<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 27, 1998
REGISTRATION NO. 333-60345
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
APPLIED IMAGING CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
<TABLE>
<S> <C>
DELAWARE 77-0120490
(STATE OR OTHER JURISDICTION OF INCORPORATION
OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
</TABLE>
2380 WALSH AVENUE, BUILDING B
SANTA CLARA, CALIFORNIA 95051
(408) 562-0250
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
JACK GOLDSTEIN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
APPLIED IMAGING CORP.
2380 WALSH AVENUE, BUILDING B
SANTA CLARA, CALIFORNIA 95051
(408) 562-0250
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
THOMAS C. KLEIN, ESQ.
WILSON SONSINI GOODRICH & ROSATI
PROFESSIONAL CORPORATION
650 PAGE MILL ROAD
PALO ALTO, CA 94304-1050
(650) 493-9300
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, check the following
box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 27, 1998
PROSPECTUS
APPLIED IMAGING CORP.
4,802,360 SHARES OF COMMON STOCK
This Prospectus relates to (i) 4,629,350 shares (the "Shares") of common
stock issued in private transactions in 1997 and 1998, $.001 par value per
share (the "Common Stock") and (ii) a maximum of 173,010 additional shares of
Common Stock (the "Warrant Shares") issuable upon exercise of certain warrants
issued in private transactions in May 1997 (the "Warrants") to purchase Common
Stock of Applied Imaging Corp. (the "Company" or "Applied Imaging"). The Shares
and the Warrant Shares collectively are referred to herein as the "Securities."
The Securities, which are being registered for resale purposes only, may be
offered by certain stockholders of the Company (the "Selling Security Holders")
from time to time in transactions in the over-the-counter market through
Nasdaq, in privately negotiated transactions, through the writing of options on
the Securities, or through a combination of such methods of sale, at fixed
prices that may be changed, at market prices prevailing at the time of sale, at
prices relating to such prevailing market prices or at negotiated prices. The
Selling Security Holders may effect such transactions by selling the Securities
to or through broker-dealers, and such broker-dealers may receive compensation
in the form of discounts, concessions or commissions from the Selling Security
Holders and/or the purchasers of the Securities for whom such broker-dealers
may act as agents or to whom they may sell as principals, or both (which
compensation as to a particular broker-dealer might be in excess of customary
commissions). See "Selling Security Holders" and "Plan of Distribution."
None of the proceeds from the sale of the Securities by the Selling Security
Holders will be received by the Company. The Company has agreed to bear all
expenses (other than selling commissions and fees and expenses of counsel and
other advisers to the Selling Security Holders) in connection with the
registration and sale of the Securities being offered by the Selling Security
Holders. The Company has agreed to indemnify the Selling Security Holders
against certain liabilities, including liabilities under the Securities Act of
1933, as amended (the "Securities Act").
All the Securities were "restricted securities" under the Securities Act
prior to their registration hereunder. The Company sold 796,020 shares of
Common Stock and 173,010 Warrants on May 22, 1997, and 3,833,330 shares of
Common Stock in June and July, 1998, to the Selling Security Holders in private
transactions. Such shares of Common Stock and the 173,010 Warrant Shares which
may be issuable upon exercise of the Warrants (such shares together the
"Securities") are registered hereunder. This Prospectus has been prepared so
that future sales of Common Stock by the Selling Security Holders will not be
restricted under the Securities Act. In connection with any sales, the Selling
Security Holders and any brokers participating in such sales may be deemed to
be "underwriters" within the meaning of the Securities Act. See "Selling
Security Holders."
The Company's Common Shares are traded on the Nasdaq National Market System
under the symbol "AICX." The closing price on October 26, 1998 was $2.56.
