<PAGE>1
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, 1996
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.
- ---------------------------------------------------------------------
(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
- --------------------------------------------------------------------------------
(Address of principal executive offices) (zip code)
Registrant's telephone number: (818) 766-1286
------------------
N/A
- -------------------------------------------------------------------
(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 10, 1996 was 4,481,023.
<PAGE>2
<TABLE>
<CAPTION>
AMERICAN CYTOGENETICS, INC.
FORM 10-Q
----------------
INDEX
PART I - Financial Information Page
Item 1. Financial Statements:
<S> <C>
Consolidated Condensed Balance Sheet - 3
July 31, 1996 and January 31, 1996
Consolidated Condensed Statement of Operations -
Three Months Ended July 31, 1996 and 1995 4
Consolidated Condensed Statement of Operations -
Six Months Ended July 31, 1996 and 1995 5
Consolidated Condensed Statement of Cash Flows -
Six Months Ended July 31, 1996 and 1995 6
Notes to Consolidated Condensed Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 5. Other Information 14
Signatures 15
<PAGE>3<PAGE>
PART I - FINANCIAL INFORMATION
Item I. FINANCIAL STATEMENTS
</TABLE>
<TABLE>
<CAPTION>
AMERICAN CYTOGENETICS, INC.
CONSOLIDATED CONDENSED BALANCE SHEET
July 31, 1996 January 31, 1996
---------------- --------------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 10,181 $ 19,503
Accounts receivable, net 469,632 585,607
Supplies 34,562 48,042
Prepaid expenses 33,487 85,388
------------ ------------
Total current assets 547,862 738,540
Equipment and improvements, net 225,528 253,154
Customer list, net 100,030 115,416
Deferred costs and other assets 16,901 17,008
------------ --------------
Total assets $ 890,321 $1,124,118
======= ========
LIABILITIES AND CAPITAL DEFICIENCY
CURRENT LIABILITIES:
Cash overdraft $ 89,602 $ 83,509
Accounts payable, trade 795,505 743,867
Short-term debt from affiliate 365,000 5,000
Current portion of long-term debt and IRS
obligation $ 91,319 $ 87,455
Current portion of capital leases 8,962 43,647
Due to affiliates 121,969 109,098
Other current liabilities 308,329 518,024
------------ -----------
Total current liabilities 1,780,686 1,590,600
Long-term debt and IRS obligation, net of
current portion 577,016 603,780
Other Liabilities 25,000 25,000
------------- -----------
Total liabilities 2,382,702 2,219,380
Capital Deficiency:
Preferred stock, $10 par value - Authorized
300,000 shares; 32,988 issued (liquidated
value $542,394 and $528,854 at July 31,
1996 and January 31, 1996, 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, 1996 45,405 45,405
Additional paid-in capital 3,803,227 3,803,227
Accumulated deficit (5,594,047) (5,196,928)
Less treasury stock, at cost (76,846) (76,846)
------------ -------------
Total capital deficiency (1,492,381) (1,095,262)
------------- -------------
Total Liabilities and
Capital Deficiency $ 890,321 $1,124,118
====== =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>4
<TABLE>
<CAPTION>
AMERICAN CYTOGENETICS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months ended July 31,
1996 1995
------ -------
<S> <C> <C>
REVENUES, NET $ 763,575 $1,280,379
COSTS AND EXPENSES:
Production 596,514 907,384
Selling and marketing 13,426 72,982
General and administrative 281,917 364,767
----------- -----------
Total costs and expenses 891,857 1,345,133
------------ -------------
Operating loss (128,282) (64,754)
Other expense (principally interest) 28,731 23,596
------------- ------------
Net loss $ (157,013) $ (88,350)
======== =======
Preferred dividend requirements 6,770 6,770
------------ ------------
Net loss applicable to common shares $ (163,783) $ (95,120)
======= =======
Weighted average number of common
shares outstanding 4,481,023 4,481,023
Net loss per common share $ (0.04) $ (0.02)
====== =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>5
<TABLE>
<CAPTION>
AMERICAN CYTOGENETICS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months ended July 31,
1996 1995
---------- -------------
<S> <C> <C>
REVENUES, NET $1,610,364 $2,655,677
COSTS AND EXPENSES:
Production 1,324,054 1,846,929
Selling and marketing 50,304 161,593
General and administrative 582,590 723,370
------------ -------------
Total costs and expenses 1,956,948 2,731,892
------------ -------------
Operating loss (346,584) (76,215)
Other expense (principally interest) 50,535 47,443
------------ -------------
Net loss $ (397,119) $ (123,658)
======= ========
Preferred dividend requirements 13,540 13,540
------------ -------------
Net loss applicable to common shares $ (410,659) $ (137,198)
======= =======
Weighted average number of common
shares outstanding 4,481,023 4,481,023
Net loss per common share $ (0.09) $ (0.03)
======= ======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>6
<TABLE>
<CAPTION>
AMERICAN CYTOGENETICS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months ended July 31,
1996 1995
------------ -------------
INCREASE (DECREASE) IN CASH
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (397,119) $ (123,658)
Adjustments to reconcile net
loss to net cash used
by operating activities:
Depreciation and amortization 43,346 51,190
Provision for losses on accounts
receivable 18,948 11,902
Changes in assets and liabilities:
Accounts receivable 97,027 24,940
Supplies 13,480 (9,377)
Prepaid expenses 51,901 30,068
Other assets 107 (3,532)
Accounts payable 51,638 25,594
Other current liabilities (196,824) (36,174)
------------ -------------
NET CASH USED IN
OPERATING ACTIVITIES (317,496) (29,047)
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in cash overdraft 6,093 57,279
Increase in borrowings from affiliates 360,000 0
Repayment of debt (22,900) (31,451)
Payment on capital lease obligations (34,685) (16,666)
------------ -------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 308,508 9,162
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (334) (8,506)
------------ -------------
NET DECREASE IN CASH (9,322) (28,391)
CASH AT BEGINNING OF PERIOD 19,503 35,279
------------ -------------
CASH AT END OF PERIOD $ 10,181 $ 6,888
======= =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>7
<TABLE>
<CAPTION>
AMERICAN CYTOGENETICS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months ended July 31,
1996 1995
------------ -------------
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
<S> <C> <C>
Cash paid for interest $ 50,535 $ 47,443
======= =======
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Purchase of assets with long-
term debt $ 100,095
=======
</TABLE>
See accompanying notes to consolidated condensed financial
statements.
