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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended September 30, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the Transition period from ______ to ______
Commission File Number 0-27558
CYTYC CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 02-0407755
------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
85 Swanson Road, Boxborough, MA 01719
-------------------------------------
(Address of principal executive offices, including Zip Code)
(978) 263-8000
-------------
(Registrant's telephone number, including area code)
----------------------------
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 [_]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: The number of shares of the
issuer's Common Stock, $0.01 par value per share, outstanding as of October 31,
1997 was 17,428,504.
Total Number of Pages:
Exhibit Index is on Page
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CYTYC CORPORATION
INDEX
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Page
----
Part I Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets
December 31, 1996 and September 30, 1997 3
Consolidated Statements of Operations
for the three months and nine months ended
September 30, 1996 and 1997 4
Consolidated Statements of Cash Flows
for the three months and nine months ended
September 30, 1996 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Part II Other Information
Item 1. Legal Proceedings 12
Item 2. Change in Securities and Use of Proceeds 12
Item 3. Defaults upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature
Part I Financial Information
Item 1. Consolidated Financial Statements
Cytyc Corporation
Consolidated Balance Sheets
(in thousands, except share and per share data)
-----------------------------------------------------------------------
December 31, September 30,
1996 1997
---- ----
Assets:
Current assets
Cash and cash equivalents $ 27,572 $ 55,300
Short-term investments 11,485 37,532
Accounts receivable, net 2,682 5,980
Inventories 1,463 1,786
Prepaid expenses and other current assets 771 667
---------- ----------
Total current assets 43,973 101,265
---------- ----------
Property and equipment, net 5,251 5,636
Other assets 959 1,705
---------- ----------
Total assets $ 50,183 $ 108,606
========== ==========
Liabilities:
Current liabilities
Accounts payable $ 1,034 $ 1,780
Accrued expenses 1,944 7,805
Deferred revenue 524 920
---------- ----------
Total current liabilities 3,502 10,505
---------- ----------
Stockholders' equity:
Preferred stock, $0.01 par value-
Authorized 5,000,000 shares
No shares issued or outstanding - -
Common stock, $0.01 par value-
Authorized 60,000,000 shares
Issued and outstanding 14,013,002 shares
in 1996 and 17,312,980 in 1997 140 173
Additional paid-in capital 93,648 164,595
Accumulated deficit (47,107) (66,667)
---------- ----------
Total stockholders' equity 46,681 98,101
---------- ----------
Total liabilities and stockholders' equity $ 50,183 $ 108,606
========== ==========
See accompanying notes.
Page 3
Cytyc Corporation
Consolidated Statements of Operations
(in thousands, except per share data)
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Three Months Ended Nine Months Ended
------------------------------------ -------------------------------------
September 30, September 30, September 30, September 30,
1996 1997 1996 1997
---------------- ------------------ ---------------- -------------------
Net sales $ 2,691 $ 7,011 $ 5,485 $ 15,612
Cost of sales 1,277 2,011 3,102 5,374
---------- ---------- --------- -----------
Gross profit 1,414 5,000 2,383 10,238
---------- ---------- --------- -----------
Operating expenses:
Research and development 1,166 1,428 3,343 4,404
Sales, marketing and customer support 2,704 9,151 6,374 23,841
General and administrative 796 2,124 2,235 5,415
---------- ---------- --------- -----------
Total operating expenses 4,666 12,703 11,952 33,660
---------- ---------- --------- -----------
Loss from operations (3,252) (7,703) (9,569) (23,422)
Interest income, net 624 1,404 1,509 3,862
---------- ---------- --------- -----------
Net loss $ (2,628) $ (6,299) $ (8,060) $ (19,560)
========== ========== ========= ===========
Net loss per share $ (0.19) $ (0.36) $ (0.63) $ (1.17)
========== ========== ========= ===========
Shares used in computing net loss per share 13,710 17,296 12,737 16,758
========== ========== ========= ===========
See accompanying notes.
