<PAGE>
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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.................... July 31, 1995
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.........................................0-6375
American Cytogenetics, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 95-2701324
------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6440 Coldwater Canyon, North Hollywood, California 91606
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(Address of principal executive offices) (zip code)
Registrant's telephone number: (818) 766-1286
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N/A
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(Former name, former address and former fiscal year,
if changed since last year)
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 twelve (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 the Registrant's Common Stock, as
of September 8, 1995 was 4,481,023.
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AMERICAN CYTOGENETICS, INC.
FORM 10-Q
INDEX
PART I - Financial Information Page
------------------------------ ----
Item 1. Financial Statements:
Consolidated Condensed Balance Sheet - 2
July 31, 1995 and January 31, 1995
Consolidated Condensed Statement of Operations -
Three Months Ended July 31, 1995 and 1994 3
Consolidated Condensed Statement of Operations -
Six Months Ended July 31, 1995 and 1994 4
Consolidated Condensed Statement of Cash Flows -
Six Months Ended July 31, 1995 and 1994 5
Notes to Consolidated Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 5. Other Information 13
Signatures 14
1
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PART I - FINANCIAL INFORMATION
Item I. Financial Statements
<TABLE>
AMERICAN CYTOGENETICS, INC.
CONSOLIDATED CONDENSED BALANCE SHEET
<CAPTION>
JULY 31, 1995 JANUARY 31, 1995
------------- ----------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,888 $ 35,279
Accounts receivable, net 738,726 775,568
Supplies 58,397 49,020
Prepaid expenses 71,821 101,889
---------- ----------
Total current assets 875,832 961,756
Equipment and improvements, net 284,479 211,679
Customer list, net 130,804 146,193
Deferred costs and other assets 22,465 18,933
---------- ----------
Total assets $1,313,580 $1,338,561
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current portion of long-term debt and IRS
obligation $ 176,339 $ 68,429
Accounts payable, trade 583,056 557,462
Cash overdraft 57,279 0
Due to affiliates 44,409 42,619
Other current liabilities 528,371 566,335
---------- ----------
Total current liabilities 1,389,454 1,234,845
Long-term debt and IRS obligation, net of
current portion 634,173 690,105
Other Liabilities 25,000 25,000
---------- ----------
Total liabilities 2,048,627 1,949,950
---------- ----------
Stockholders' deficit:
Preferred stock, $10 par value - Authorized
300,000 shares; 32,988 issued (liquidated
value $515,408 and $501,868 at July 31,
1995 and January 31, 1995, respectively) 329,880 329,880
Common stock, $.01 par value - Authorized
20,000,000 shares; 4,540,499 issued at
July 31, and January 31, 1995 45,405 45,405
Additional paid-in capital 3,803,227 3,803,227
Accumulated deficit (4,836,713) (4,713,055)
Less treasury stock, at cost (76,846) (76,846)
---------- ----------
Total stockholders' deficit (735,047) (611,389)
---------- ----------
Total liabilities and
stockholders' deficit $1,313,580 $1,338,561
========== ==========
See accompanying notes to consolidated condensed financial statements.
</TABLE>
2
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<TABLE>
AMERICAN CYTOGENETICS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Three Months ended July 31,
-----------------------------
1995 1994
---- ----
<S> <C> <C>
REVENUES $1,280,379 $1,395,672
COSTS AND EXPENSES:
Production 907,384 989,289
Selling and marketing 72,982 89,530
General and administrative 364,767 303,427
---------- ----------
Total costs and expenses 1,345,133 1,382,246
---------- ----------
Operating income (loss) (64,754) 13,426
Other expense (principally interest) 23,596 13,086
---------- ----------
Net income (loss) $ (88,350) $ 340
========== ==========
Preferred dividend requirements 6,770 6,770
---------- ----------
Net loss applicable to common shares $ (95,120) $ (6,430)
========== ==========
Weighted average number of common
shares outstanding 4,481,023 4,481,023
Net loss per common share $ (0.02) $ 0.00
========== ==========
See accompanying notes to consolidated condensed financial statements.
</TABLE>
3
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<PAGE>
<TABLE>
AMERICAN CYTOGENETICS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Six Months ended July 31,
-------------------------
1995 1994
---- ----
<S> <C> <C>
REVENUES $2,655,677 $2,756,887
COSTS AND EXPENSES:
Production 1,846,929 1,941,234
Selling and marketing 161,593 174,858
General and administrative 723,370 656,085
---------- ----------
Total costs and expenses 2,731,892 2,772,177
---------- ----------
Operating loss (76,215) (15,290)
Other expense (principally interest) (47,443) 27,941
---------- ----------
Net loss $ (123,658) $ (43,231)
========== ==========
Preferred dividend requirements 13,540 13,540
---------- ----------
Net loss applicable to common shares $ (137,198) $ (56,771)
========== ==========
Weighted average number of common
shares outstanding 4,481,023 4,481,023
Net loss per common share $ (0.03) $ (0.01)
========== ==========
See accompanying notes to consolidated condensed financial statements.
