<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
10Q
For Quarter Ended: March 31, 1996
Commission File Number 0-14983
APPLIED MICROBIOLOGY, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 11-2653613
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(State or other jurisdiction of (IRS Employer Identification Number)
incorporation of organization)
771 Old Saw Mill River Road, Tarrytown, New York 10591
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(Address of principal executive offices) (Zip Code)
(914) 347-5767
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
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.
Common Stock, Par Value $.005 19,329,965 shares as of March 31, 1996
- ----------------------------- ---------------------------------------
<PAGE>
APPLIED MICROBIOLOGY, INC. AND SUBSIDIARY
INDEX
PART I FINANCIAL INFORMATION PAGE
Item 1 Condensed Consolidated Financial
Statements (Unaudited)
Balance Sheets at March 31, 1996
and June 30, 1995 3 - 4
Statements of Operations for the three
months ended March 31, 1996
and March 31, 1995 and for the
nine months ended March 31, 1996
and March 31, 1995 5
Statement of Stockholders' Equity
for the nine months ended
March 31, 1996 6
Statements of Cash Flows for the nine months
ended March 31, 1996 and
March 31, 1995 7
Notes to Financial Statements 8
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8K 12
SIGNATURES 13
<PAGE>
APPLIED MICROBIOLOGY, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31 June 30
1996 1995
(Unaudited) (Note)
$'000 $'000
----- -----
ASSETS
Current assets:
Cash and cash equivalents 5,959 3,337
Trade accounts receivable less allowance for
doubtful accounts of $14 thousand at March
and at June 2,606 1,836
Inventories 3,655 2,865
Prepayments and other current assets 1,295 694
Due from affiliated companies 1,611 627
------ ------
Total current assets 15,126 9,359
Property and equipment at cost less
accumulated depreciation of $4,287 thousand
at March and $4,096 thousand at June 3,811 3,446
Patent costs and licensed technology at cost
less accumulated amortization of $856
thousand at March and $691 thousand at June 1,516 881
Other assets 80 102
------ ------
TOTAL ASSETS 20,533 13,788
====== ======
<PAGE>
APPLIED MICROBIOLOGY, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(CONTINUED)
March 31 June 30
1996 1995
(Unaudited) (Note)
$'000 $'000
----- -----
LIABILITIES, REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of note payable and lease
obligation 226 149
Accounts payable and accrued expenses 1,803 1,306
Due to affiliated companies 161 191
Other liabilities 154 89
Dividends payable 252 34
Taxes payable 32 257
------- -------
Total current liabilities 2,628 2,026
Note payable and lease obligation 971 770
Deferred taxes payable 350 367
------- -------
TOTAL LIABILITIES 3,949 3,163
------- -------
REDEEMABLE PREFERRED STOCK
$0.01 par value. Issued and outstanding
1,500 shares at March and June, (aggregate
involuntary liquidation value $1,500,000) 1,500 1,500
------- -------
STOCKHOLDERS' EQUITY
Convertible preferred stock, $0.01 par
value, issued and outstanding 630
shares at March and nil at June * --
Common stock, $0.005 par value,
authorized 25,000,000 shares.
Issued and outstanding 19,329,965
at March and 18,176,858 at June 97 91
Additional paid-in capital 48,530 39,500
Accumulated deficit (32,650) (29,958)
Currency translation adjustment (893) (508)
------- -------
TOTAL STOCKHOLDERS' EQUITY 15,084 9,125
------- -------
TOTAL LIABILITIES, REDEEMABLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY 20,533 13,788
======= =======
*Value less than $500.00
Note: The Balance Sheet as of June 30, 1995 has been derived from the
audited consolidated financial statements at that date.