Page 4
Cytyc Corporation
Statements of Cash Flows
(in thousands)
- --------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
-------------------------------------------------------------
September 30, September 30, September 30, September 30,
1996 1997 1996 1997
------------- ------------- ------------- ------------
Cash flows from operating activities:
Net loss $ (2,628) $ (6,299) $ (8,060) $ (19,560)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation and amortization 139 309 338 762
Changes in assets and liabilities --
Accounts receivable (1,145) (2,205) (778) (3,298)
Inventories (203) 24 (440) (323)
Prepaid expenses and other current assets 56 90 (396) 104
Accounts payable (1,369) 950 (920) 746
Accrued expenses (349) 1,387 424 5,861
Deferred revenue 80 139 130 396
------------- ------------- ----------------------------
Net cash used in operating activities (5,419) (5,605) (9,702) (15,312)
------------- ------------- ----------------------------
Cash flows from investing activities:
Increase in other assets (364) (441) (736) (746)
Purchase of property and equipment (780) (343) (3,822) (1,147)
Purchases of short-term investments (6,378) (7,382) (20,097) (57,138)
Proceeds from sale and maturity of short-term investments 6,697 19,235 8,165 31,091
------------- ------------- ------------- ------------
Net cash (used in) provided by investing activities (825) 11,069 (16,490) (27,940)
------------- ------------- ------------- ------------
Cash flows from financing activities:
Proceeds from employee stock purchase program - - - 109
Proceeds from exercise of stock options 105 74 186 291
Proceeds from sale of common stock - - 49,986 70,580
------------- ------------- ------------- ------------
Net cash provided by financing activities 105 74 50,172 70,980
------------- ------------- ------------- ------------
Net increase (decrease) in cash and cash equivalents (6,139) 5,538 23,980 27,728
Cash and cash equivalents, beginning of period 35,784 49,762 5,665 27,572
------------- ------------- ------------- ------------
Cash and cash equivalents, end of period $ 29,645 $ 55,300 $ 29,645 $ 55,300
============= ============= ============= ============
See accompanying notes.
Page 5
Cytyc Corporation
Notes to Consolidated Financial Statements
NOTES
1. Significant Accounting Policies
The notes and accompanying consolidated financial statements are unaudited.
They have been prepared by the Company pursuant to the rules and regulations of
the Securities and Exchange Commission and are subject to year-end audit by
independent public accountants. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. It is suggested that the financial statements be read in
conjunction with the financial statements and notes included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996 (File No.
0-27558).
The information furnished reflects all adjustments, which, in the opinion
of management, are necessary for a fair presentation of results for the interim
periods. Such adjustments consisted only of normal recurring items. It should
also be noted that results for the interim periods are not necessarily
indicative of the results expected for the full year or any future period.
The preparation of these consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
2. Cash and Cash Equivalents
Cash equivalents consist of money market mutual funds, commercial paper and
U.S. Government securities with original maturities of three months or less.
3. Short-term Investments
The Company follows the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 115, Accounting for Certain Investments in Debt and
Equity Securities.
Short-term investments consist of U.S. Government securities with original
maturities between three and twelve months. The Company classifies these
short-term investments as held-to-maturity, and accordingly, they are carried at
amortized cost, which approximates market.
Amortized Gross Unrealized Fair
Cost Holding Gains Holding Losses Value
---- ------------- -------------- -----
September 30, 1997 (in thousands)
- ------------------
U.S. Government and Agency
securities (average maturity of
.42 years)...................... $37,532 $224 - $37,756
======= ==== = ======
December 31, 1996
- -----------------
U.S. Government and Agency
securities (average maturity of
.44 years)...................... $11,485 $66 - $11,551
======= === = =======
Page 6
4. Net Loss Per Share
Net loss per share for the three months and nine months ended September 30,
1997 are computed based upon the weighted average number of common shares
outstanding during the period. Common stock equivalents consist of stock options
and warrants and are not included in the calculation of earnings per share
because their effect would be antidilutive. Fully diluted earnings per share
have not been presented, as the amounts would not differ significantly from
primary earnings per share.
5. Follow-on Public Offering of Securities
On February 6, 1997, the Company sold through an underwritten follow-on
public offering 2,650,000 shares of common stock at a price to the public of
$23.50 per share, while existing shareholders sold 1,000,000 shares of common
stock. On February 20, 1997, the underwriters of the follow-on public offering
exercised their over-allotment option in full to purchase an additional 547,500
shares of the Company's common stock at a price to the public of $23.50 per
share.