</TABLE>
4
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<PAGE>
<TABLE>
AMERICAN CYTOGENETICS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Six Months ended July 31,
-------------------------
1995 1994
---- ----
<S> <C> <C>
INCREASE (DECREASE) IN CASH
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (123,658) $ (43,231)
Adjustments to reconcile net
loss to net cash used
by operating activities:
Depreciation and amortization 51,190 35,735
Provision for losses on accounts
receivable 11,902 125,175
Changes in assets and liabilities:
Accounts receivable 24,940 (211,497)
Supplies (9,377) 5,271
Prepaid expenses 30,068 (20,335)
Other assets (3,532) (40,100)
Accounts payable 25,594 36,357
Other current liabilities (36,174) (91,070)
---------- ----------
NET CASH USED IN
OPERATING ACTIVITIES (29,047) (203,695)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in cash overdraft 57,279 27,744
Repayment of debt (48,117) (36,072)
Payment on capital lease obligations 0 (12,531)
---------- ----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 9,162 (20,859)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (8,506) (14,302)
---------- ----------
NET DECREASE IN CASH (28,391) (238,856)
CASH AT BEGINNING OF PERIOD 35,279 245,639
---------- ----------
CASH AT END OF PERIOD $ 6,888 $ 6,783
========== ==========
See accompanying notes to consolidated condensed financial statements.
</TABLE>
5
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<TABLE>
AMERICAN CYTOGENETICS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Six Months ended July 31,
-------------------------
1995 1994
---- ----
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid for interest $ 47,443 $ 27,941
========= ==========
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Purchase of assets with long-
term debt $ 100,095
=========
See accompanying notes to consolidated condensed financial statements.
</TABLE>
6
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AMERICAN CYTOGENETICS, INC.
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The accompanying consolidated condensed financial statements for American
Cytogenetics, Inc. (the "Company"), have been prepared in accordance with
generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Rule 10-01 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.
Certain reclassification of the prior year financial statements have been made
to conform such information to current period presentation. In the opinion of
management, all adjustments, consisting of normal recurring adjustments,
considered necessary for a fair presentation have been made.
Income (loss) per common share is computed by dividing the net income or loss
for each period, adjusted for required preferred stock dividends, by the
weighted average number of common shares outstanding. Income (loss) per common
share does not provide for the effects of shares issuable contingent upon the
exercise of the stock options because the effect would be immaterial or
anti-dilutive.
These condensed consolidated financial statements should be read in conjunction
with the consolidated financial statements and footnotes thereto included in
the Registrant's Annual Report on Form 10-K for the fiscal year ended
January 31, 1995.
The results of operations for the three and six months ended July 31, 1995 and
1994 are not necessarily indicative of the results to be expected for the full
year.
NOTE 2: GOING CONCERN
The Company has incurred losses from operations for the past three fiscal
years, has negative working capital and a capital deficiency. The Company has
been notified by its largest customer that, due to budgetory shortfalls, test
volume may be reduced significantly. These conditions raise substantial doubt
about the Company's ability to continue as a going concern. The accompanying
consolidated financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
NOTE 3: CONTINGENCIES
On August 11, 1992, a complaint was filed, MARY LOU BACK V. AMERICAN
CYTOGENETICS, ET AL., Case BC061917, in the Superior Court of California for
the County of Los Angeles, against the Company, Cancer Screening Services
("CSS"), Earl Brian, Alice Hendricks, Liston Witherill, Allan Tessler, Gary
Prince and Dwight Geduldig. Each of the above named individuals, except Allan
7
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<PAGE>
Tessler, is or at one time was a member of the Board of Directors of the
Company. The Complaint alleges that Ms. Back, who was employed as President
and Chief Executive Officer of the Company and CSS from May 1990 to January
1992, was wrongfully terminated in violation of public policy and various other
reasons. The complaint seeks damages in the amount of $200,000 plus punitive
damages and indemnification from Internal Revenue Service "IRS" assessments
against Back for taxes not paid by CSS. In October 1993 the court granted the
Company's motion to dismiss Back's claim for indemnification and on March 22,
1994 the court granted the Company's motion for summary adjudication of Back's
remaining claims. Back's subsequent request for reconsideration of the summary
adjudication order has been denied. Back has filed a Notice of Appeal. The
Company has vigorously defended the action and is unable to predict the outcome
at this time.
