1, January 1,
2000 2000
(Unaudited) (Audited)
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 11,986 $ 26,886
Trade receivables 6,666 4,596
Other receivables, net 1,111 536
Inventory 3,289 2,744
Prepaid expenses and other current assets 848 924
----------- -----------
Total current assets 23,900 35,686
Property, plant and equipment, net 40,022 37,520
Intangible assets, net 4,073 4,251
Other assets, net 535 641
----------- -----------
Total assets $ 68,530 $ 78,098
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 2,687 $ 2,687
Current portion of capital lease obligations 1,677 1,488
Accounts payable and accrued expenses 6,746 10,351
Deferred revenue 364 -
Due to related parties 286 486
----------- -----------
Total current liabilities 11,760 15,012
Deferred revenue 545 -
Long-term debt, less current portion 1,344 2,688
Capital lease obligations, less current portion 1,445 2,448
Advances from customer 2,845 2,565
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Total liabilities 17,939 22,713
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Stockholders' equity:
Preferred stock, par value $.01 per share; authorized
1,000,000 at July 1, 2000 and January 1, 2000;
no shares issued and outstanding - -
Common stock, par value $.01 per share; authorized
35,000,000 shares; issued and outstanding 19,887,282
at July 1,2000 and 199 195
19,536,263 at January 1, 2000
Additional paid-in-capital 126,068 125,583
Accumulated deficit (75,676) (70,393)
----------- -----------
Total stockholders' equity 50,591 55,385
----------- -----------
Total liabilities and stockholders' equity $ 68,530 $ 78,098
=========== ===========
</TABLE>
The accompanying notes are an integral part of the condensed financial
statements.
3
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V. I. TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except for per share data)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
July 1, July 3, July 1, July 3,
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Revenue $ 7,875 $ 9,352 $ 18,675 $ 20,494
ANRC Incentive Program 666 - 1,231 -
--------- ---------- ----------- ------------
Net revenue 8,541 9,352 19,906 $ 20,494
Costs and expenses:
Cost of sales 7,263 5,326 14,340 11,386
Research and development, net 3,447 2,104 5,844 4,115
Selling, general and administrative expenses 2,925 2,496 5,413 4,989
Charge related to product recall - 2,645 - 2,645
--------- ---------- ----------- ------------
Total operating costs and expenses 13,635 12,571 25,597 23,135
--------- ---------- ----------- ------------
Loss from operations (5,094) (3,219) (5,691) (2,641)
Interest (expense) income, net (23) 51 6 88
Discount on advances from customer 402 - 402 -
--------- ---------- ----------- ------------
Total other income 379 51 408 88
--------- ---------- ----------- ------------
Net loss ($4,715) ($3,168) ($5,283) ($2,553)
========= ========== =========== ============
Basic and diluted net loss per share ($0.24) ($0.25) ($0.27) ($0.21)
========= ========== =========== ============
Weighted average shares used in calculation
of basic and diluted net loss per share 19,872 12,435 19,786 12,421
</TABLE>
The accompanying notes are an integral part of the condensed financial
statements.
4
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V. I. TECHNOLOGIES, INC.
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
Common Common Additional
Stock Stock Paid-In Accumulated Stockholders'
(Shares) (Amount) Capital Deficit Equity
-------------- -------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 2000 19,536,263 $ 195 $ 125,583 $ (70,393) $ 55,385
Issuance of shares of common stock
upon exercise of stock options 351,019 4 485 - 489
Net loss - - - (5,283) (5,283)
-------------- -------------- --------------- ----------------- ---------------
Balance at July 1, 2000 19,887,282 $ 199 $ 126,068 $ (75,676) $ 50,591
============== ============== =============== ================= ===============
</TABLE>
The accompanying notes are an integral part of the condensed financial
statements.