6. New Accounting Standard
On March 31, 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings Per Share. SFAS No. 128 establishes standards for computing and
presenting earnings per share and applies to entities with publicly held common
stock or potential common stock. SFAS No. 128 is effective for annual or interim
periods ending after December 15, 1997 and early adoption is not permitted. When
adopted by the Company, SFAS No. 128 will require restatement of prior years'
earnings per share. The Company will adopt SFAS No. 128 for its fiscal year
ended December 31, 1997. The Company believes that the adoption of SFAS No. 128
will not have a material effect on its financial statements.
7. Legal Proceedings
On April 15, 1997, Cytyc Corporation (the "Company") commenced a lawsuit
against Neuromedical Systems, Inc. ("NSI"), The PIE Mutual Insurance Company
("PIE"), Cytylogy West, Inc. ("CWI") and other parties in the United States
District Court in Massachusetts (Civil Action No. 97-10740). The action was
dismissed without prejudice as to certain defendants, and dismissed as to the
remaining defendants following the Court's determination that personal
jurisdiction was lacking.
The Company refiled against NSI and two of its officers in the United
States District Court for the Southern District of New York on June 24, 1997
(Civil Action No. CIV 4642). The lawsuit includes claims of false and misleading
advertising, unfair and deceptive trade practices, unfair competition,
misappropriation of trade secrets, tortious interference with the Company's
business relationships and defamation. In addition to seeking preliminary and
permanent injunctions to stop NSI and its officers from such conduct, the
Company seeks treble damages. On July 30, 1997, NSI moved to dismiss the
Company's complaint. On September 5, 1997, the Court denied NSI's motion to
dismiss, and on October 3, 1997, NSI filed counterclaims against the Company for
false and misleading advertising, unfair competition and defamation.
The Company also refiled against PIE and its medical director in the United
States District Court for the Northern District of Ohio, Eastern Division on
July 3, 1997 (Civil Action No. 1:97 CV 1779). The complaint alleges false and
misleading description and representation, unfair and deceptive trade practices,
interference with advantageous relationships, defamation and commercial
disparagement. The Company is seeking injunctive relief as well as treble
damages.
On May 14, 1997, CWI filed suit against the Company in the United States
District Court for the District of Nevada (Civil Action No. CV-S-97-00594-LDG
(LRL)), alleging false description, false representation and unfair competition.
On June 27, 1997, the Company filed a motion to dismiss the complaint. The Court
has not rendered a decision on the Company's motion. On August 6, 1997 the
Company filed counterclaims against Cytology West, Inc. and third party claims
against its President, including claims for false and misleading description and
representation, unfair competition, interference with advantageous
relationships, defamation, commercial disparagement and abuse of process.
Each of the above pending actions are in the early stages of discovery and,
accordingly, the Company is unable to determine the extent of its liability, if
any, in such actions.
Page 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
OVERVIEW
The Company designs, develops, manufactures and markets a sample
preparation system for medical diagnostic applications. The ThinPrep System
consists of the ThinPrep 2000 Processor, and related disposable reagents,
filters and other supplies. The Company has marketed the ThinPrep System for use
in non-gynecological testing applications since 1991. On May 20, 1996, the
Company received premarket approval ("PMA") from the United States Food and Drug
Administration ("FDA") to market the ThinPrep System for cervical cancer
screening as a replacement for the conventional Pap smear method. On November 6,
1996, the FDA cleared expanded product labeling for the ThinPrep System to
include the claim that the ThinPrep System is significantly more effective in
detecting low grade and more severe lesions than the conventional Pap smear
method in a variety of patient populations. The expanded labeling also indicates
that the specimen quality using the ThinPrep System is significantly improved
over that of the conventional Pap smear method.