<PAGE>8
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, 1996.
The results of operations for the three and six months ended July
31, 1996 and 1995 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 four
fiscal years, has negative working capital and a capital
deficiency. The Company has been notified by its largest
customer that, due to budgetary 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
<PAGE>9
Hendricks, Liston Witherill, Allan Tessler, Gary Prince and Dwight
Geduldig. Each of the above named individuals, except Allan
Tessler, is or at one time was a member of the Board of Directors
of the Company. Allan Tessler was removed from the case. 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 filed a Notice of Appeal and on July 30, 1996 the
California Appeals Court reversed the motion for summary
adjudication. The Company has vigorously defended the action and
is unable to predict the outcome at this time.
The Company's laboratories, in the ordinary course of business, are
subject on occasion to legal claims alleging improper reporting or
misreading of specimens. The Company previously had adequately
covered these legal claims by claims-made policies provided by
commercial insurance carriers, subject to a deductible. Due to
the financial condition of the Company claims-made policies have
not always been in place in fiscal year 1997 and in fact management
is currently seeking coverage. However, management can give no
assurance that, at some future date, if a policy is in place a
claim might not be initiated that is in excess of insurance
coverage or that the Company may be unable to obtain coverage.
<PAGE>10
<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 67%) 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 fiscal year 1996, approximately 26% of the
Company's Pap tests were performed at the new facility. However,
due to reduced test volume from the Company's largest customer the
Company ceased operations in the Missouri facility in October 1995.
Due to the Company's elimination of the lower cost facility in
Missouri, and reduced volumes from its largest customer the Company
has experienced significant revenues declines. Due to the
commensurate reduced capacity in fiscal year 1997 the Company
recorded a one time reduction to revenues of approximately $135,000
as a result of disputes with previous customers over testing
services provided in excess of agreed upon time period to process
specimens. These factors have placed the financial condition of
the Company in jeopardy.
<PAGE>11
The Company is continuing to seek outside financing to reduce
existing debt and provide working capital. To date the Company has
borrowed approximately $400,000 from its majority shareholder,
Infotechnology, Inc. The Company continues to pursue other
financing sources.
Comparison of Three Months Ended July 31, 1996 and July 31, 1995
- ----------------------------------------------------------------
Revenues for the second quarter of fiscal year 1997 decreased
approximately $517,000 or 40% as compared to the same period in
fiscal year 1996. The lower revenues are primarily a result of
lower volumes in cytology and the one time charge to revenues of
$35,000.
Changes in revenues as compared to the same period in fiscal year
1996 by test segment are as follows: cytology revenue decreased by
approximately $392,000 due lower volumes partially offset by higher
unit pricing; histopathology revenue decreased by approximately
$22,000 due to lower volumes and lower unit pricing; and revenue
for sexually transmitted disease testing decreased by approximately
$68,000 due to lower volumes.
Total production expenses decreased approximately $311,000 or 34%
over the same period last fiscal year and production expenses as a
percent of sales increased from 71% to 75% before the one time
charge to revenues in the current quarter. The increase in
production expenses as a percent of sales is primarily due to the
significantly reduced volume in cytology. In addition, the
Company did not process any volume at the Company's previously
operating lower cost facility in Missouri. Management believes
that the Company's current cost structure will need major
restructuring in order to remain competitive.
Selling and marketing expenses decreased by approximately $59,000
or 82% due to reduced labor expense in the quarter ended July 31,
1996. The Company has not replaced marketing staff in an attempt
to concentrate on existing business.
General and administrative expenses increased by approximately
$83,000 or 23%. The Company did not incur expenses related to the
management of the Missouri facility in the current quarter and
labor expense is lower due to reduced testing volume.