5
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V. I. TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Twenty-six Weeks Ended
July 1, July 3,
2000 1999
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<S> <C> <C>
Cash flows used in operating activities:
Net loss ($5,283) ($2,553)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization 2,113 1,551
Discount on advances from customer (402) -
Compensation expense in connection with acceleration of
option vesting - 4
Accretion of interest on customer advance 139 140
Changes in operating accounts:
Trade receivables (2,070) (2,013)
Other receivables, net (575) (244)
Due to/from related parties (200) 221
Inventory (545) (586)
Prepaid expenses and other current assets 182 116
Deferred revenue 909 -
Accounts payable and accrued expenses (3,063) 1,413
---------------------------
Net cash used in operating activities (8,795) (1,951)
---------------------------
Cash flows used in investing activities:
Additions to property, plant and equipment (4,437) (4,150)
---------------------------
Net cash used in investing activities (4,437) (4,150)
---------------------------
Cash flows used in financing activities:
Proceeds from issuance of common stock upon exercise
of options 489 262
Principal repayment of long-term debt (1,344) (1,344)
Principal repayment of capital lease obligations (813) (612)
---------------------------
Net cash used in financing activities (1,668) (1,694)
---------------------------
Net decrease in cash and cash equivalents (14,900) (7,795)
Cash and cash equivalents at beginning of year 26,886 35,265
---------------------------
Cash and cash equivalents at end of period $ 11,986 $ 27,470
===========================
Supplemental disclosure of cash flow information:
Deferral of incentive program cost $ 543 $ -
===========================
</TABLE>
The accompanying notes are an integral part of the condensed financial
statements.
6
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V. I. TECHNOLOGIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed financial statements of V.I.
Technologies, Inc. (the Company or VITEX) have been prepared in accordance with
generally accepted accounting principles 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 generally accepted accounting principles 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 July 1,
2000 are not necessarily indicative of the results that may be expected for the
year ending December 30, 2000. For further information, refer to the financial
statements and footnotes thereto included in the Company's annual report on Form
10-K for the year ended January 1, 2000.
Presentation of Fiscal Years
For presentation purposes, the years ended December 30, 2000 and January 1,
2000 are referred to as fiscal years 2000 and 1999, respectively.
Revenue Recognition
Revenue from plasma fractionation processing and the production of PLAS+SD
is recognized in the period in which the related services have been rendered and
upon satisfaction of certain quality control requirements. Revenue recognized in
the accompanying statements of operations is not subject to repayment or future
performance obligations.
Non-refundable, up-front payments received under the Company's
collaboration agreements are deferred and recognized in income over the period
in which the Company provides the related services.
The Company's plasma fractionation processing revenues are principally
derived from Bayer, while PLAS+SD is sold to the Red Cross for subsequent
distribution to hospitals and other medical facilities. For the thirteen weeks
ended July 1, 2000, revenue derived from the sale of products to Bayer and the
Red Cross amounted to 84% and 14%, respectively, of net revenues, compared to
54% and 46%, respectively, for the same period of 1999. For the twenty-six
weeks ended July 1, 2000, revenue derived from sale of products to Bayer and
the Red Cross amounted to 65% and 33%, respectively, compared to 48% and 52%,
respectively, for the same period of 1999. At July 1, 2000, amounts owed from
Bayer and the Red Cross amounted to 55% and 45%, respectively, of net trade
receivables.
Research and Development
All research and development costs are charged to operations as incurred.
Reimbursement for research and development costs incurred in accordance with
collaboration agreements, is recognized as an offset to research and development
costs in the period in which the eligible costs are incurred. Such
reimbursement totaled $0.9 million and $0.4 million for the thirteen weeks ended
July 1, 2000 and July 3, 1999, respectively, and $1.4 million for both the six
months ended July 1, 2000 and July 3, 1999.
2. Earnings (Loss) Per Share
Basic earnings (loss) per share is computed on the basis of the weighted
average number of common shares outstanding. Diluted earnings (loss) per share
is computed on the basis of the weighted average number of common shares
outstanding plus the effect of outstanding stock options and warrants calculated
using the "treasury stock" method. Loss per share for the thirteen and twenty-
six weeks ended July 1, 2000 and July 3, 1999 do not include the assumed
exercise of stock options and warrants because the effect of such inclusion
would be antidilutive. As of July 1, 2000, the Company had 2,479,349 options and
warrants outstanding.