Since inception, the Company has incurred substantial losses, principally
from expenses associated with obtaining FDA approval of the Company's ThinPrep
System for cervical cancer screening, engineering and development efforts
related to the ThinPrep System, expansion of the Company's manufacturing
capabilities, and the establishment of a marketing and sales organization. The
Company expects such losses to continue for the foreseeable future as it expands
its domestic and establishes its international marketing and sales activities,
continues its product development efforts, and commences full-scale
manufacturing of the ThinPrep System for cervical cancer screening. The
operating results of the Company have fluctuated significantly in the past on an
annual and a quarterly basis. The Company expects that its operating results
will fluctuate significantly from quarter to quarter in the future and will
depend on a number of factors, including the extent to which the Company's
products gain market acceptance, the rate and size of expenditures incurred as
the Company expands its domestic and establishes its international sales and
distribution networks, the timing of any approvals of the ThinPrep System for
reimbursement by third-party payors, and other factors, many of which are
outside the Company's control.
The Company will continue to increase the amount of expenditures for
marketing, sales and customer support activities, principally in support of the
full-scale commercial launch of the ThinPrep System for cervical cancer
screening in the United States, which commenced in early 1997. During 1997, the
Company entered into a number of agreements in connection with its marketing and
sales activities, including a co-promotion agreement with Mead Johnson &
Company, a division of Bristol-Myers Squibb, to promote the ThinPrep Pap Test to
obstetricians in the United States, and an agreement with Quest Diagnostics
Incorporated to provide ThinPrep Pap Testing at its clinical laboratories in the
United States. The Quest Diagnostic agreement is exclusive in that Quest will
only provide other liquid-based mono or thin layer sample preparation
technologies if FDA labeling claims for such products exceed the FDA labeling
claims of the ThinPrep System and will only provide computer aided rescreening
upon customer initiated request. Quest Diagnostics and the Company agreed to
coordinate their efforts in planning and marketing the ThinPrep Tests to medical
professionals and third party payors. There can be no assurance that such
marketing, sales and customer support activities will result in increased net
sales, that the agreements with Mead Johnson & Company, Quest Diagnostics
Incorporated or other third parties will be successful, that the Company's
direct sales force will succeed in promoting the ThinPrep System to health care
providers, third-party payors or clinical laboratories, or that additional
marketing and sales channels will be successfully established.
The Company believes that sales of the ThinPrep System for cervical cancer
screening in the United States will depend on the availability of adequate
reimbursement from third-party payors such as private insurance plans, managed
care organizations and Medicare and Medicaid. The Company believes that in the
United States the current rate of reimbursement of laboratories from insurance
companies, managed care organizations and other third-party payors to screen
conventional Pap smears ranges from $6.00 to $36.00, with $17.00 the most common
rate of reimbursement. The Company believes that the cost per ThinPrep Pap Test,
plus a laboratory mark-up, will be billed to third-party payors and result in a
higher cost than the current charge for a conventional pap test.
The Company believes that its expanded FDA labeling supported by clinical
field and trial results may assist in the establishment of increased
reimbursement for the ThinPrep Pap Test. There can be no assurance that
third-party payors will provide such coverage, that reimbursement levels will be
adequate, or that health care providers or clinical laboratories will use the
ThinPrep System for cervical cancer screening in lieu of the conventional Pap
smear method.
Page 8
The Company will continue to increase its expenditures for sales, marketing
and customer support related to the 1997 commercial launch of the ThinPrep Pap
Test, for research and development to fund the development of follow-on products
and additional applications of the ThinPrep technology. The Company will
continue to increase the amount of expenditures for administrative activities,
principally for the employment of additional administrative personnel, increased
business insurance costs, litigation related legal expenses and other legal and
professional fees.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1997 and 1996
Net sales increased 160.5% to $7.0 million in the third quarter of 1997
from $2.7 million for the same period of 1996. This increase in net sales was
primarily due to an increase in the number of ThinPrep Processors sold, sales of
the Company's ThinPrep Pap Test for cervical cancer screening, and additional
sales of related reagents, filters and other supplies for non-gynecological and
gynecological testing. Gross profit increased 253.6% to $5.0 million in the
third quarter of 1997 from $1.4 million for the same period of 1996, and the
gross margin increased to 71.3% in the third quarter of 1997 from 52.5% for the
same period of 1996. Management attributes the increase in gross margin in 1997
primarily to the introduction and sales of the ThinPrep Pap Test beginning in
the later part of 1996, the subsequent change in product mix, and increased sale
prices for non-gynecological tests and ThinPrep 2000 Processors.
