<PAGE>
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, 1996.
OR
[_] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________. TO
______________.
COMMISSION FILE NO. 0-21371
APPLIED IMAGING CORP.
(Exact name of registrant as specified in its charter)
Delaware 77-0120490
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2380 WALSH AVENUE, BUILDING B
SANTA CLARA, CALIFORNIA 95051
(Address of principal executive offices, including zip code)
(408) 562-0250
(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 90 days. Yes_____ No X
---
As of November 30, 1996, 6,823,460 shares of the Registrant's Common Stock were
outstanding.
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APPLIED IMAGING CORP.
INDEX
<TABLE>
<CAPTION>
PAGE
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PART I. FINANCIAL INFORMATION
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<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
September 30, 1996 and December 31, 1995.......................... 3
Condensed Consolidated Statements of Operations
Three and nine months ended September 30, 1996 and 1995........... 4
Condensed Consolidated Statements of Cash Flows
Nine months ended September 30, 1996 and 1995..................... 5
Notes to Interim Condensed Consolidated Financial Statements...... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........................... 7
PART II. OTHER INFORMATION
---------------------------
Item 6. Exhibits and Reports on Form 8-K ....................................... 9
Signatures ............................................................. 10
</TABLE>
2
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PART - FINANCIAL INFORMATION
- ----------------------------
ITEM 1. FINANCIAL STATEMENTS
APPLIED IMAGING CORP.AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,460 $ 2,159
Short-term investments 1,025 2,997
Trade accounts receivable, net 1,818 1,501
Inventories 816 880
Prepaid expenses and other current assets 514 140
------------- -------------
Total current assets 5,633 7,677
Property and equipment, net 1,257 1,319
Other assets, net 691 377
------------- -------------
TOTAL ASSETS $ 7,581 $ 9,373
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of bank debt $ 300 $ 471
Accounts payable 1,499 1,141
Accrued revenue 1,354 1,430
Deferred revenue 1,063 1,386
------------- -------------
Total current liabilities 4,216 4,428
Long-term liabilities 221 231
Total liabilities ------------- -------------
4,437 4,659
Stockholders' equity:
Preferred stock; $0.001 par value; 6,000,000 shares
authorized; 3,919,179 shares issued and outstanding,
as of September 30, 1996 and December 31, 1995;
aggregate liquidation preference of $15,766,000 as
of September 30,1996 and December 31, 1995. 4 4
Common stock; $0.001 par value; 20,000,000 shares
authorized; 1,156,660 and 1,067,785 shares issued
and outstanding as of September 30, 1996 and
December 31, 1995, respectively. 1 1
Additional paid-in capital 15,849 14,216
Accumulated deficit (11,064) (9,140)
Deferred compensation (1,279) -
Cumulative translation adjustment (367) (367)
------------- -------------
Total stockholders' equity 3,144 4,714
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,581 9,373
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements
3
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APPLIED IMAGING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
--------------------- ----------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $ 2,707 $ 2,540 $ 8,702 $ 7,755
Cost of revenues 1,322 1,349 4,444 3,960
--------- --------- --------- ---------
Gross profit 1,385 1,191 4,258 3,795
Operating expenses:
Research and development 838 746 2,536 2,126
Sales and marketing 774 634 2,250 1,969
General and administrative 453 449 1,402 1,445
--------- --------- --------- ---------
Total operating expenses 2,065 1,829 6,188 5,540
--------- --------- --------- ---------
Operating loss (680) (638) (1,930) (1,745)
Other income/(expenses), net (9) 24 10 11
--------- --------- --------- ---------
Loss before income taxes (689) (614) (1,920) (1,734)
Provision for income taxes - 1 4 4
--------- --------- --------- ---------
Net loss $ (689) $ (615) $ (1,924) $ (1,738)
========= ========= ========= =========
Pro forma net loss per share $ (0.12) $ (0.34)
========= =========
Weighted average shares outstanding 5,755 5,708
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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APPLIED IMAGING CORP. AND SUBSIDIARIES
CONDEMSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Unaudited
Nine months ended September 30
------------------------------
1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income/(Loss) $ (1,924) $ (1,738)
Adjustments to reconcile net imcome(loss) to
net cash provided (used) by operating activities:
Depreciation & Amortization 580 634
Compensation expense on stock options 194 153
Changes in operating assets and liabilities:
Accounts receivable, net (317) (161)
Inventories 64 (216)
Prepaid expenses and othe current assets (374) 220
Accounts payable 358 (457)
Accrued expenses (76) 166
Unearned revenue (323) 27
------------ ------------
Net cash provided/(used) by operating activities: (1,818) (1,372)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (518) (773)
Purchases of short-term investments - (2,945)
Sales of short-term investments 1,972 -
Other assets 73 143
------------ ------------
Net cash provided/(used) by investing activities: 1,527 (3,575)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank loan proceeds/(payments), net (181) (75)
Proceeds from stock option exercises 160 44
Proceeds from issuance of preferred stock - 4,280
Other assets 387 -
------------ ------------
Net cash provided/(used) by financing activities: (408) 4,249
------------ ------------
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (699) (698)
Cash and cash equivalents at beginnin of period 2,159 2,503
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,460 $ 1,805
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid during period $ 63 $ 68
============ ============
Income taxes paid during period $ 4 $ 4
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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APPLIED IMAGING CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE I - BASIS OF PRESENTATION
- ------------------------------
The accompanying condensed consolidated financial statements include
the accounts of Applied Imaging Corp. and subsidiaries (the Company) for the
three and nine months ended September 30, 1996 and 1995. These financial
statements are unaudited and reflect all adjustments, consisting only of normal
recurring adjustments, which are, in the opinion of management, necessary for a
fair presentation of the Company's financial position, operating results and
cash flows for those interim periods presented. The results of operations for
the three and nine months ended September 30, 1996 are not necessarily
indicative of results to be expected for the fiscal year ending December 31,
1996. These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto, for
the year ended December 31, 1995.