8
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<PAGE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company's revenues are derived from the sale of testing services for
gynecological cytology (Pap testing), certain sexually transmitted diseases
(primarily Chlamydia trachomatis) and histopathology testing. As in years
past, the majority of the Company's revenues (approximately 76%) are derived
from the sales of Pap tests. While this represents a lower percentage than
in the past, Pap testing remains the Company's major business focus.
The Company has been notified by its largest customer that, due to budgetary
shortfalls, test volume may be reduced significantly. The Company's primary
marketing focus has been and continues to be on publicly financed (either
directly or through tax exemptions) reproductive health agencies and
organizations. The purchasing ability of such agencies and organizations is
generally dictated by their ability to appropriate or otherwise generate
funding. As such, there is a high degree of price sensitivity in this
marketplace. Management believes that price sensitivity will continue to be
a driving factor for the foreseeable future.
The Company's ability to continue to compete successfully for this business
depends to a large extent on its ability to control costs, particularly labor
costs. In fiscal year 1991, regulations were enacted in the State of
California that limited the number of cytology slides that a cytotechnologist
could analyze in a 24-hour period. These limits were lower than those for other
states. As a result, labor costs increased substantially, with a concomitant
negative impact on the Registrant's ability to compete in its historical market.
Management's efforts have focussed on controlling production costs in order to
improve the Company's competitive position. These efforts include staff
reorganization and increased use of automation for administrative and reporting
functions. In fiscal year 1995, the Company established a test processing
facility in Missouri in order to increase capacity at reduced cost. In the
first half of the current fiscal year, approximately 26% of the Company's Pap
tests were performed at the new facility. Management plans to continue to
increase capacity in Missouri and to aggressively market lower priced tests.
COMPARISON OF THREE MONTHS ENDED JULY 31, 1995 AND JULY 31, 1994
Revenues for the second quarter of fiscal year 1996 decreased approximately
$115,000 or 8% as compared to the same period in fiscal year 1995. The lower
revenues reflect lower unit pricing and lower volumes in cytology and sexually
transmitted disease testing.
9
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<PAGE>
<PAGE>
Changes in revenues as compared to the same period in fiscal year 1995 by test
segment are as follows: cytology revenue decreased by approximately $91,000
due to lower unit pricing and lower volumes; histopathology revenue increased
by approximately $3,000 due to higher unit pricing; and revenue for sexually
transmitted disease testing decreased by approximately $27,000 due to lower
unit pricing.
Total production expenses decreased approximately $82,000 or 8% over the same
period last fiscal year and production expenses as a percent of sales remained
constant. Management believes that the Company's combined cost structure, with
its California and Missouri operations, should continue to generate margins
more consistent with or improved over prior periods for cytology services.
Selling and marketing expenses decreased by approximately $17,000 or 18% due to
reduced expenses in the quarter ended July 31, 1995 for convention attendance
and related travel expenses in addition to reduced staffing as the sales and
service effort is reduced to private physicians. The Company is continuing
its efforts to attract additional cytology business consistent with increases
in capacity.
General and administrative expenses increased by approximately $61,000 or 20%
due to expenses incurred in the current quarter related to the management of
the added Missouri facility and increased staffing associated with efforts to
collect from third parties which were offset partially by decreased bad debt
expense due to improved collections on business billed directly to patients
and third parties. Also contributing to the increase when comparing the two
quarters was the one time removal of approximately $48,000 of consulting
expenses in the prior quarter.
The approximate $11,000 increase in other expense is due to increased interest
expense as a result of the interest on a note signed in the quarter ended
July 31, 1995 to finance computer hardware necessary for the new laboratory
information system. In addition, interest expense increased due to interest
on the obligation owed to the previous owner of assets purchased in relation to
the start of the Company's Missouri facility.
The results of operations for the three months ended July 31, 1995 decreased
by $89,000 compared with the three months ended July 31, 1994 due primarily
to reduced testing volumes coupled with increased general and administrative
expenses.
COMPARISON OF SIX MONTHS ENDED JULY 31, 1995 AND JULY 31, 1994
Revenues for the first two quarters of fiscal year 1996 decreased approximately
$101,000 or 4% as compared to the same period in fiscal year 1995. The lower
revenues reflect lower unit pricing and lower volume in cytology testing.