The approximate $5,000 increase in other expense is due to
increased interest expense as a result of borrowings from the
Company's largest shareholder, Infotechnology, Inc. offset by the
lower interest on a capital lease entered into in fiscal year 1996
to finance computer hardware necessary for the new laboratory
information system.
The results of operations for the three months ended July 31, 1996
decreased by $69,000 compared with the three months ended July 31,
<PAGE>12
1995 due primarily to reduced testing volumes.
Comparison of Six Months Ended July 31, 1996 and July 31, 1995
- --------------------------------------------------------------------------------
Revenues for the first two quarters of fiscal year 1997 decreased
approximately $1,045,000 or 39% as compared to the same period in
fiscal year 1996. The lower revenues primarily reflect lower
volume in cytology testing and the one time reduction to revenues
of $135,000.
Changes in revenues as compared to the same period in fiscal year
1996 by test segment are as follows: cytology revenue decreased by
approximately $799,000 due to lower unit pricing; histopathology
revenue decreased by approximately $38,000 due to lower volumes and
lower unit pricing; and revenue for sexually transmitted disease
testing decreased by approximately $73,000 due to increased test
volumes.
Total production expenses decreased approximately $523,000 or 28%
over the same period last fiscal year and production expenses as a
percent of sales increased from 70% to 76% before the one time
charge to revenues in the current period. The increase in
production expenses as a percent of sales is primarily due to the
significantly reduced volume in cytology. In addition, the
Company did not process any volume at the Company's previously
operating lower cost facility in Missouri. Management believes
that the Company's current cost structure will need major
restructuring in order to remain competitive.
Selling and marketing expenses decreased by approximately $111,000
or 69% due to reduced labor expense in the six months ended July
31, 1996. The Company has not replaced marketing staff in an
attempt to concentrate on existing business.
General and administrative expenses increased approximately
$141,000 or 19%. The Company did not incur expenses related to the
management of the Missouri facility in the current period. In
addition, labor expense is lower due to reduced testing volume and
a temporary salary roll back in the current period.
The approximate $3,000 increase in other expense is due to
increased interest expense as a result of borrowings from the
Company's largest shareholder, Infotechnology, Inc. offset by the
lower interest on a capital lease entered into in fiscal year 1996
to finance computer hardware necessary for the new laboratory
information system.
The net loss from operations for the six months ended July 31, 1996
increased by $273,000 compared with the six months ended July 31,
1995 due primarily to the decreased cytology revenues.
<PAGE>13
Liquidity and Capital Resources
- --------------------------------------
Working capital decreased approximately $381,000 from a deficit of
approximately $852,000 at January 31, 1996 to a deficit of
$1,233,000 at July 31, 1996 primarily as a result of the loss from
operations.
Capital expenditures were approximately $0 and $109,000,
respectively, for the six months ended July 31, 1996 and 1995.
Purchases in the prior 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. Despite management efforts it is not certain that the
Company will be able to meet its obligations during fiscal year
1997.
<PAGE>14<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
On December 6, 1995 the Company entered into Letter of
Intent among Nu-Tech Bio-Med, Inc. ("NTBM") and the Company's
controlling shareholder, Infotechnology, Inc., pursuant to
which the Company, subject to the completion of a definitive
agreement, would sell shares of the unregistered previously
unissued common stock of the Company to NTBM for cash. In
addition, the Company's controlling shareholder would sell its
ownership of the Company's common and preferred stock to NTBM
for a combination of cash and NTBM common stock. Upon
completion of the transaction, NTBM would become the
controlling shareholder of the Company's common and preferred
stock.
As a result of protracted delays brought about by the
Company's controlling shareholder's inability to meet duties
specified in the Letter of Intent and management's desire to
pursue alternative financing arrangements, management notified
NTBM that, without additional indication of intent to continue
to pursue the proposed transaction, the Company would deem the
Letter of Intent to be terminated. In light of the subsequent
negative response by NTBM, the Company terminated its
participation in the Letter of Intent and all further
negotiations as specified.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b) Exhibits: None
<PAGE>15
<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 10, 1996 /s/ Eric W. Hoffman
------------------------
Eric W. Hoffman
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE>5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> JUL-31-1996
<CASH> 10,181
<SECURITIES> 0
<RECEIVABLES> 831,995
<ALLOWANCES> 362,363
<INVENTORY> 0
<CURRENT-ASSETS> 547,862
<PP&E> 661,616
<DEPRECIATION> 436,088
<TOTAL-ASSETS> 890,321
<CURRENT-LIABILITIES> 1,780,686
<BONDS> 0
0
329,880
<COMMON> 45,405
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 890,321
<SALES> 1,610,364
<TOTAL-REVENUES> 1,610,364
<CGS> 1,324,054
<TOTAL-COSTS> 1,956,948
<OTHER-EXPENSES> 50,535
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (397,119)
<INCOME-TAX> 0
<INCOME-CONTINUING> (397,119)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (397,119)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
