<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.................. April 30, 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 June 10, 1996 was 4,481,023.
<PAGE>2
AMERICAN CYTOGENETICS, INC.
FORM 10-Q
INDEX
PART I - Financial Information Page
Item 1. Financial Statements:
Consolidated Condensed Balance Sheet - 3
April 30, 1996 and January 31, 1996
Consolidated Condensed Statement of Operations -
Three Months Ended April 30, 1996 and 1995 4
Consolidated Condensed Statement of Cash Flows -
Three Months Ended April 30, 1996 and 1995 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 12
Signatures 13<PAGE>
<PAGE>3
Part I - Financial Information
Item I. Financial Statements
<TABLE>
<CAPTION>
AMERICAN CYTOGENETICS, INC.
CONSOLIDATED CONDENSED BALANCE SHEET
April 30, 1996 January 31, 1996
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 8,664 $ 19,503
Accounts receivable, net 493,318 585,607
Supplies 35,115 48,042
Prepaid expenses, other current assets 49,574 85,388
---------- ----------
Total Current Assets 586,671 738,540
Equipment and improvements, Net 239,397 253,154
Customer list, net 107,724 115,416
Deferred costs and other assets 16,901 17,008
---------- ------------
Total Assets $ 950,693 $1,124,118
====== =======
LIABILITIES AND CAPITAL DEFICIENCY
CURRENT LIABILITIES:
Cash overdraft $ 101,059 $ 83,509
Accounts payable, trade 794,282 743,867
Short-term debt 255,000 5,000
Current portion of log-term debt
and IRS obligation 89,334 87,455
Current portion of capital leases 17,806 43,647
Due to affiliates 111,548 109,098
Other current liabilities 301,381 518,024
------------ -----------
Total Current Liabilities 1,670,410 1,590,600
Long-term debt and IRS obligation, net of
current portion 590,651 603,780
Other liabilities 25,000 25,000
------------ ------------
Total Liabilities 2,286,061 2,219,380
------------ ------------
Capital Deficiency:
Preferred stock, $10 par value - Authorized
300,000 shares; 32,988 issued (liquidated
value $535,624 and $528,854 at April 30,
and January 31, 1996, respectively) 329,880 329,880
Common stock, $.01 par value - Authorized
20,000,000 shares; 4,540,499 issued at
April 30, and January 31, 1996 45,405 45,405
Additional paid-in capital 3,803,227 3,803,227
Accumulated deficit (5,437,034) (5,196,928)
Less treasury stock, at cost (76,846) (76,846)
------------- ------------
Total capital deficiency (1,335,368) (1,095,262)
------------- ------------
Total Liabilities and
Capital Deficiency $ 950,693 $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 April 30,
1996 1995
----------- ------------
<S> <C> <C>
REVENUES $ 846,789 $1,375,298
COSTS AND EXPENSES:
Production 727,540 939,545
Selling and marketing 36,878 88,611
General and administrative 300,673 358,603
---------- -----------
Total costs and expenses 1,065,091 1,386,759
---------- -----------
Operating loss (218,302) (11,461)
Other expense (principally interest) 21,804 23,847
---------- -----------
Net loss $ (240,106) $ (35,308)
===== =======
Preferred dividend requirements 6,770 6,770
---------- -----------
Net loss applicable
to common shares $ (246,876) $ (42,078)
====== ======
Weighted average number of common
shares outstanding 4,481,023 4,481,023
======= =======
Net loss per common share $ (0.06) $ (0.01)
======= ======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>5
<TABLE>
<CAPTION>
AMERICAN CYTOGENETICS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months ended April 30,
1996 1995
--------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN CASH
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (240,106) $ (35,308)
Adjustments to reconcile net
loss to net cash used
by operating activities:
Depreciation and amortization 22,283 25,716
Provision for losses on accounts
receivable 10,040 (2,486)
Changes in assets and liabilities:
Accounts receivable 82,249 (84,800)
Supplies 12,927 15,735
Prepaid expenses 35,814 47,958
Other assets 107 (842)
Accounts payable 50,415 39,259
Other current liabilities (214,193) (45,667)
---------- ----------
NET CASH USED BY
OPERATING ACTIVITIES (240,464) (40,435)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in cash overdraft 17,550 37,901
Increase in borrowing
from affiliates 250,000 0
Repayment of debt (11,250) (27,526)
Payment on capital
lease obligations (25,841) 0
---------- ---------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 230,459 10,375
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (834) (5,000)
--------- ---------
NET DECREASE IN CASH (10,839) (35,060)
CASH AT BEGINNING OF PERIOD 19,503 35,279
---------- ---------
CASH AT END OF PERIOD $ 8,664 $ 219
====== ======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>6
<TABLE>
<CAPTION>
AMERICAN CYTOGENETICS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months ended April 30,
1996 1995
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
<S> <C> <C>
Cash paid for interest $ 21,804 $ 22,759
====== =======
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>7
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 included.