Total operating expenses increased to $12.7 million for the three months
ended September 30, 1997 from $4.7 million in the same period of 1996, an
increase of 172.2%. Research and development costs increased to $1.4 million in
1997 from $1.2 million in the same period of 1996, an increase of 22.5%, as a
result of employment of additional research and development personnel. Sales,
marketing and customer support increased to $9.2 million in the third quarter of
1997 from $2.7 million in the same period of 1996, an increase of 238.4%. The
increase in sales, marketing and customer support costs reflects the employment
of additional sales and customer support personnel, increased commission
expenses, expenses associated with the Mead Johnson co-promotion agreement, and
additional marketing consulting costs related to the commercial launch of the
ThinPrep Pap Test. General and administrative costs increased to $2.1 million in
the third quarter of 1997 from $796,000 in the same period of 1996, an increase
of 166.8%, due to the employment of additional administrative personnel,
increased business insurance costs, and legal expenses.
Net interest income increased to $1.4 million in the second quarter of 1997
from $624,000 for the same period of 1996, an increase of 125.0%, due to an
increase in the average cash balance available for investment.
Nine Months Ended September 30, 1997 and 1996
Net sales increased 184.6% to $15.6 million in the first nine months of
1997 from $5.5 million for the same period of 1996. This increase in net sales
was primarily due to an increase in the number of ThinPrep Processors sold,
sales of the Company's ThinPrep Pap Test for cervical cancer screening, and
additional sales of related reagents, filters and other supplies for
non-gynecological and gynecological testing. Gross profit increased 329.6% to
$10.2 million in the first nine months of 1997 from $2.4 million for the same
period of 1996, and the gross margin increased to 65.6% in the first nine months
of 1997 from 43.4% for the same period of 1996. Management attributes the
increase in gross margin in 1997 primarily to the introduction and sales of the
ThinPrep Pap Test beginning in the later part of 1996, the subsequent change in
product mix, and increased sale prices for non-gynecological tests and ThinPrep
2000 Processors.
Total operating expenses increased to $33.7 million for the nine months
ended September 30, 1997 from $12.0 million in the same period of 1996, an
increase of 181.6%. Research and development costs increased to $4.4 million in
1997 from $3.3 million in the same period of 1996, an increase of 31.7%, as a
result of employment of additional research and development personnel. Sales,
marketing and customer support increased to $23.8 million in the first nine
months of 1997 from $6.4 million in the same period of 1996, an increase of
274.0%. The increase in sales, marketing and customer support costs reflects the
employment of additional sales and customer support personnel, increased
commission expenses, expenses associated with the Mead Johnson co-promotion
agreement, and additional marketing consulting costs related to the commercial
launch of the ThinPrep Pap Test. General and administrative costs increased to
$5.4 million in the first nine months of 1997 from $2.2 million in the same
period of 1996, an increase of 142.3%, due to the employment of additional
administrative personnel, increased business insurance costs, and legal
expenses.
Page 9
Net interest income increased to $3.9 million in the first nine months of
1997 from $1.5 million for the same period of 1996, an increase of 155.9%, due
to an increase in the average cash balance available for investment.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company's expenses have significantly exceeded its
revenue, resulting in an accumulated deficit of $66.7 million as of September
30, 1997. The Company has funded its operations primarily through the private
placement and public sale of its equity securities aggregating $164.8 million,
net of offering expenses. At September 30, 1997, the Company had cash, cash
equivalents and short-term investments of $92.8 million. Cash, cash equivalents
and short-term investments increased during 1997 primarily due to the issuance
of 3,197,500 shares of Common Stock in connection with the Company's follow-on
public offering for aggregate net proceeds of approximately $70.6 million. Cash
used in the Company's operations during the third quarter of 1997 was $5.6
million compared to $5.4 million in the third quarter of 1996, an increase of
3.4%. The increase in cash used in operations in the third quarter of 1997 was
due to increased levels of operating activities, primarily for the expansion of
its marketing, sales and customer support organizations.
The Company's capital expenditures for the quarters ended September 30,
1997 and 1996 were $343,000 and $780,000, respectively. The higher level of
capital expenditures in the third quarter ended September 30, 1996 was due
primarily to amounts paid for customized manufacturing equipment and leasehold
improvements for the Company's larger facility.
