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
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TOTAL CURRENT ASSETS 40,806,841 59,918,897
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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
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$ 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
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TOTAL CURRENT LIABILITIES 12,411,427 8,933,515
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MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED SHARES 28,666,945 26,886,004
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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)
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35,329,927 57,549,556
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$ 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)
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Deficit, end of the period $(159,261,358) $(111,771,013)
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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)
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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.