<PAGE>
APPLIED MICROBIOLOGY, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
March 31 March 31
1996 1995 1996 1995
$'000 $'000 $'000 $'000
----- ----- ----- -----
Net Sales 3,760 3,310 9,003 8,369
Other Operating Revenues 1,157 75 1,262 217
------ ------ ------ ------
TOTAL REVENUES 4,917 3,385 10,265 8,586
Cost of Sales (1,518) (1,141) (4,008) (2,759)
------ ------ ------ ------
GROSS PROFIT 3,399 2,244 6,257 5,827
Selling, General & Admin Expenses (3,155) (1,612) (6,411) (3,768)
Research Expenses (505) (760) (1,603) (1,359)
Depreciation and Amortization (184) (173) (542) (481)
------ ------ ------ ------
OPERATING (LOSS)/INCOME (445) (301) (2,299) 219
Interest Income 86 43 204 119
Interest Expense (30) -- (79) (5)
------ ------ ------ ------
(LOSS)/INCOME BEFORE TAX EXPENSE (389) (258) (2,174) 333
Tax Expense (76) (110) (135) (308)
------ ------ ------ ------
NET (LOSS)/INCOME (465) (368) (2,309) 25
------ ------ ------ ------
(LOSS)/EARNINGS PER SHARE ($0.03) ($0.02) ($0.14) *
*Less than $0.005
<PAGE>
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Convertible Common Additional Accumulated Currency Total Common
Preferred Stock Paid In Deficit Translation Shares
Stock Capital Adjustment Outstanding
$'000 $'000 $'000 $'000 $'000 $'000
----- ----- ----- ----- ----- ----- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1995 -- 91 39,500 (29,958) (508) 9,125 18,176,858
289,163 shares of common
stock issued on exercise of
options and warrants -- 2 705 -- -- 707 289,163
15,326 shares of common
stock issued to officer -- * 54 -- -- 54 15,326
895 shares of convertible
preferred stock issued * -- 8,213 -- -- 8,213 --
265 shares of convertible
preferred stock converted
to 848,618 shares of common
stock (*) 4 (4) -- -- -- 848,618
Net loss for the period -- -- -- (2,309) -- (2,309) --
Redeemable preferred stock
dividend -- -- -- (100) -- (100) --
Convertible preferred stock
dividend -- * 62 (283) -- (221) --
Currency translation
adjustments -- -- -- -- (385) (385) --
---- ---- ------ -------- ---- ------ ----------
Balance at March 31, 1996 * 97 48,530 (32,650) (893) 15,084 19,329,965
---- ---- ------ -------- ---- ------ ----------
</TABLE>
* Value less than $500.00
<PAGE>
APPLIED MICROBIOLOGY, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
March 31
1996 1995
$'000 $'000
----- -----
Cash flows from operating activities:
Net (loss)/income (2,309) 25
Adjustments to reconcile net (loss)/income
to net cash used in operating activities:
Depreciation and amortization 542 481
Other non-cash items 96 --
Changes in assets and liabilities:
Increase in trade accounts receivable (843) (3)
Increase in inventories (921) (526)
Increase in other assets (651) (146)
Increase in amounts due from
affiliated companies (1,011) (536)
(Decrease)/increase in taxes payable (207) 214
Increase/(decrease) in accounts payable
and accrued expenses 524 (132)
Decrease in amounts due to
affiliated companies (32) (255)
Increase in other liabilities 69 21
------ ------
Net cash used in operating activities (4,743) (857)
------ ------
Cash flows from investing activities:
Acquisitions of property and equipment (880) (999)
Patent costs and licensed technology (800) (255)
------ ------
Net cash used in investing activities (1,680) (1,254)
------ ------
Cash flows from financing activities:
Dividends paid on redeemable preferred
stock (102) (87)
Note payable proceeds 35 --
Capital lease proceeds 389 --
Note payable repayments (8) (7)
Capital lease obligation repayments (138) --
Proceeds from issuance of convertible
preferred stock 8,213 --
Proceeds from issuance of common stock 707 47
------ ------
Net cash provided by/(used in) financing activities 9,096 (47)
------ ------
Net increase/(decrease) in cash and cash equivalents 2,673 (2,158)
Cash and cash equivalents at beginning of period 3,337 5,048
Effect of exchange rate movement (51) 43
------ ------
Cash and cash equivalents at end of period 5,959 2,933
====== ======
Supplementary disclosure of cash flow information:
Interest paid 79 5
Tax paid 337 83
See notes to condensed consolidated financial statements.
<PAGE>
APPLIED MICROBIOLOGY, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1996
Note A Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial statement reporting and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the nine
month period ended March 31, 1996 are not necessarily indicative of
the results that may be expected for the year ending June 30, 1996.
For further information, refer to the consolidated financial
statements and notes thereto, included in the Company's annual report
on Form 10-K for the year ended June 30, 1995.
Note B Inventories
The components of inventory consist of the following:
March 31 June 30
1996 1995
$'000 $'000
----- -----
Raw materials 145 144
Work in progress 2,122 1,262
Finished products 1,388 1,459
----- -----
3,655 2,865
----- -----
Note C Redeemable Preferred Stock dividends payable as of March 31, 1996 are
approximately $33,000 and Convertible Preferred Stock Dividends
payable as of March 31, 1996 are approximately $219,000.