The Company is the exclusive licensee of certain patented technology used
in the ThinPrep System. In consideration for this license, the Company has
agreed to pay a royalty equal to 1% of the net sales of the ThinPrep Processor,
filter cylinder disposable products which are used with the ThinPrep System, and
improvements made by the Company relating to such items. There are no minimum
royalty payments in connection with this license.
Accounts receivable increased $3.3 million from December 31, 1996 to
September 30, 1997 due to increased sales of ThinPrep 2000 processors and
related reagents, filters and other supplies. Inventories increased
approximately $323,000 to $1.8 million from December 31, 1996 to September 30,
1997 due primarily to the Company's planned sales increase in ThinPrep 2000
Processors and related reagents, filters and other supplies. Stockholders'
equity increased approximately $51.4 million from December 31, 1996 to September
30, 1997 primarily due to the sale of 3,197,500 shares of Common Stock in
connection with the Company's follow-on public offering in February 1997, which
was offset by the net loss of $19.6 million.
The Company's future liquidity and capital requirements will depend upon
numerous factors, including the resources required to further develop its
marketing and sales capabilities, both domestic and international, and the
extent to which the ThinPrep System for cervical cancer screening generates
market acceptance and demand. The Company's capital requirements will also
depend upon the progress of the Company's research and development programs
including clinical trials, the receipt of and the time required to obtain
regulatory clearances and approvals, and the resources the Company devotes to
developing, manufacturing and marketing its products. In addition, the Company's
capital requirements will depend on the extent of potential liabilities, if any,
and costs associated with, existing or future litigation. See "Legal
Proceedings." There can be no assurance that the Company will not require
additional financing or will not in the future seek to raise additional funds
through bank facilities, debt or equity offerings or other sources of capital.
Additional funding may not be available when needed or on terms acceptable to
the Company, which would have a material adverse effect on the Company's
business, financial condition and results of operations.
Page 10
CERTAIN FACTORS WHICH MAY AFFECT FUTURE RESULTS
The Company does not provide financial performance forecasts. The forward
looking statements in this Form 10-Q are made under the safe harbor provisions
of Section 21E of the Securities Exchange Act of 1934, as amended. The Company's
operating results and financial condition have varied and may in the future vary
significantly depending on a number of factors. The statements contained in this
report which are not strictly historical information, including, without
limitation, statements regarding current or future financial performance, the
implementation of the Company's full-scale marketing and sales activities,
availability of reimbursement for the Company's product, management's plans and
objectives for future operations, product plans and performance, potential
savings to the health care system, management's assessment of market factors, as
well as statements regarding the strategy and plans of the Company, constitute
forward looking statements which involve risks and uncertainties. The following
factors, among others, could cause actual results to differ materially from
those contained in forward-looking statements made in this report and presented
elsewhere by management from time to time. The Company's risk factors include
its dependence on a single product, uncertainty of market acceptance and
additional cost, a limited number of customers and a lengthy sales cycle, a
limited operating history, risks associated with commercialization, dependence
on third party reimbursement, limited marketing and sales experience, a history
of losses, potential fluctuations in future quarterly results, intense
competition, potential liabilities and costs associated with existing or future
litigation, uncertainty of additional applications, extensive government
regulation, limited manufacturing experience, dependence on patents and
copyrights, licenses and proprietary rights, risk of third party claims of
infringement, and dependence on single source suppliers. Such factors, among
others, may have a material adverse effect upon the Company's business, results
of operations and financial condition. Because of these and other factors, past
financial performance should not be considered an indication of future
performance.
Page 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
On April 15, 1997, Cytyc Corporation (the "Company") commenced a
lawsuit against Neuromedical Systems, Inc. ("NSI"), The PIE Mutual Insurance
Company ("PIE"), Cytylogy West, Inc. ("CWI") and other parties in the United
States District Court in Massachusetts (Civil Action No. 97-10740). The action
was dismissed without prejudice as to certain defendants, and dismissed as to
the remaining defendants following the Court's determination that personal
jurisdiction was lacking.