NOTE 2 - PRO FORMA NET LOSS PER SHARE
- -------------------------------------
Pro forma net loss per share amounts are based on the weighted average
number of common shares outstanding during the relevant periods. As net losses
have been reported during the relevant periods, common stock equivalents arising
from outstanding stock options are excluded in that they are anti-dilutive. For
purposes of computing pro forma net loss per share, all preferred stock
outstanding has been assumed to be converted into common stock. This
recapitalization has been retroactively reflected in all periods for which pro
forma net loss per share has been presented.
NOTE 3 - SUBSEQUENT EVENTS
- --------------------------
On November 13, 1996, the Company completed its initial public
offering of common stock, in which it sold 1.65 million shares of common stock
at $7.00 per share, resulting in net proceeds to the Company of $10.7 million.
As a result, the Company believes that its cash resources will be sufficient to
fund the Company's operating and investing requirements through 1998.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
attached condensed consolidated financial statements and notes thereto, and with
the Company's audited financial statements and notes thereto for the fiscal year
ended December 31, 1995.
The information set forth below contains forward-looking statements,
and the Company's actual results could differ materially from those anticipated
in these forward-looking statements as a result of certain factors, including
those set forth below under "Factors That May Affect Future Results" and those
set forth under the title "Risk Factors" in the Company's Prospectus dated
November 7, 1996.
RESULTS OF OPERATIONS
Revenues. The Company's revenues are derived primarily from the sale of
products and software maintenance and instrument service contracts. Revenues
for the quarter and nine months ended September 30, 1996 were $2.7 million and
$8.7 million, respectively, compared to $2.5 million and $7.6 million in the
corresponding prior year periods. The 7% and 12% increases over the prior year
third quarter and nine-month periods, respectively, are primarily attributable
to increased sales of the company's cytogenetic instrumentation products.
Cost of revenues. Cost of revenues includes direct material and labor costs,
manufacturing overhead, installation costs, warranty related expenses and post-
warranty service and application support expenses. Costs of revenues, as a
percentage of total revenues, for the quarter and nine months ended September
30, 1996 were 49% and 51%, respectively, compared to 53% and 51%, respectively,
in the corresponding prior year periods.
Research and development expenses. Research and development expenses consist of
research and development relating to new products as well as software
development costs to upgrade existing products. Research and development
expenses for the quarter and nine months ended September 30, 1996 were $838,000
and $2.5 million, respectively, compared to $746,000 and $2.1 million in the
corresponding prior year periods. The 12% and 19% increases over the
corresponding prior year third quarter and nine month period, respectively,
resulted primarily from increased expenditures for the development of the
Company's prenatal screening system. Such expenses increased as a percentage of
revenues to 31% and 29% for the quarter and nine months ended September 30,
1996, respectively, from 29% and 27% in the corresponding prior year periods.
Sales and marketing expenses. Sales and marketing expenses consist primarily of
salaries, commissions and related travel expenses of the Company's direct sales
force, as well as commissions paid to independent sales agents. Sales and
marketing expenses for the quarter and nine months ended September 30, 1996 were
$774,000 and $2.3 million, respectively, compared to $634,000 and $2.0 million,
respectively, in the corresponding prior year periods. As a percentage of
revenues, sales and marketing expenses increased to 29% and 26% in the third
quarter and first nine months of 1996, respectively, from 25% in both of the
corresponding prior year periods. The increase is primarily due to
discretionary marketing costs in 1996 and increased international selling
expenses.
7
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General and administrative expenses. General and administrative expenses
consist primarily of payroll costs associated with the Company's management and
administrative personnel, travel expenses, and legal and accounting fees.