-----------
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS," BEGINNING
ON PAGE 4.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1998
<PAGE>
AVAILABLE INFORMATION
As used in this Prospectus, unless the context otherwise requires, the terms
"Applied Imaging" and the "Company" mean Applied Imaging Corp. and its
subsidiaries. The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Reports, proxy
statements and other information filed with the Commission pursuant to the
informational requirements of the Exchange Act may be inspected and copied at
the public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the following regional
offices of the Commission: New York Regional Office, 7 World Trade Center,
Suite 1300, New York, New York 10048; and Chicago Regional Office, Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies
of such materials may be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission maintains a World Wide Web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission. The address of the site is
http://www.sec.gov.
The Company's Common Stock is traded on the Nasdaq National Market. Reports
and other information concerning the Company may be inspected at the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006.
This Prospectus constitutes part of a Registration Statement on Form S-3
(herein, together with all amendments and exhibits thereto, referred to as the
"Registration Statement") filed by the Company with the Commission under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
securities offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the Commission.
For further information, reference is hereby made to the Registration
Statement, copies of which may be obtained from the Public Reference Section
of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, upon
payment of the fees prescribed by the Commission. Statements contained in this
Prospectus as to the contents of any contract or any other document filed, or
incorporated by reference, as an exhibit to the Registration Statement, are
qualified in all respects by such reference.
INFORMATION INCORPORATED BY REFERENCE
The Company's Forms 8-K filed with the Commission on May 22, 1997, July 16,
1998 and July 28, 1998, the Company's Annual Report on Forms 10-K and 10-K/A
for the fiscal year ended December 31, 1997, and the Company's Quarterly
Reports on Forms 10-Q for the quarters ended March 31 and June 30, 1998, are
hereby incorporated by reference, except as superseded or modified herein.
Each document filed subsequent to the date of this Prospectus pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act and prior to the
termination of this offering shall be deemed to be incorporated by reference
into this Prospectus and shall be part hereof from the date of filing of such
document.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of any such
person, a copy of any document described above (other than exhibits). Requests
for such copies should be directed to Applied Imaging Corp. at its principal
offices located at 2380 Walsh Avenue, Building B, Santa Clara, California
95051, telephone (408) 562-0250, attention Investor Relations.
Any statement contained in a document all or a portion of which is
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent
that a statement contained herein or in any other subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not
be deemed to constitute a part of this Prospectus except as so modified, and
any statement so superseded shall not be deemed to constitute part of this
Prospectus.
CYTOSCAN(R) is a registered United States trademark of the Company and
APPLIED IMAGING(TM), WINSCAN(TM) and RxFISH(TM) are trademarks of the Company.
2
<PAGE>
THE COMPANY
Applied Imaging Corp. ("Applied Imaging" or the "Company") was incorporated
in California in July 1986, and reincorporated in Delaware in October 1996.
Applied Imaging designs, develops, manufactures and markets automated clinical
analysis systems used by cytogenetic laboratories for prenatal and other
genetic testing applications. The Company's cytogenetic instrumentation and
reagent business, which has sold systems to over 600 sites in more than 35
countries since its inception, markets computer-based microscopic image
analysis systems that enable laboratories to automate the analysis of
chromosomal abnormalities associated with conditions such as Down's Syndrome.
The Company is also developing a proprietary genetic screening technology
designed to facilitate prenatal screening for genetic abnormalities by
isolating "fetal blood cells" from a routine maternal blood sample. This new
technology is designed to improve current prenatal testing methods by providing
a procedure which will (a) cost less than current invasive tests like
amniocentesis or Chorionic Villus Sampling (each of which cost approximately
$1,200), and (b) return test results to the patient in shorter order (3-4 days
vs. 1-2 weeks). Additionally, the Company's prenatal screening procedure is
performed without the risks of miscarriage or fetal damage associated with such
invasive procedures. The Company also markets specialized imaging systems used
in basic research and pharmaceutical discovery for the real-time analysis of
changes in intracellular ion concentrations, a key method for determining the
function of biologically-active compounds.