The Company refiled against NSI and two of its officers in the United
States District Court for the Southern District of New York on June 24, 1997
(Civil Action No. CIV 4642). The lawsuit includes claims of false and misleading
advertising, unfair and deceptive trade practices, unfair competition,
misappropriation of trade secrets, tortious interference with the Company's
business relationships and defamation. In addition to seeking preliminary and
permanent injunctions to stop NSI and its officers from such conduct, the
Company seeks treble damages. On July 30, 1997, NSI moved to dismiss the
Company's complaint. On September 5, 1997, the Court denied NSI's motion to
dismiss, and on October 3, 1997, NSI filed counterclaims against the Company for
false and misleading advertising, unfair competition and defamation.
The Company also refiled against PIE and its medical director in the
United States District Court for the Northern District of Ohio, Eastern Division
on July 3, 1997 (Civil Action No. 1:97 CV 1779). The complaint alleges false and
misleading description and representation, unfair and deceptive trade practices,
interference with advantageous relationships, defamation and commercial
disparagement. The Company is seeking injunctive relief as well as treble
damages.
On May 14, 1997, CWI filed suit against the Company in the United
States District Court for the District of Nevada (Civil Action No.
CV-S-97-00594-LDG (LRL)), alleging false description, false representation and
unfair competition. On June 27, 1997, the Company filed a motion to dismiss the
complaint. The Court has not rendered a decision on the Company's motion. On
August 6, 1997 the Company filed counterclaims against Cytology West, Inc. and
third party claims against its President, including claims for false and
misleading description and representation, unfair competition, interference with
advantageous relationships, defamation, commercial disparagement and abuse of
process.
Each of the above pending actions are in the early stages of discovery
and, accordingly, the Company is unable to determine the extent of its
liability, if any, in such actions.
Item 2. Changes in Securities and Use of Proceeds.
-----------------------------------------
(a) Changes in Securities.
---------------------
See Item 6(b) Below.
(b) Use of Proceeds.
---------------
On March 7, 1996, the company's Registration Statement on Form S-1
(File No. 333-00300) became effective. The Company has filed an initial report
on Form SR on June 14, 1996, disclosing the sale of securities and the use of
proceeds through June 7, 1996, Amendment No. 1 to Form SR on December 16, 1996,
disclosing the use of proceeds through December 7, 1996, and Amendment No. 2 to
Form SR on June 13, 1997, disclosing the use of proceeds through June 7, 1997.
The net proceeds from the offering were $49,986,000. No information has changed
to Amendment No. 2, except for the use of proceeds. The following describes the
use of proceeds from the effective date, March 7, 1996, through September 30,
1997:
- -------------------------------------------------------------------------------------- ----------------
Purchase and installation of machinery and equipment, and leasehold improvements $ 5,996,000
- -------------------------------------------------------------------------------------- ----------------
Market Launch 33,759,000
- -------------------------------------------------------------------------------------- ----------------
Research & Development 9,093,000
- -------------------------------------------------------------------------------------- ----------------
General Corporate 1,138,000
- -------------------------------------------------------------------------------------- ----------------
$49,986,000
- -------------------------------------------------------------------------------------- ----------------
Page 12
None of the above payments were made to directors, officers, or to persons owing
ten percent more of any class of equity securities of the Company, or to the
affiliates of the Company.
Item 3. Defaults upon Senior Securities.
-------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
Not applicable.
Item 5. Other Information.
-----------------
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits.
11.1 Statement of Computation of Weighted Average Shares
Outstanding
27 Financial Data Schedule
(b) Reports on Form 8-K.
The Company filed a report on Form 8-K on August 29, 1997,
reporting the declaration by the Board of Directors of a dividend of one
preferred stock purchase right (a "Right") for each outstanding share of the
Company's Common Stock to the stockholders of record at the close of business on
September 5, 1997, and the adoption of a Rights Agreement between the Company
and BankBoston, N.A., as Rights Agent.
Page 13
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.
CYTYC CORPORATION
Date: November 7, 1997 By: /s/ Joseph W. Kelly
--------------------
Joseph W. Kelly
Vice President, Chief Financial Officer,
Treasurer and Secretary
(Principal Financial and Accounting Officer)
Page 14
EXHIBIT INDEX
Exhibit
Number Description Page
- ------ ----------- ----
11.1 Statement of Computation of Weighted Average Shares
Outstanding
27 Financial Data Schedule
Page 15