General and administrative expenses remained relatively unchanged at $453,000
and $1.4 million for the quarter and nine months ending September 30, 1996,
respectively, compared to the corresponding prior year periods. General and
administrative expenses, as a percentage of revenues, decreased to 17% and 16%
for the third quarter and first nine months of 1996, respectively, from 18% and
19%, respectively, in the corresponding prior year periods, primarily due to
the increase in revenues.
Pro forma net loss per share. The Company reported losses per share of $.12 and
$.34, respectively, in the third quarter and first nine months of 1996.
Weighted average shares outstanding used in computing earnings per share were
5.8 million and 5.7 million shares for the third quarter and first nine months
of 1996, respectively.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's quarterly operating results may vary significantly
depending on certain factors, including the effect of announcements of new
products, delays in the introduction or shipment of new products, increased
competition, adverse changes in the economic conditions in any of the several
countries in which the Company does business, a slower growth rate in the
Company's target markets, order deferrals in anticipation of new product
releases, lack of market acceptance of new products, the uncertainty of FDA or
other domestic and international regulatory clearances or approvals, and the
factors set forth under the title "Risk Factors" in the Company's Prospectus
dated November 7, 1996.
Due to the factors noted above, as well as the relatively small size
of the Company's initial public offering completed on November 13, 1996, the
Company's future earnings and stock price may be subject to significant
volatility, particularly on a quarterly basis. Any shortfall in revenues or
earnings from levels expected by security analysts could have an immediate and
significant adverse effect on the trading price of the Company's common stock.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company had cash, cash equivalents and
short-term investments of $2.5 million, compared to $5.2 million at December 31,
1995. The reduction in these amounts of approximately $2.7 million during the
nine months ended September 30, 1996 was primarily attributable to the use of
$1.9 million for operating requirements, $0.5 million for capital expenditures
and $0.3 million for financing requirements.
On November 13, 1996, the Company completed its initial public
offering of common stock, in which it sold 1.65 million shares of common stock
at $7.00 per share, resulting in net proceeds to the Company of approximately
$10.7 million. As a result, the Company believes that its cash resources will
be sufficient to fund the Company's operating requirements through 1998.
8
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PART II - OTHER INFORMATION
- -----------------------------
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibit 11.01 - Statement regarding computation of pro forma net
loss per share.
Exhibit 27.1 - Financial Data Schedule
(b) There were no reports on Form 8-K during the quarter ended September
30, 1996.
9
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APPLIED IMAGING CORP.
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 IMAGING CORP.
(Registrant)
Date: December 16, 1996 By: /s/ Abraham I. Coriat
----------------------------
Abraham I. Coriat
Chief Executive Officer
10
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Exhibit 11.01
APPLIED IMAGING CORP. AND SUBSIDIARIES
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(Unaudited, in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1996
------------------ ------------------
<S> <C> <C>
Weighted average common shares outstandin 1,152,964 1,107,588
Common stock equivalents -
preferred stock 2,939,006 2,939,006
Common stock equivalents accounted for
under staff accounting bulletin no. 83:
Preferred stock 1,106,217 1,106,217
Employee stock options 217,140 217,140
Preferred stock warrants 340,010 340,010
------------------ ------------------
Total weighted average common
shares outstanding 5,755,337 5,709,961
================== ==================
Net loss (689,000) (1,924,000)
================== ==================
Net income (loss) per share $ (0.12) $ (0.34)
================== ==================
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> JUL-01-1996 JAN-01-1996
<PERIOD-END> SEP-30-1996 SEP-30-1996
<CASH> 1,460 1,460
<SECURITIES> 1,025 1,025
<RECEIVABLES> 2,033 2,033
<ALLOWANCES> (215) (215)
<INVENTORY> 816 816
<CURRENT-ASSETS> 5,633 5,633
<PP&E> 3,324 3,324
<DEPRECIATION> (2,067) (2,067)
<TOTAL-ASSETS> 7,581 7,581
<CURRENT-LIABILITIES> 4,216 4,216
<BONDS> 0 0
1,813 1,813
0 0
<COMMON> 14,041 14,041
<OTHER-SE> (12,710) (12,710)
<TOTAL-LIABILITY-AND-EQUITY> 7,581 7,581
<SALES> 2,095 6,717
<TOTAL-REVENUES> 2,707 8,702
<CGS> 968 3,308
<TOTAL-COSTS> 1,322 4,444
<OTHER-EXPENSES> 1,979 6,251
<LOSS-PROVISION> 3 50
<INTEREST-EXPENSE> 29 63
<INCOME-PRETAX> (689) (1,920)
<INCOME-TAX> 0 4
<INCOME-CONTINUING> (689) (1,924)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (689) (1,924)
<EPS-PRIMARY> (0.12) (0.34)
<EPS-DILUTED> (0.12) (0.34)
</TABLE>