According to the Company's own analysis of its primary competitors' publicly
available financial data, Applied Imaging is the leading provider of automated
chromosomal image analysis systems to clinical and research laboratories
worldwide. The Company's CytoVision and GeneVision karyotyping systems are
widely accepted because of their ability to analyze standard human chromosome
preparations using powerful software classification algorithms along with a
specialized cytogenetic user interface. The CytoVision systems also incorporate
the capability to analyze and record images derived from advanced genetic
research assays employing fluorescent in situ hybridization ("FISH") or
comparative genomic hybridization methods. The Company has introduced its first
proprietary assay for color chromosome analysis (called RxFISH), a rapidly
developing area of research interest. Based upon a novel method developed by
scientists at the University of Cambridge, the Company's RxFISH assay develops
a unique fluorescent color banding pattern for human chromosomes that is then
analyzed by the CytoVision software. The future development of specialized
reagent products that can be optimized for use on the Company's installed base
of over 1100 chromosome analysis workstations worldwide is a key aspect of the
Company's business strategy.
The Company's prenatal genetic screening development program is focused on
the isolation of specific fetal cells from a blood sample taken from the
expectant mother using normal venipuncture techniques. This allows prenatal
genetic testing to be performed without the need to obtain a fetal tissue
sample by an invasive procedure, such as amniocentesis, which can pose a
physical risk to the fetus. The Company's proprietary screening technology
incorporates (i) a patented hematological procedure to enrich the concentration
of fetal blood cells found in maternal blood, (ii) a fetal hemoglobin test kit,
(iii) automated image analysis instrumentation to identify fetal blood cells
and (iv) third-party DNA probes to identify certain chromosomal abnormalities
present in these fetal blood cells. This prenatal screening system is expected
to be both safe and accurate because it evaluates actual fetal cells while
posing no direct risk to the fetus. Pre-clinical evaluations last several
months. These evaluations are used to assess product performance in the field.
On the basis of pre-clinical results, it will be determined whether clinical
trials can be started or whether some changes may be required in the
configuration of the product prior to starting the clinical trial. The
Company's prenatal screening products are currently in preclinical evaluation.
In late 1996 and early 1997, the Company submitted three pre-market
notifications to the United States Food and Drug Administration ("FDA") under
Section 510(k) of the Federal Food, Drug and Cosmetic Act ("510(k)"). The first
submission was for a product that enriches the concentration of any one of a
number of cell types from whole blood based on the Company's patented
hematological techniques. The Company received notification in December of 1997
from the FDA that it could market the ENRICH Kit for these purposes. The second
submission was for the automated image analysis instrument which is able to
automatically identify and enumerate nucleated red blood cells from peripheral
blood on a microscope slide. The instrument, called the WINSCAN Automated
Imaging System ("WINSCAN"), presents these cells for operator review, and
further testing and analysis in the prenatal screening procedure. The Company
received notification in June of 1998 from the FDA that it may market WINSCAN
for these purposes. The third submission covers the reagents used to identify
cells containing fetal hemoglobin so that they may be further characterized.
The Company anticipates that sales of its prenatal screening products, if
approved by the FDA, will include its proprietary consumable ENRICH Kit,
WINSCAN and the reagents used to identify fetal hemoglobins. The Company
believes that it can utilize its existing infrastructure, worldwide
distribution capabilities and extensive cytogenetic laboratory relationships to
support the introduction of these prenatal screening products. Furthermore, the
Company believes that its new cell enrichment, identification and image
analysis products may have clinical utility for cancer testing and the prenatal
diagnosis of single gene disorders. Any proposed use of these products for such
indications, however, may incur technical difficulties and would require prior
clearance or approval by the FDA.
3
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RISK FACTORS
An investment in the Securities being offered by this Prospectus involves a
high degree of risk. The following factors, in addition to those discussed
elsewhere in this Prospectus, should be carefully considered in evaluating the
Company and its business prospects before purchasing Securities offered by
this Prospectus.
