<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 MARCH 31, 1997.
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 past 90 days. Yes X No
--- ---
As of March 31, 1997, 6,824,835 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
------------------------------
<S> <C> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
March 31, 1997 and December 31, 1996............................................ 3
Condensed Consolidated Statements of Operations
Three months ended March 31, 1997 and 1996...................................... 4
Condensed Consolidated Statements of Cash Flows
Three months ended March 31, 1997 and 1996...................................... 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 I - FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements
APPLIED IMAGING CORP. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------------- ---------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,945 $ 12,318
Securities available for sale 2,057 -
Trade accounts receivable, net 2,805 1,454
Inventories 936 831
Prepaid expenses and other assets 296 336
--------------- ---------------
Total current assets 14,039 14,939
Property and equipment, net 1,256 1,234
Other assets, net 299 300
--------------- ---------------
Total assets $ 15,594 $ 16,473
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of bank debt $ 31 $ 33
Accounts payable 1,678 1,679
Accrued expenses 1,287 1,304
Deferred revenue 1,223 1,223
--------------- ---------------
Total current liabilities 4,219 4,239
Long-term liabilities 215 229
--------------- ---------------
Total liabilities 4,434 4,468
Stockholders' equity:
Preferred stock - -
Common stock 7 7
Additional paid-in capital 25,571 25,569
Accumulated deficit (12,965) (12,021)
Deferred compensation (1,086) (1,183)
Cumulative translation adjustment (367) (367)
--------------- ---------------
Total stockholders' equity 11,160 12,005
--------------- ---------------
Total liabilities and stockholders' equity $ 15,594 $ 16,473
=============== ===============
</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
March 31,
--------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
Revenues $ 3,722 $ 2,957
Cost of revenues 1,643 1,556
-------------- --------------
Gross profit 2,079 1,401
-------------- --------------
Operating expenses:
Research and development 1,584 897
Sales and marketing 832 725
General and administrative 688 460
-------------- --------------
Total operating expenses 3,104 2,082
-------------- --------------
Operating loss (1,025) (681)
Other income/(expenses), net 81 21
-------------- --------------
Net loss (944) (660)
============== ==============
Net loss per share $ (0.14)
==============
Pro forma net loss per share $ (0.12)
==============
Weighted average shares outstanding 6,825 5,681
============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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APPLIED IMAGING CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION> Unaudited
Three months ended March 31,
--------------------------------------------
1997 1996
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Net Loss $ (944) $ (660)
Adjustments to reconcile net loss to
net cash provided (used) by operating activities:
Depreciation & Amortization 134 187
Compensation expense on stock options 96 -
Unrealized gain or (loss) 8 7
Other - -
Changes in operating assets and liabilities:
Accounts receivable, net (1,350) (342)
Inventories (104) (47)
Prepaid expenses and other assets 39 (141)
Accounts payable (1) 272
Accrued expenses (17) (241)
Unearned revenue - (207)
------------------ ------------------
Net cash provided/(used) by operating activities: (2,139) (1,172)
------------------ ------------------
Cash flows from investing activities:
Purchases of property and equipment (156) (112)
Purchase of marketable securities (2,057) -
Sales of marketable securities - 968
Other assets 1 15
------------------ ------------------
Net cash provided/(used) by investing activities: (2,212) 871
------------------ ------------------
Cash flows from financing activities:
Bank loan proceeds/(payments), net (24) (32)
Proceeds from stock option exercises 2 37
------------------ ------------------
Net cash provided/(used) by financing activities: (22) 5
------------------ ------------------
Net decrease in cash and cash equivalents (4,373) (296)
Cash and cash equivalents at beginning of period 12,318 2,159
------------------ ------------------
Cash and cash equivalents at end of period $ 7,945 $ 1,863
================== ==================
Supplemental disclosure of cash flow information:
Interest paid during period $ 7 $ 19
================== ==================
</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 1 - Basis of Presentation
- ------------------------------
The accompanying condensed consolidated financial statements include
the accounts of Applied Imaging Corp. and subsidiaries (the "Company") for the
three months ended March 31, 1997 and 1996. 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 months ended March 31, 1997 are not necessarily indicative of results to
be expected for the fiscal year ending December 31, 1997. These condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto, for the year ended December
31, 1996.
NOTE 2 - Inventories ($000's)
- -----------------------------
<TABLE>
<CAPTION>
Balances as of March 31, 1997 December 31, 1996
---------------- -------------------
<S> <C> <C>
Raw materials $ 754 $ 759
Work in process 130 46
Finished goods 52 26
---------------- -------------------
Total $ 936 $ 831
================ ===================
</TABLE>
NOTE 3 - New Accounting Pronouncement
- -------------------------------------
The financial Accounting Standard Board recently issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share." SFAS No. 128
requires the presentation of basic earnings per share ("EPS") and, for companies
with complex capital structures (or potentially dilutive securities, such as
convertible debt, options and warrants), diluted EPS. SFAS No. 128 is effective
for an annual and interim periods ending after December 31, 1997. The Company
does not expect that basic EPS will differ from primary earnings per share.
NOTE 4- 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 period ended March 31, 1996. As
net losses have been reported during this period, 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 and common stock equivalents issued within twelve
months of the initial registration filing have 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. (See Exhibit
11.01)
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, 1996.
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 under "Item one" in the Company's December 31, 1996 10K.
