EX-1 3 a2086312zex-1.txt EXHIBIT 1 VISIBLE GENETICS INC. CONSOLIDATED BALANCE SHEETS (UNITED STATES DOLLARS)
JUNE 30 DECEMBER 31 2002 2001 (UNAUDITED) ------------- ------------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 1,188,857 $ 15,502,095 Short-term investments 30,042,688 37,692,756 Trade receivables, net of allowance for doubtful accounts 4,901,639 3,136,754 Other receivables 313,301 437,888 Prepaid and deposits 872,544 392,454 Inventory 3,487,812 2,756,950 ------------- ------------- TOTAL CURRENT ASSETS 40,806,841 59,918,897 ------------- ------------- FIXED ASSETS 17,257,643 18,656,995 PATENTS AND LICENSES 17,891,816 14,336,439 OTHER LONG TERM ASSETS 451,999 456,744 ------------- ------------- $ 76,408,299 $ 93,369,075 ============= ============= LIABILITIES CURRENT LIABILITIES Accounts payable $ 2,999,397 $ 3,851,701 Accrued liabilities 9,412,030 5,081,814 ------------- ------------- TOTAL CURRENT LIABILITIES 12,411,427 8,933,515 ------------- ------------- MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED SHARES 28,666,945 26,886,004 ------------- ------------- SHAREHOLDERS' EQUITY Share capital 195,408,651 195,408,884 Cumulative translation adjustment (817,366) (1,018,839) Deficit (159,261,358) (136,840,489) ------------- ------------- 35,329,927 57,549,556 ------------- ------------- $ 76,408,299 $ 93,369,075 ============= =============
VISIBLE GENETICS INC. Consolidated Statements of Operations (UNITED STATES DOLLARS) (Unaudited)
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30 2002 2001 2002 2001 ------------ ------------ ------------ ------------ SALES Products $ 4,654,944 $ 3,819,814 $ 8,880,946 $ 7,352,501 Services 2,256 108,680 108,068 149,820 ------------ ------------ ------------ ------------ 4,657,200 3,928,494 8,989,014 7,502,321 ------------ ------------ ------------ ------------ COST OF SALES Products 3,705,757 2,620,080 6,865,511 4,904,767 Services 2,193 108,384 104,979 136,827 ------------ ------------ ------------ ------------ 3,707,950 2,728,464 6,970,490 5,041,594 ------------ ------------ ------------ ------------ GROSS MARGIN 949,250 1,200,030 2,018,524 2,460,727 ------------ ------------ ------------ ------------ EXPENSES Sales, general and administrative 8,986,996 8,630,281 17,316,345 16,387,841 Research and development 3,026,002 2,645,764 5,840,917 5,365,824 Exit and termination costs -- -- -- 540,000 ------------ ------------ ------------ ------------ 12,012,998 11,276,045 23,157,262 22,293,665 ------------ ------------ ------------ ------------ LOSS FROM OPERATIONS BEFORE INTEREST (11,063,748) (10,076,015) (21,138,738) (19,832,938) Interest income 146,646 709,744 337,671 1,887,939 Interest and financing expense (696) (1,544) (3,233) (2,499) ------------ ------------ ------------ ------------ NET LOSS FOR THE PERIOD (10,917,798) (9,367,815) (20,804,300) (17,947,498) Accretion of preferred dividends and discount attributable to preferred shares (891,330) (829,016) (1,780,941) (1,661,962) ------------ ------------ ------------ ------------ NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS $(11,809,128) $(10,196,831) $(22,585,241) $(19,609,460) ------------ ------------ ------------ ------------ Weighted average number of common shares outstanding 19,203,291 16,407,406 19,202,320 16,343,924 ------------ ------------ ------------ ------------ BASIC AND DILUTED LOSS PER SHARE $ (0.62) $ (0.62) $ (1.18) $ (1.20) ------------ ------------ ------------ ------------
VISIBLE GENETICS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNITED STATES DOLLARS) (UNAUDITED)
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30 2002 2001 2002 2001 ------------ ------------ ------------ ------------ CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES Net loss for the period $(10,917,798) $ (9,367,815) $(20,804,300) $(17,947,498) Add: Items not involving cash - Depreciation 1,602,676 856,307 3,197,746 2,086,776 Amortization 754,029 757,906 1,506,695 1,514,287 Foreign exchange (72) 113,256 3,124 35,498 Increase ( decrease ) from changes in - Trade receivables (563,757) (403,487) (1,549,970) (803,052) Other receivables 145,880 158,697 157,898 (390,817) Prepaid and deposits (254,405) 86,563 (463,564) (179,172) Inventory 1,912 (157,304) (731,111) (278,019) Other long term assets 420 (1,800) 4,745 465 Accounts payable (823,250) 1,239,488 (966,566) 1,250,004 Accured liabilities 5,005,504 (1,193,054) 4,098,092 24,865 ------------ ------------ ------------ ------------ (5,048,861) (7,911,243) (15,547,211) (14,686,663) ------------ ------------ ------------ ------------ CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES Purchase of fixed assets (661,600) (3,087,822) (1,760,992) (10,105,541) Licenses and patents acquired (5,037,108) (5,078,495) (5,062,072) (5,111,001) Purchase of short-term investments (14,686,948) (46,972,828) (38,189,852) (57,868,464) Redemption of short-term investments 25,609,349 65,078,633 45,839,920 72,287,769 ------------ ------------ ------------ ------------ 5,223,693 9,939,488 827,004 (797,237) ------------ ------------ ------------ ------------ CASH PROVIDED BY FINANCING ACTIVITIES Common shares issued, net of expenses 156,239 381,325 365,612 725,841 ------------ ------------ ------------ ------------ 156,239 381,325 365,612 725,841 ------------ ------------ ------------ ------------ EFFECT OF EXCHANGE RATE FLUCTUATIONS ON CASH BALANCES 108,276 (56,868) 41,357 (199,463) ------------ ------------ ------------ ------------ INCREASE/(DECREASE) IN CASH DURING THE PERIOD 439,347 2,352,702 (14,313,238) (14,957,522) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 749,510 1,166,079 15,502,095 18,476,303 ------------ ------------ ------------ ------------ CASH, END OF PERIOD $ 1,188,857 $ 3,518,781 $ 1,188,857 $ 3,518,781 ============ ============ ============ ============ SUPPLEMENTAL INFORMATION Interest paid $ 696 $ 1,544 $ 3,233 $ 2,499 Income taxes paid $ -- $ -- $ -- $ --
VISIBLE GENETICS INC. CONSOLIDATED STATEMENTS OF DEFICIT (UNITED STATES DOLLARS) (UNAUDITED)
SIX MONTHS ENDED JUNE 30 2002 2001 ------------- ------------- Deficit, beginning of year $(136,840,489) $ (92,038,849) Net loss for the period (20,804,300) (17,947,498) Accretion of preferred dividends and discount attributable to preferred shares transferred to deficit (1,616,569) (1,784,666) ------------- ------------- Deficit, end of the period $(159,261,358) $(111,771,013) ------------- -------------
VISIBLE GENETICS INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNITED STATES DOLLARS) (UNAUDITED)
SIX MONTHS ENDED JUNE 30 2002 2001 ------------ ------------ Net loss for the period $(20,804,300) $(17,947,498) Other comprehensive income: Foreign currency translation adjustments 201,473 38,959 ------------ ------------ Comprehensive loss for the period $(20,602,827) $(17,908,539) ------------ ------------
VISIBLE GENETICS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2002 Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying financial statements have been prepared in United States dollars, in accordance with accounting principles generally accepted in the United States. The principal accounting policies of the Company have been applied on a consistent basis. See the Company's 2001 Annual Report for a description of the Company's significant accounting policies. These interim financial statements do not include all of the information and note disclosure required by generally accepted accounting principles. In the opinion of management, all adjustments considered necessary for a fair presentation of results for the reported periods have been included. Note 2 - PENDING SALE OF THE COMPANY On July 23, 2002, the Company and Bayer Corporation, Diagnostics Division ("Bayer") jointly announced that they had signed a definitive agreement for Bayer to acquire the Company in a cash deal valued at $61.4 million. Under the terms of the definitive agreement Bayer will purchase the Company's outstanding common shares at a price of $1.50 per share and the Series A preferred shares at a price of $1,000 per share plus accrued dividends. The transaction, which is structured as a plan of arrangement under Canadian law, is subject to approval by VGI shareholders at a meeting to be scheduled during October 2002, obtaining necessary regulatory and court approvals, and meeting customary closing conditions. Note 3 - BASIS OF PRESENTATION The Company incurred a net loss of $20,804,300 for the six months ended June 30, 2002 and has an accumulated deficit of $159,261,358 at June 30, 2002. In the event the pending sale of the Company discussed in Note 2 above is not consummated, the ability of the Company to continue as a going concern is dependent upon its ability to reduce losses and to obtain additional capital. In the absence of a sale of the Company, these factors raise doubt about the Company's ability to continue as a going concern. As a stand-alone organization the Company will continue to rely on outside funding in order to satisfy its projected cash needs for at least the next twelve months. There can be no assurance that the Company will be able to successfully raise additional funds. If the Company cannot raise additional funding, it will be required to scale back its research and development programs and selling, marketing and general and administrative activities and may not be able to continue in business. These consolidated financial statements do not include any adjustments to the specific amounts and classifications of assets and liabilities, which might be necessary should the Company be unable to continue in business. Note 4 - RECENT ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets". This statement features new accounting rules for goodwill and intangible assets. The Company adopted SFAS No. 142 on January 1, 2002, and such adoption did not have any impact on the carrying values of assets and liabilities recorded in the consolidated balance sheets. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". This statement supercedes SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". The Company reviews long-lived assets, including fixed assets and patents and licenses, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the asset may not be fully recoverable. Under SFAS No. 144, an impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. Impairment, if any, is measured using fair market value of the asset. The Company adopted SFAS No. 144 on January 1, 2002, and such adoption did not have any impact on the carrying values of assets and liabilities recorded in the consolidated balance sheets. Note 5 -INVENTORY
June 30 December 31 2002 2001 ---------- ---------- Raw materials $1,248,686 $ 939,622 Work in process 607,734 258,935 Finished goods 1,631,392 1,558,393 ---------- ---------- $3,487,812 $2,756,950 ========== ==========
Note 6 - EXIT COSTS During the first quarter of 2001 the Company approved a plan to close its Pittsburgh facility and move all of its kit manufacturing to production lines in the Company's facility in Atlanta. The Pittsburgh facility was closed in the second quarter of 2002. As a result of the decision to centralize kit manufacturing in Atlanta certain employees were terminated and the Pittsburgh facility was vacated. Accordingly, the Company recorded a charge of $540,000 in the statement of operations in the first quarter of 2001. This amount represents severance payments made to terminated employees, the remaining future lease commitments, the unamortized balance of leasehold improvements and other costs related to closure of the facility. As of June 30, 2002, all of these costs had been paid. Note 7 - SEGMENT INFORMATION The Company's reportable segments are Sequencing Systems, GeneKits and Other Consumables, and Testing, Sequencing and Other Services. Total assets shown below are as of June 30, while all other numbers are for the six-month period ended June 30, of the respective year. JUNE 30, 2002
Sequencing GeneKits Testing, Reconciling Total Systems and Other Sequencing and Items(A) Consumables Other Services ------------ ------------ ------------ ---------- ------------ Revenues $ 964,513 $ 7,916,433 $ 108,068 $ -- $ 8,989,014 Depreciation & Amtz 1,030,524 3,570,661 103,256 -- 4,704,441 (Loss) from operations before interest (2,293,542) (18,792,678) (52,518) -- (21,138,738) Additions to fixed assets 64,188 1,696,804 -- -- 1,760,992 Total assets 2,814,302 42,205,371 157,081 31,231,545 76,408,299
JUNE 30, 2001
Sequencing GeneKits Testing, Reconciling Total Systems and Other Sequencing and Items(A) Consumables Other Services ------------ ------------ ------------ ---------- ------------ Revenues $ 1,508,823 $ 5,843,678 $ 149,820 $ -- $ 7,502,321 Depreciation & Amtz 834,075 2,358,946 408,042 -- 3,601,063 (Loss) from operations before interest (4,136,029) (15,622,147) (74,762) -- (19,832,938) Additions to fixed assets 185,550 9,786,307 133,684 -- 10,105,541 Total assets 3,589,618 37,489,071 1,667,990 51,022,163 93,768,842
(A) Reconciling items consist of cash, cash equivalents and short-term investments. Note 8 - CONTINGENCIES In September 2001, a lawsuit was filed in the United States District Court for the Northern District of California against the Company by The Board of Trustees of the Leland Stanford Junior University claiming that the Company's TRUGENE HIV-1 Genotyping Kit infringes patents owned by the university. The Company has received an attorney opinion that it does not infringe any claim of the patents-in-suit. No amount has been provided in these consolidated financial statements in respect of these allegations, as the amount of loss, if any, cannot be determined and the results of such allegations cannot be predicted with certainty. On February 27, 2002, the Company received notice of a lawsuit that has been filed in Milan, Italy against Visible Genetics Inc. and two of the Company's wholly owned subsidiaries by Nuclear Laser Medicine Srl. ("NLM"). The lawsuit seeks unspecified damages and specific performance relating to an alleged distribution agreement in Italy pertaining to the Company's Hepatitis C and HIV products. In July 2002, the Company and NLM reached a tentative agreement to settle the lawsuit where by NLM would return certain equipment to the Company, the Company would make a payment to NLM of approximately $125,000 and the Company would also forgive certain receivables due from NLM. A charge to settle the lawsuit has been reflected in the statement of operations for the three months ended June 30, 2002.