<PAGE>
APPLIED MICROBIOLOGY, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1996
Note D Earnings per share
Earnings per share for the three months and the nine months ended
March 30, 1995 and March 30, 1996 is computed based on the weighted
average number of shares actually outstanding plus the shares that
would be outstanding assuming the exercise of dilutive stock options,
all of which are considered to be common stock equivalents. The
number of shares that would be issued from the exercise of stock
options and warrants has been reduced by the number of shares that
could have been purchased from the proceeds at the average market
price of the Company's stock. No such common stock equivalents are
included in the computation of average shares outstanding for the
three months and nine months ended March 30, 1995 and March 30, 1996
because the effect of such inclusion would be to increase earnings per
share.
3 months ended 9 months ended
March 31 March 31
1996 1995 1996 1995
No. of Shares No. of Shares
------------- -------------
Average shares outstanding 18,839,066 18,174,358 18,432,339 18,165,397
Net effect of dilutive stock
options -- -- -- --
---------- ---------- ---------- ----------
Total average shares 18,839,066 18,174,358 18,432,339 18,165,397
---------- ---------- ---------- ----------
$'000 $'000 $'000 $'000
----- ----- ----- -----
Net (loss)/income (465) (368) (2,309) 25
Preferred stock dividend (182) (32) (383) (96)
---------- ---------- ---------- ----------
Net loss attributable to
common stockholders (647) (400) (2,692) (71)
---------- ---------- ---------- ----------
Loss per share of
common stock ($0.03) ($0.02) ($0.14) --
Note E Convertible Preferred Stock Offering
On October 20, 1995 the Company completed an $8.95 million private
placement of Convertible Preferred Stock (895 shares). After
expenses, the Company netted $8.2 million. The conversion rate is
based on a number of factors, including, but not limited to, the date
of conversion, the liquidation preference of the Preferred Stock, and
the price of the Common Stock prior to the date of conversion. As of
March 30, 1996, 265 shares of Convertible Preferred Stock had been
converted into 848,618 shares of Common Stock. Any outstanding shares
of Convertible Preferred Stock will automatically be converted into
Common Stock on October 13, 1998. The Company has registered the
Common Stock issuable upon conversion. In connection with this
private placement, the Company also issued a Warrant to purchase
136,381 shares of Common Stock at $6.30 per share.
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Revenues
Net Sales in the quarter ended March 31, 1996 increased from the corresponding
period in 1995 by 14%, to $3.8 million and in the nine months by 8% to $9.0
million. These increases are largely due to higher sales of Direct-Set (dairy
starter cultures). Increases in Other Operating Revenues reflect a $1 million
milestone payment due from Astra Merck, Inc. AMBI and Astra Merck, Inc. are
collaborating on the development of a nisin-based antimicrobial compound which
is being tested as a treatment for ulcer disease through the eradication of the
bacterium Helicobacter pylori.
The percentage of sales included in the total by product is:
% of sales in quarter % change
1996 1995 96 vs 95
---- ---- --------
Nisaplin (food preservative) 79.0 81.7 9.8
Ambicin (animal hygiene product) 1.5 6.9 (74.7)
Direct-Set (dairy starter cultures) 13.5 7.3 109.9
Other 6.0 4.1 68.4
----- ----- -----
100.0 100.0 13.6
----- ----- -----
% of sales in nine months % change
1996 1995 96 vs 95
---- ---- --------
Nisaplin 72.4 78.8 (1.2)
Ambicin 3.7 4.6 (14.5)
Direct-Set 16.0 8.3 106.3
Other 7.9 8.3 4.2
----- ----- -----
100.0 100.0 7.6
----- ----- -----
Despite the impact of a reduction in inventory by one of the Company's
distributors that significantly affected sales of Nisaplin in the first quarter,
sales have recovered and are now almost equal to levels attained through the
first nine months of last year. Sales of Ambicin, which are down for the
quarter and first nine months, reflect a change in ordering patterns from major
customers, and are not expected to be down from last year s sales by fiscal
year-end. Sales of Direct Set continue to benefit from increased efforts in the
UK, Ireland and US markets.
Cost of Sales
Cost of sales as a percentage of sales for the quarter and the first nine months
ended March 31, 1996 have increased over last year largely as a result of having
a higher proportion of sales in the lower margin dairy (Direct-Set) products.