7
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3. Inventory
Inventory consists of the following components:
July 1, 2000 January 1, 2000
--------------- -------------------
Work-in-process $ 595,000 $ 799,000
Resin 1,583,000 891,000
Supplies 1,111,000 1,054,000
---------- ----------
$3,289,000 $2,744,000
========== ==========
4. American National Red Cross Agreement and Subsequent Event
Effective April 3, 2000, the Company and the Red Cross amended the terms of
their supply agreement. The revised Agreement has a six-year term and new
minimum volumes and pricing. These are reflected in the results for the quarter
ended July 1, 2000. In addition, the Agreement specified that the previously
announced sales incentive program would terminate as of July 1, 2000 and that
50% of the incentives earned by the Red Cross in that quarter, estimated at $0.5
million, would be added to the outstanding Red Cross customer advance of $3.0
million. The revised balance would be scheduled for a single payment one year
after FDA licensure of Universal PLAS+SD. To reflect the revised payment
schedule, the new balance of the customer advance of $3.5 million, which is non-
interest bearing, was discounted to net present value at 8% resulting in a gain
of $0.4 million. The Company also recognized a credit of $0.7 million equal to
the unused balance of accrued costs for the sales incentive program remaining
upon termination of the program. The new agreement also covers the processing of
Universal PLAS+SD if and when the FDA approves such product. The revised
agreement includes market performance criteria that, if not met, allow either
party to exit the agreement no earlier than July 1, 2001. Such market
performance criteria include minimum sales levels of PLAS+SD; minimal amounts of
plasma to be provided by the Red Cross to the Company for processing; and target
dates for Universal PLAS+SD related to the filing of a BLA and approval by the
FDA for marketing.
Subsequent to the end of the quarter, the Company took steps to reduce its
workforce to better align its production capability to the expected production
requirements under the Red Cross Agreement. Severance and other costs estimated
at $1.0 million will be recognized in the third quarter.
5. New York Blood Center Agreement
In February 2000, the Company and New York Blood Center (NYBC) entered into
an agreement to increase the market share of PLAS+SD in the New York area. The
agreement provides for marketing support payments to the NYBC through February
2001 based on market penetration and the success of other marketing initiatives
by the NYBC. The Company had accrued $0.2 million as of July 1, 2000 for this
incentive program.
6. Pentose Merger
On November 12, 1999, the Company completed the merger with Pentose
Pharmaceuticals, Inc., a Delaware corporation ("Pentose"), pursuant to an
Agreement and Plan of Merger and Reorganization dated as of July 28, 1999.
Under the terms of the merger, 6,443,731 shares of common stock of the Company
were issued in exchange for all of the outstanding shares of Pentose common and
preferred stock.
In July 1999, in anticipation of the merger with Pentose, the Company
recorded a research and development charge of $2.3 million for severance and
other integration related expenses, including the elimination of duplicate
facilities and excess capacity, operational realignment and related workforce
reductions of the Company's employees and facilities. Details of amounts
included in accounts payable and accrued expenses and the disbursements for the
twenty-six weeks ended July 1, 2000 are as follows:
8
<PAGE>
January 1, 2000 Disbursed July 1, 2000
--------------- --------- ------------
Employee severance and
related costs $448,000 $267,000 $181,000
Facility related cost 300,000 300,000 -
-------- -------- --------
$748,000 $567,000 $181,000
======== ======== ========
7. Amersham Pharmacia Biotech Patent and Know-how License Agreement
On April 6, 2000, the Company entered into a worldwide license and
distribution agreement with Amersham Pharmacia Biotech, the life science
business of Nycomed Amersham plc. Under the agreement, Amersham Pharmacia
Biotech will exclusively market and distribute the Company's INACTINETM pathogen
inactivation technology to manufacturers of biopharmaceuticals and transgenic
products and to plasma fractionators. VITEX retains all rights for the
marketing and distribution of the INACTINETM technology with regard to blood
components such as red cells, platelets and plasma.