PRENATAL SCREENING PRODUCTS IN EARLY STAGE OF DEVELOPMENT; NO ASSURANCE OF
SUCCESSFUL DEVELOPMENT OR COMMERCIALIZATION
The Company's prenatal screening products are in an early stage of
development and testing. The isolation, identification, enrichment and
analysis of fetal cells from a maternal blood sample is difficult and poses a
significant technical challenge due to their rarity in maternal blood. The
Company has not yet determined how many fetal cells, if any, can be obtained
using its process. In addition, fetal cells that circulate in maternal blood
are not yet completely understood in terms of their variety and
characteristics, such as longevity in maternal blood and fragility when
exposed to various processes to enrich their concentration in a maternal blood
sample. The Company has, and continues to, refine its processes and test
reformulated enrichment media to determine if concentrations of fetal cells
can be increased, but there can be no assurance that these efforts will prove
successful. In addition, there can be no assurance that the Company's prenatal
screening products will be able to detect fetal cells in amounts sufficient to
allow for the detection and analysis of chromosomal abnormalities. There can
be no assurance that the Company's prenatal screening products will be able to
effectively and accurately detect Down Syndrome or other chromosomal
abnormalities. The development and potential commercialization of the
Company's prenatal screening products will require significant research and
development, substantial investment and clinical testing and regulatory
clearances or approvals. The Company plans to continue to conduct preclinical
testing in order to analyze the feasibility of its prenatal screening
products. Such efforts may disclose significant technical obstacles that need
to be overcome prior to pursuing clinical trials and seeking necessary
regulatory approvals. Such obstacles could have the effect of delaying or
preventing the successful development of the Company's prenatal screening
products. There can be no assurance that the Company will be able to develop
this technology into reliable and effective prenatal screening products, that
required regulatory clearances or approvals for commercialization will be
obtained in a timely manner, or at all, or that the Company's prenatal
screening products or other products under development, if introduced
commercially, will be successful. If the Company is unable to successfully
develop and market its prenatal screening products, the Company's business,
financial condition and results of operations would be materially and
adversely affected. See also "Uncertainty of FDA or Other Regulatory
Clearances or Approvals."
LACK OF CLINICAL DATA
The Company has conducted no clinical trials of its prenatal screening
products pursuant to FDA reviewed protocols. There can be no assurance that
the Company will commence such clinical testing, or once commenced, that such
testing can be completed successfully within the Company's expected time frame
and budget, if at all, or that the Company's products will prove to be
reliable and effective in clinical trials. If clinical trials are initiated,
such trials may disclose significant technical obstacles having the effect of
delaying or preventing the development, testing, regulatory approval and
commercialization of the Company's prenatal screening products. There can be
no assurance that the results of such clinical trials will be consistent with
the Company's limited preclinical results to date or would be sufficient to
obtain regulatory clearance or approval or clinical acceptance. If the Company
is unable to initiate and conclude successfully clinical trials of its
prenatal screening products, the Company's business, financial condition and
results of operations would be materially and adversely affected.
NO ASSURANCE OF CLINICAL ACCEPTANCE
The isolation of fetal cells from maternal blood is a new and novel
development. The clinical acceptance of the Company's prenatal screening
products will depend upon its acceptance by the medical community and third-
party payors as clinically useful, reliable, accurate, and cost-effective
compared to existing and future procedures. Clinical acceptance will depend on
numerous factors, including the establishment of the product's ability to
4
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isolate sufficient numbers of fetal cells during the early stages of
pregnancy, to adequately enrich the concentration of nucleated fetal cells,
and to reliably analyze and detect the presence of chromosomal abnormalities.
Clinical acceptance will also depend on the receipt of regulatory clearances
in the United States and internationally, the availability of third-party
reimbursement and the Company's ability to adequately train laboratory
technicians and cytogeneticists on how to use the prenatal screening products.
In addition, there can be no assurance that the Company's prenatal screening
products will be a preferable alternative to existing procedures such as the
maternal AFP test or the triple test which detect neural tube defects in
addition to chromosomal abnormalities, or that the prenatal screening products
will not be rendered obsolete or noncompetitive by products under development
by other companies. The Company's products are intended to initially screen
for Down's Syndrome and may not compete favorably with widely accepted
methodologies such as amniocentesis or CVS that are highly accurate and
diagnose a broader range of abnormalities from one sample of fetal cells.