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 ended March 31, 1997 were $3.7 million compared to $3.0 million for the
quarter ended March 31, 1996. The 26% increase over the prior year quarter is
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 ended March 31, 1997 were 44%
compared to 53% for the corresponding prior year period, primarily due to lower
service costs. In addition, the prior period included an inventory provision
relating to a component upgrade.
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 ended March 31, 1997 were $1,584,000 compared to
$897,000 in the corresponding prior year period. The increases over the
corresponding prior year first quarter is primarily due to increased
expenditures for the development of the Company's prenatal screening products.
Such expenses increased as a percentage of revenues to 43% for the quarter ended
March 31, 1997, from 30% in the corresponding prior year period.
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 ended March 31, 1997 were $832,000 compared
to $725,000 in the corresponding prior year period. This increase in selling
expenses is attributable to relative increases in sales volume. As a percentage
of revenues, sales and marketing expenses decreased to 22% in the first quarter
of 1997, from 25% in the corresponding prior year period.
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 increased to $688,000 for the quarter ended
March 31, 1997 from $460,000 in the prior year period. The $228,000 increase
over the prior period quarter is primarily due to increases in the Company's
infrastructure to support the continued growth and public company reporting and
compliance requirements.
7
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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 in the Company's annual report on form 10-K for the fiscal
year ended December 31, 1996.
Due to the factors noted above, as well as the relatively small size of
the Company's initial public offering completed in November 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 March 31, 1997, the Company had cash, cash equivalents and
securities available for sale of $10.0 million, compared to $12.3 million at
December 31, 1996. The reduction in these amounts of approximately $2.3 million
during the three months ended March 31, 1997 was primarily attributable to the
use of $2.1 million for operating requirements and $0.2 million for capital
expenditures.
The Company expects negative cash flow from operations to continue into
at least 1999, as it continues the development of its fetal cell screening
technology, conducts clinical trials required for FDA clearance of the DNA probe
portion of that technology, expands its marketing, sales and customer support
capabilities and adds administrative infrastructure. The Company currently
estimates that its existing capital resources will enable it to sustain
operations until approximately the end of 1998. There can be no assurance,
however, that the Company will not be required to seek capital at an earlier
date. The timing and amount of spending of such capital resources cannot be
accurately determined at this time and will depend on several factors,
including, but not limited to, the progress of its research and development
efforts and clinical investigations, the timing of regulatory approvals or
clearances, competing technological and market developments, commercialization
of products currently under development, and market acceptance and demand for
the Company's products. In addition, as opportunities arise, proceeds may also
be used to acquire businesses, technologies or products that complement the
business of the Company, although the Company is not currently in negotiations
regarding any such acquisitions. The Company may seek to obtain additional funds
through equity or debt financing, collaborative or other arrangements with other
companies and from other sources. After December 1998, the Company will likely
need to raise additional funds through public or private financings. No
assurance can be given that additional financing will be available when needed
or on terms acceptable to the Company. If adequate funds are not available, the
Company could be required to delay development or commercialization of certain
of its products, to license to third parties the rights to commercialize certain
products or technologies that the Company would otherwise seek to commercialize
itself, or to reduce the marketing, customer support or other resources devoted
to certain of its products.
8
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PART II - OTHER INFORMATION
- -----------------------------
Item 6: Exhibits and Reports on Form 8-K
(a) There were no reports on Form 8-K during the quarter ended
March 31, 1997.
(b) (1) Exhibit 11.01 - Computation of Pro Forma Net Loss Per Share
(2) Exhibit 27 - Financial Data Schedule
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: May 12, 1997 By: /s/ Abraham I. Coriat
---------------------------------
Abraham I. Coriat
Chief Executive Officer
10
<PAGE>
Exhibit 11.01
APPLIED IMAGING CORP. AND SUBSIDIARIES
COMPUTATION OF PRO FORMA NET LOSS PER SHARE
(Unaudited, in thousands, except per share data)
Three Months Ended
March 31, 1996
------------------
Weighted average common shares outstanding 1,078,688
Preferred Stock 2,939,006
Common stock equivalents accounted for
under Staff Accounting Bulletin No. 83:
Preferred stock 1,106,217
Employee stock options 217,140
Preferred stock warrants 340,010
------------------
Total weighted average common
shares outstanding 5,681,061
==================
Net loss (660,000)
==================
Pro forma net loss per share $ (0.12)
==================
(1) Includes convertible preferred stock and 110,416 preferred stock warrants
converted into 85,388 shares of common stock, under the treasury-stock
method.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> MAR-31-1996 MAR-31-1997
<CASH> 1,863 7,945
<SECURITIES> 2,029 2,057
<RECEIVABLES> 2,003 3,109
<ALLOWANCES> (160) (304)
<INVENTORY> 927 936
<CURRENT-ASSETS> 6,943 14,039
<PP&E> 2,918 3,459
<DEPRECIATION> 1,681 (2,203)
<TOTAL-ASSETS> 8,542 15,594
<CURRENT-LIABILITIES> 4,228 4,219
<BONDS> 0 0
0 0
14,041 0
<COMMON> 1,690 25,578
<OTHER-SE> (11,640) (14,418)
<TOTAL-LIABILITY-AND-EQUITY> 8,542 15,594
<SALES> 2,261 3,032
<TOTAL-REVENUES> 2,957 3,722
<CGS> 1,170 1,363
<TOTAL-COSTS> 1,556 1,643
<OTHER-EXPENSES> 2,082 3,104
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 19 0
<INCOME-PRETAX> (660) (944)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (660) (944)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (660) (944)
<EPS-PRIMARY> (0.12) (0.14)
<EPS-DILUTED> 0 0
</TABLE>