Under terms of the agreement, the Company received a non-refundable $1.0
million up-front payment in May 2000, and should receive additional payments
totaling $1.5 million subject to certain product testing and FDA approval
milestones. In addition, the Company will receive a percentage royalty based on
net sales made by Amersham which incorporate the INACTINE technology. The
Company will provide Amersham with technical support, training and conduct
research and development projects as directed by Amersham during the ten-year
term of the agreement. The Company will amortize the up-front payment over 2.75
years which represents the estimated period from receipt of the up-front payment
to the expected date of FDA approval, during which period the Company will
expend the majority of its research and development efforts. In the second
fiscal quarter of 2000, the Company recognized revenue of $.09 million of the
up-front payment and the balance of $.9 million is reflected as deferred revenue
in the accompanying balance sheet as of July 1, 2000.
8. New Accounting Pronouncements
On December 3, 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin No. 101 -"Revenue Recognition in Financial Statements"
(SAB No. 101). SAB No. 101 provides the SEC staff's views on the recognition of
revenue including non-refundable technology access fees received by
biotechnology companies in connection with research collaboration with third
parties. SAB No. 101 states that in certain circumstances the SEC staff
believes that up-front fees, even if non-refundable, should be deferred and
recognized systematically over the term of the research arrangement. SAB
No. 101B, which amends the implementation date for SAB No. 101, requires
registrants to adopt the accounting guidance contained therein by no later than
the fourth fiscal quarter of the fiscal year beginning after December 15, 1999.
The Company believes it is in compliance with the provisions of SAB No. 101;
however, a final determination will be made prior to the effective date of the
pronouncement.
9
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
Overview
V.I. Technologies, Inc. ("the Company" or "VITEX"TM, a trademark and trade
name of V.I. Technologies, Inc.) is a leading developer of a broad portfolio of
blood products and systems which use its proprietary pathogen inactivation
technologies. The Company's technologies are intended to address the risks of
viral, bacterial and other pathogen contamination in blood products, including
plasma, plasma derivatives, red blood cells and platelets. Viral inactivation
processes have the potential to eliminate viruses that are enveloped by lipid
membranes such as hepatitis B virus ("HBV"), hepatitis C virus ("HCV") and HIV,
the virus that causes AIDS, and non-enveloped viruses such as hepatitis A virus
("HAV") and parvovirus and other known and unknown pathogens.
The Company's mission is to achieve the global availability of the safest
blood products using its proprietary pathogen viral inactivation systems. To
achieve this objective, VITEX intends to:
. exploit its leading portfolio of pathogen inactivation technologies; and
. develop, through partnerships, the worldwide infrastructure to
manufacture and distribute the safest blood products.
The Company has several important pathogen inactivated blood product candidates
under development. These include:
. Red Blood Cell Concentrate (RBCC) Systems. The Company's INACTINE technology
was approved by the FDA to commence clinical trials as a viral inactivation
system for RBCC's, the most frequently transfused blood product. Phase I
clinical trials are underway and should conclude in the fourth quarter. In
pre-clinical studies, INACTINE has demonstrated a broad spectrum of viral
inactivation, including both enveloped and non-enveloped viruses and
bacterial kill, while having no effect on the therapeutic properties of the
RBCC. The Company has entered into two strategic collaborations to accelerate
the development and commercialization of INACTINE treated-RBCC: a marketing
and distribution agreement with Pall, and a contract development and
manufacturing agreement with Haemonetics Corporation.
. Universal PLAS+SD - Universal PLAS+SD is the next generation of PLAS+SD, the
Company's virally inactivated transfusion plasma. Universal PLAS+SD provides
the advantages of PLAS+SD; the first pharmaceutical-grade virally inactivated
blood product approved by the FDA, with an additional safety enhancement.
Universal PLAS+SD, as its name implies, is expected to be safely transfused
to any patient without the need to match donor and recipient blood type.