Income (loss) per common share is computed by dividing the net
income or loss for each year, 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 months ended April 30,
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
<PAGE>8
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
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.
<PAGE>9
<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 63%) 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
October of 1994, the Company established a test processing facility
in Missouri in order to increase capacity at reduced cost. During
the fiscal year 1996, approximately 29% of the Company's Pap tests
were performed at the new facility. However, due to reduced test
volume from the Company's largest customer management ceased
operations in the Missouri facility in October 1995.
Comparison of Three Months Ended April 30, 1996 and April 30, 1995
- ------------------------------------------------------------------
Revenues for the first quarter of fiscal year 1997 decreased
approximately $529,000 or 38% as compared to the same period in
fiscal year 1996. The significantly lower revenues reflect lower
<PAGE>10
test volumes and lower unit pricing, in cytology testing.
Changes in revenues as compared to the same period in fiscal year
1996 by test segment are as follows: cytology revenue decreased by
approximately $507,000 or 49% due to lower volumes and unit
pricing; histopathology revenue decreased by approximately $16,000
or 18% due to lower unit pricing; and revenue for sexually
transmitted disease testing remained relatively constant,
decreasing by approximately $6,000 or 2%.
Total production expenses decreased approximately $212,000 or 22%
over the same period last fiscal year and production expenses as a
percent of sales increased from 68% to 86%. 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
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 $52,000
or 58% due to reduced labor expense in the quarter ended April 30,
1996. The Company has not replaced marketing staff in an attempt
to concentrate on existing business.
General and administrative expenses decreased 58,000 or 16% between
the comparative quarters. The Company did not incur expenses
related to the management of the Missouri facility.
The approximate $2,000 decrease in other expense is due to
decreased interest expense. Interest expense was higher in the
previous quarter on a note signed in the quarter ended April 30,
1995 to finance computer hardware necessary for the new laboratory
information system.
The net loss from operations for the three months ended April 30,
1996 increased by $205,000 or 580% compared with the three months
ended April 30, 1995 due primarily to the decreased revenues on
cytology services as a result of the lack of processing in the
Company's new Missouri facility. The Company, under its current
cost structure and revenues, will require significant
reorganization to continue to survive.
Liquidity and Capital Resources
- ---------------------------------------
Working capital decreased approximately $232,000 from a deficit of
approximately $852,000 at January 31, 1996 to a deficit of
$1,084,000 at April 30, 1996 primarily as a result of the loss from
operations. The cash impact of this loss was covered by a short
term loan from the Company's majority shareholder, Questech Capital
Corporation.
Capital expenditures were approximately $1,000 and $105,000,
<PAGE>11
respectively, for the three months ended April 30, 1996 and 1995.
Purchases in the previous quarter 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
1997.
<PAGE>12<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: None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b) Exhibits: None
<PAGE>13
<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: June 10, 1996 /s/ Eric W. Hoffman
-----------------------
Eric W. Hoffman
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> APR-30-1996
<CASH> 8,664
<SECURITIES> 0
<RECEIVABLES> 836,118
<ALLOWANCES> 342,800
<INVENTORY> 0
<CURRENT-ASSETS> 586,671
<PP&E> 662,116
<DEPRECIATION> 422,719
<TOTAL-ASSETS> 950,693
<CURRENT-LIABILITIES> 1,670,410
<BONDS> 0
0
329,880
<COMMON> 45,405
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 950,693
<SALES> 846,789
<TOTAL-REVENUES> 846,789
<CGS> 727,540
<TOTAL-COSTS> 727,540
<OTHER-EXPENSES> 21,804
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (240,106)
<INCOME-TAX> 0
<INCOME-CONTINUING> (240,106)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (240,106)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