10
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<PAGE>
<PAGE>
Changes in revenues as compared to the same period in fiscal year 1995 by test
segment are as follows: cytology revenue decreased by approximately $131,000
due to lower unit pricing and lower volumes; histopathology revenue increased
by approximately $17,000 due to higher unit pricing; and revenue for sexually
transmitted disease testing increased by approximately $13,000 due to increased
test volumes, partially offset by lower unit pricing.
Total production expenses decreased approximately $94,000 or 5% over the same
period last fiscal year and production expenses as a percent of sales remained
constant. Management believes that the Company's combined cost structure, with
its California and Missouri operations, should continue to generate margins
more consistent with or improved over prior periods for cytology services.
Selling and marketing expenses decreased by approximately $13,000 or 8% due to
reduced expenses for convention attendance and related travel expenses in
addition to reduced staffing as the sales and service effort is reduced to
private physicians. The Company is continuing its efforts to attract
additional cytology business consistent with increases in capacity.
General and administrative expenses increased approximately $67,000 or 10% due
to expenses incurred in the current period related to the management of the
added Missouri facility and increased staffing associated with efforts to
collect from third parties which were partially offset by decreased bad debt
expense due to improved collections on business billed directly to patients and
third parties. Also contributing to the increase when comparing the two periods
was the one time removal of approximately $48,000 of consulting expenses in the
prior period.
The approximate $20,000 increase in other expense is due to increased interest
expense as a result of the interest on a note signed in the quarter ended
April 30, 1995 to finance computer hardware necessary for the new laboratory
information system. In addition, interest expense increased due to interest
on the obligation owed to the previous owner of assets purchased in relation to
the start of the Company's Missouri facility.
The net loss from operations for the six months ended July 31, 1995
increased by $80,000 compared with the six months ended July 31, 1994
due primarily to the decreased cytology revenues coupled with
increased general and administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
Working capital decreased approximately $241,000 from a deficit of
approximately $273,000 at January 31, 1995 to a deficit of $514,000
at July 31, 1995 primarily as a result of the loss from operations
and the financing of the purchase of computer hardware with a
relatively short note (16 months).
11
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<PAGE>
<PAGE>
Capital expenditures were approximately $109,000 and $14,000, respectively, for
the six months ended July 31, 1995 and 1994. Purchases in the current period
were for computer hardware and software development associated with the
Company's effort to develop a new laboratory information system. The hardware
portion was financed by lease requiring payments over 16 months.
On May 12, 1992 the Company reached an informal installment agreement with the
IRS on a payment plan for approximately $525,000 of unpaid payroll taxes,
interest and penalties. The IRS has established a lien against the company's
assets for repayment of this liability.
Management's plans include seeking and obtaining additional cash through
issuance of stock or other financing alternatives. Proceeds from financing
activities are intended to be used in paying down debt, modernizing plant and
equipment, and providing working capital. In addition, as part of implementing
management's plans, the Company is: continuing to pursue cost reductions;
continuing renegotiations with the IRS for a more favorable settlement;
planning to obtain and implement current information technology to reduce
certain operating costs and increase billing efficiencies; and focusing on
strengthening certain operating controls. Although no assurance can be given,
the Company believes that it will be able to meet its obligations during fiscal
year 1996.
12
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<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings: None
Item 2. Changes in Securities: None
Item 3. Defaults upon Senior Securities: None
Item 4. Submission of Matters to a Vote of Security Holders: None
Item 5. Other Information
Effective August 31, 1995, Earl W. Brian, MD resigned for personal
reasons from the Company's Board of Directors.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b) Exhibits: None
13
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<PAGE>
<PAGE>
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.
AMERICAN CYTOGENETICS, INC.
Dated: September 8, 1995 /s/ Eric W. Hoffman
-----------------------
Eric W. Hoffman
Chief Financial Officer
14
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> JUL-31-1995
<CASH> 6,888
<SECURITIES> 0
<RECEIVABLES> 738,726
<ALLOWANCES> 392,336
<INVENTORY> 0
<CURRENT-ASSETS> 875,832
<PP&E> 660,594
<DEPRECIATION> 376,115
<TOTAL-ASSETS> 1,313,580
<CURRENT-LIABILITIES> 1,389,454
<BONDS> 0
<COMMON> 45,405
0
329,880
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,313,580
<SALES> 2,655,677
<TOTAL-REVENUES> 2,655,677
<CGS> 1,846,929
<TOTAL-COSTS> 2,731,892
<OTHER-EXPENSES> 47,443
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 47,443
<INCOME-PRETAX> (123,658)
<INCOME-TAX> 0
<INCOME-CONTINUING> (123,658)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (123,658)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