Phase III pivotal clinical trials are underway and the trial is scheduled for
completion at the end of 2000. VITEX has in place a distribution agreement
for PLAS+SD and Universal PLAS+SD with the American National Red Cross (Red
Cross), an organization responsible for distributing 45% of the U.S. blood
supply.
. Universal PLAS+SD II - Universal PLAS+SD II is intended to improve upon
Universal PLAS+SD by adding additional methods of viral inactivation to
inactivate both enveloped and non-enveloped viruses. The Company hopes to
file an IND in 2001 to initiate a clinical trial for this product.
. Platelet Concentrates - The Company has a development program in the pre-
clinical stage to commercialize INACTINE-treated platelet concentrates. This
product would deliver the broad spectrum of viral inactivation while
preserving the critical therapeutic function of platelets. The Company hopes
to file an IND to commence a human clinical trial of INACTINE-treated
platelets in 2001.
The Company currently manufactures two human therapeutic products:
. VITEX Plasma Fractions. The Company supplies Plasma Fractions primarily to
Bayer Corporation ("Bayer") under a collaboration arrangement. The Company
utilizes a combination of fractionation procedures to separate and purify the
protein components of plasma. The plasma fractions are further processed by
its customers into virally inactivated plasma derivatives for use in FDA-
approved therapeutic applications.
10
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. PLAS+SD - The Company has a collaboration agreement with the Red Cross
granting the Red Cross exclusive distribution rights of VITEX's PLAS+SD in
North America. PLAS+SD, the first of VITEX's FDA approved virally inactivated
products, received marketing clearance from the FDA on May 6, 1998.
Results of Operations
Net Revenue
Net revenue was $8.5 million in the second quarter of 2000, compared to
$9.4 million during the second quarter of fiscal 1999. For the twenty-six weeks
ended July 1, 2000, net revenue was $19.9 million versus $20.5 million in the
1999 period. Revenue from the plasma fractionation business grew as a result of
an expansion of the Company's fractionation facilities in 1999. PLAS+SD volumes
and revenues declined due to a reduction in plasma supply from the Red Cross
under the terms of the distribution agreement with the Red Cross during the
thirteen and twenty-six week periods, which was amended during the second
quarter. The revised Agreement is extended for six years, covers Universal
PLAS+SD, new pricing and lower minimum volumes, and market performance criteria
which, if not met, allow either party to exit the agreement. Such market
performance criteria include minimum sales levels of PLAS+SD; minimal amounts of
plasma to be provided by the Red Cross to VITEX for processing; and target dates
for Universal PLAS+SD related to filing of a BLA and approval by the FDA for
marketing. Leading up to the launch of Universal PLAS+SD, the Company will
schedule production of PLAS+SD to manage inventory levels and prepare for the
launch of Universal PLAS+SD. Net revenue also included credits of $0.7 million
and $1.2 million, respectively, for the thirteen and twenty-six weeks ended July
1, 2000 as the Company revised its cost estimates under the previously announced
Red Cross Sales Incentive Program. This program ended as of July 1, 2000 and
the remaining reserve balance of $.7 million was credited to income.
Cost of Sales
Cost of sales was $7.3 million for the second quarter of 2000, compared to
$5.3 million for the second quarter of fiscal 1999. For the twenty-six week
periods, cost of sales was $14.3 million in 2000 and $11.4 million in 1999.
Cost of sales for the thirteen and twenty-six week periods of 2000 for the
plasma fractionation business grew as a result of the 1999 capacity expansion.
PLAS+SD cost of sales increased reflecting lower volumes and lower absorption of
fixed costs for the second quarter of 2000. In conjunction with the amended Red
Cross Agreement and subsequent to July 1, 2000, the Company reduced its plasma
operations workforce to lower manufacturing costs and to better match its
production capacity to the expected Red Cross processing volumes. The severance
and other costs related to the workforce reduction are estimated at $1.0 million
and will be included in the third quarter results.