Selling, General, and Administrative Expenses ("S,G&A")
S,G&A expenses increased by $1.5 million for the three month period and $2.6
million for the nine months ended March 31, 1996. The increase largely
represented pre-launch investment spending necessary for the introduction of the
Company's new Cardia Salt Alternative product, which was launched April 1st.
<PAGE>
Research Expenses
Research expenses declined by $0.3 million for the quarter (down 34%) but
increased in the nine month period by $0.2 million (18%) compared to the same
periods last year. The year-to-date increase is a result of the Company's
continued efforts in support of pharmaceutical research projects.
(Loss)/Income Before Tax Expenses
The Company recorded a loss before tax expense of $0.4 million in the quarter
ended March 31, 1996, compared with a loss of $0.3 million in the quarter ended
March 31, 1995. In the nine months ended March 31, 1996, the Company recorded a
loss before tax expense of $2.2 million, compared with income of $0.3 million in
the nine months ended March 31, 1995. These losses are due to the
aforementioned planned spending increases in S,G&A.
Tax Expense
The Company has a tax expense in the quarter and in the nine months ended March
31, 1996 despite having a loss before tax. This is a result of tax payable on
the profits of its UK subsidiary.
Previously, it was reported that the Company's subsidiary, Aplin & Barrett Ltd.
("A&B") had been in dispute with the UK tax authorities about the
appropriateness of certain tax deductions claimed. This dispute has now been
resolved, with the authorities not disputing A&B s position.
Financial Condition
As of March 31, 1996 the Company had working capital of $12.5 million, including
a cash balance of $6.0 million, compared to June 30, 1995 working capital of
$7.3 million, including a cash balance of $3.3 million. The increase in working
capital and cash balance is primarily the result of the private placement in
October, 1995 of $8.95 million of Convertible Preferred Stock, which netted the
Company $8.2 million in cash. Augmenting this increase in cash were warrant and
option conversions of $0.7 million and lease financing of $0.4 million. Major
components of cash outflows were the net loss of $2.3 million, added working
capital requirements of $2.6 million, and equipment costs and license fees of
$1.7 million.
The Company signed an agreement with Nippon Shoji Kaisha, Ltd. (NSK) of Osaka,
Japan in March, 1996 in which NSK acquired the right to develop and market nisin
in Japan and certain Asian countries for the treatment of hospital-acquired
infections and infections of the colon. Under the agreement, NSK purchased $2
million of newly-issued common stock of AMBI at $6.34 per share, a 31% premium
to the then existing price of the stock. In addition, NSK loaned $2 million to
AMBI that, under certain circumstances can be repaid in AMBI common stock valued
at market price at the time of repayment, and agreed to make research and
milestone payments to AMBI. Upon commercialization, NSK will pay royalties to
AMBI. AMBI issued to NSK warrants to purchase 315 thousand shares of AMBI
common stock as part of this transaction.
Working capital and cash balances do not include the receipt of funds as a
result of the drug development agreement with NSK totaling $4.5 million, (which
in addition to the above stock and loan receipts included a $500 thousand
research and development payment), and a $1 million milestone payment from Astra
Merck, both of which were received in April, 1996.
Because the Company plans to continue investment spending necessary to support
both the launch of Cardia Salt Alternative and pharmaceutical drug development
programs, it is anticipated that the Company will report a loss for the current
fiscal year.
<PAGE>
PART II - OTHER INFORMATION
Item 6 - Exhibits and Report on Form 8-K
No exhibits are filed with this report.
No reports were filed on Form 8-K during the three months ended March 31, 1996.
<PAGE>
APPLIED MICROBIOLOGY, INC. AND SUBSIDIARY
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.
APPLIED MICROBIOLOGY, INC.
--------------------------
Registrant
Date: May 13, 1996 By: /s/ Fredric D. Price
-------------------------------------
Fredric D. Price
President and Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 5,959
<SECURITIES> 0
<RECEIVABLES> 2,620
<ALLOWANCES> 14
<INVENTORY> 3,655
<CURRENT-ASSETS> 15,126
<PP&E> 8,098
<DEPRECIATION> 4,287
<TOTAL-ASSETS> 20,533
<CURRENT-LIABILITIES> 2,628
<BONDS> 971
<COMMON> 97
1,500
0
<OTHER-SE> 14,987
<TOTAL-LIABILITY-AND-EQUITY> 20,533
<SALES> 3,762
<TOTAL-REVENUES> 4,917
<CGS> 1,518
<TOTAL-COSTS> 5,362
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30
<INCOME-PRETAX> (389)
<INCOME-TAX> 76
<INCOME-CONTINUING> (465)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (465)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