Research and Development
Research and development costs increased 64% or $1.3 million to $3.4
million for the second quarter of 2000, over the second quarter of 1999. For
the twenty-six weeks ended July 1, 2000, research and development costs
increased to $5.8 million from $4.1 million in the comparable 1999 period. This
reflects the overall acceleration of the Company's research efforts and
specifically the increased spending on the INACTINE red cell viral inactivation
program, which is in Phase I clinical trials, and the cost of Universal Phase
III clinical trials. The Company expects that research and development spending
will continue to increase in future periods.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $0.4 million in the
second quarter of 2000 to $2.9 million versus the second quarter of 1999. The
comparable year to date periods also showed a modest increase of $0.4 million in
2000 over 1999.
Liquidity and Capital Resources
The Company has historically financed its operations through sales of
common stock, issuance of long-term debt and capital lease financing
arrangements. In addition, the Company generates cash from the sale of VITEX
Plasma Fractions, which are sold primarily to Bayer, and PLAS+SD, which is sold
to the Red Cross. The Company receives research and development funding under a
collaboration agreement with Pall Corporation. At July 1, 2000,
11
<PAGE>
the Company had working capital of $12.1 million, including cash and cash
equivalents of $12.0 million, compared to working capital of $20.7 million,
including cash and cash equivalents of $26.9 million at January 1, 2000.
During the twenty-six weeks ended July 1, 2000, the Company's cash position
was reduced by $14.9 million due to: capital expenditures of $4.4 million,
primarily for the Company's new R&D facility in Watertown, MA and its PCR
testing laboratory in Melville; $2.2 million for scheduled debt repayments; and
the second quarter operating loss combined with changes in working capital of
$8.8 million. Lower PLAS+SD revenues under the revised Red Cross Agreement was
the principal cause of the operating loss. During the second quarter of fiscal
2000, the Company received an up-front payment of $1.0 million from Amersham
Pharmacia Biotech in connection with a worldwide license and distribution
agreement.
Plasma operations will continue to generate cash to partially offset
research and development and support costs. A combination of the Company's cash
position, projected cash flows from operations, research and development funding
by Pall Corporation and expected equity milestones from Pall Corporation
totaling $8.0 million are expected to be sufficient to meet the Company's cash
requirements over the next year.
New Accounting Pronouncements
On December 3, 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin No. 101 -"Revenue Recognition in Financial Statements"
(SAB No. 101). SAB No. 101 provides the SEC staff's views on the recognition of
revenue including non-refundable technology access fees received by
biotechnology companies in connection with research collaboration with third
parties. SAB No. 101 states that in certain circumstances the SEC staff
believes that up-front fees, even if non-refundable, should be deferred and
recognized systematically over the term of the research arrangement. SAB
No. 101B, which amends the implementation date for SAB No. 101, requires
registrants to adopt the accounting guidance contained therein by no later than
the fourth fiscal quarter of the fiscal year beginning after December 15, 1999.
The Company believes it is in compliance with the provisions of SAB No. 101;
however, a final determination will be made prior to the effective date of the
pronouncement.
Forward-Looking Statements
Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this Form 10-Q include "forward-looking
statements" within the meaning of Section 21E of the Securities Exchange Act of
1934 (the "Exchange Act"). All statements other than statements of historical
information provided herein are forward-looking statements and may contain
information about financial results, economic conditions, trends and known
uncertainties. These forward-looking statements involve risks and
uncertainties, such as quarterly fluctuations in operating results, the timely
availability of new products, market acceptance of the Company's products, and
the impacts of competitive products and pricing. The forward-looking statements
contained herein are subject to certain risks and uncertainties that could cause
actual results to differ materially from those reflected in the forward-looking
statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which reflect management's analysis, judgment, belief or expectation
only as of the date hereof. The Company undertakes no obligation to publicly
revise these forward-looking statements to reflect events or circumstances that
arise after the date hereof. In addition to the disclosure contained herein,
readers should carefully review any disclosure of risks and uncertainties
contained in other documents the Company has filed with the Securities and
Exchange Commission pursuant to the Exchange Act, including its annual report on
Form 10-K for the year ended January 1, 2000.
12
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PART II. - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
(d) Use of proceeds information is provided herewith in connection with the
Company's initial public offering ("the Offering"). The Company's Registration
Statement on Form S-1 (File No. 333-46933) was declared effective by the
Securities and Exchange Commission on June 9, 1998. The first closing for the
Offering was held on July 15, 1998. The Offering has terminated.
In the Offering, the Company sold in its two closings, an aggregate of
3,325,000 shares (with an aggregate-offering price to the public of $39.9
million) out of the 3,450,000 shares of Common Stock (with an aggregate-offering
price of $41.4 million) registered in the Offering. The managing underwriters
of the Offering were Cowen & Company and SBC Warburg Dillon Read, Inc. After
expenses, the Company's net proceeds from the offering were $35.9 million. The
Company has utilized these proceeds to: (i) fund capital investments, primarily
for improvements and expansion of its manufacturing facility ($16.9 million),
(ii) fund research and development projects ($13.4 million), (iii) repay debt
($3.7 million) and (iv) fund PLAS+SD marketing ($1.9 million).
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company's earnings and cash flows are subject to fluctuations due to
changes in interest rates primarily from its investment of available cash
balances in money market funds with portfolios of investment grade corporate and
U.S. government securities and, secondarily, its long-term debt arrangements.
Under its current policies, the Company does not use interest rate derivative
instruments to manage exposure to interest rate changes.
Item 4. Submission of Matters to a Vote of Security Holders
On May 26, 2000 the Company held its Annual Meeting of Stockholders. At the
meeting the following matters were approved:
1. The election of Jeremy Hayward-Surry, Peter D. Parker and Damion E.
Wicker as Class II Directors of the Company to serve until the 2003
Annual Meeting of Stockholders. 14,299,117 shares of Common stock were
voted for the election of Mr. Hayward-Surry, Mr. Parker, and Mr.
Wicker. 204,650 shares were withheld for the election of Mr. Hayward-
Surry, Mr. Parker and Mr. Wicker.
2. An amendment to the Company's 1998 Equity Incentive Plan (the "1998
Equity Plan") which increased the maximum number of shares of the
Company's common stock for which options may be granted under the 1998
Equity Plan from 2,400,000 to 3,000,000 shares. 12,820,217 shares of
Common Stock were voted for such amendment and 1,678,782 shares of
Common Stock were voted against such amendment and 4,768 shares of
Common Stock abstained from the vote. No shares of common stock were
subject to non-votes.
3. The ratification of the appointment of KPMG LLP as the Company's
independent accountants for the current fiscal year. 14,495,446 shares
of Common Stock were voted for such ratification, 1,900 shares of
Common Stock were voted against such ratification and 6,421 shares of
Common Stock were abstained from the vote. No shares of Common Stock
were subject to non-votes.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
4.1 Restated Certificate of Incorporation of the Registrant. Incorporated
by reference to Exhibit 3.8 to the Registrant's Registration Statement
on Form S-1, filed with the Commission on February 26, 1998 (File No.
333-46933).
4.2 Amended and Restated By-Laws of the Registrant. Incorporated by
reference to Exhibit 3.10 to the Registrant's Registration Statement
on Form S-1, filed with the Commission on February 26, 1998 (File No.
333-46933).
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4.3 Form of Certificate for Common Stock. Incorporated by reference to
Exhibit 4.1 to the Registrant's Registration Statement on Form S-1,
filed with the Commission on February 26, 1998 (File No. 333-46933).
10.1 The Amendment to the Amended and Restated Supply, Manufacturing and
Distribution Collaboration Agreement by and between the Company and
American National Red Cross
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended July 1,
2000.
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SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
V.I. TECHNOLOGIES, INC.
-----------------------------
(Registrant)
Date: August 14, 2000 /s/ John R. Barr
------------------------- -----------------------------
John R. Barr
President, Chief Executive Officer
Date: August 14, 2000 /s/ Thomas T. Higgins
------------------------- ---------------------
Thomas T. Higgins
Executive Vice President, Operations
and Chief Financial Officer
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