Patient acceptance of the Company's prenatal testing products will depend in
part upon physician recommendations as well as other factors, including the
effectiveness, reliability and cost of the procedure as compared to
amniocentesis, CVS and serum marker procedures. Even if the Company's prenatal
screening products are clinically adopted, physicians may elect not to
recommend the procedure unless acceptable reimbursement from health care
payors is available. There can be no assurance that the Company's prenatal
screening products under development will be accepted by the medical community
or that market demand for such products will be sufficient to allow the
Company to achieve profitable operations. Failure of the Company's prenatal
screening procedure, for whatever reason, to achieve significant clinical
adoption or failure of the Company's products to achieve any significant
market acceptance would have a material adverse effect on the Company's
business, financial condition and results of operations.
ACCUMULATED DEFICIT; FUTURE LOSSES
From its inception in July 1986 through June 30, 1998, the Company has
generated an accumulated deficit of approximately $24 million. The Company
expects its operating losses to continue to increase as it continues its
efforts to develop and test its prenatal screening products. There can be no
assurance that its prenatal screening products under development will be
commercially marketed or, if commercially marketed, that the Company will ever
receive sufficient revenue to achieve profitability and failure to do so would
have a material adverse effect on the Company's business, financial condition
and results of operations.
QUARTERLY FLUCTUATIONS
The Company has experienced and expects to continue to experience
significant fluctuations in its quarterly operating results. Factors which may
have an influence on the Company's operating results in a particular quarter
include (i) demand for the Company's products, new product introductions by
the Company or its competitors or transitions to new products; (ii) the
results of preclinical or planned clinical trials and, if ever received, the
timing of regulatory and third-party reimbursement approvals; (iii) the timing
of orders and shipments; (iv) the mix of sales between distributors and the
Company's direct sales force, since sales to distributors are generally at
lower margins than sales derived from the Company's own sales force; (iv)
competition, including pricing pressures; (v) the timing and amount of
research and development expenses, including clinical trial-related
expenditures; (vi) seasonal factors; (vii) foreign currency fluctuation; and
(viii) the delay between incurrence of expenses to develop new products,
including related marketing and service capabilities, and realization of
benefits from such efforts. The Company typically has experienced increased
sales in its first and fourth quarter. The Company believes this pattern of
fluctuating revenues reflects the budgetary spending practices of the
Company's customer base which consists primarily of public and private
cytogenetic laboratories, research organizations and hospitals operating on
annual budgets. There can be no assurance that this trend will continue. In
addition, currency devaluations and slower economic growth in Asia are
expected to decrease demand for the Company's products in Asian markets. Due
to all the foregoing factors, it is likely that in some future quarter the
Company's operating results will be below the expectations of public market
analysts and investors. In such event, the price of the Company's Common Stock
would likely be materially adversely affected.
5
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ADDITIONAL CAPITAL REQUIREMENTS; NO ASSURANCE FUTURE CAPITAL WILL BE AVAILABLE
The Company has expended and will continue to expend substantial funds for
research and development, preclinical testing, planned clinical
investigations, capital expenditures, and manufacturing and marketing of its
products. The timing and amount of spending of such capital resources cannot
be accurately determined at this time and will depend upon several factors,
including the progress of its research and development efforts and planned
clinical investigations, competing technological and market developments,
commercialization of products currently under development, and market
acceptance and demand for the Company's products. Though the Company has no
current need or plans to raise additional funds, in the future, to the extent
required, the Company may seek to obtain additional funds through equity or
debt financing, collaborative or other arrangements with other companies and
from other sources. If additional funds are raised by issuing equity
securities, further dilution to stockholders could occur. There can be no
assurance 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 for itself, or to reduce the marketing, customer support or
other resources devoted to certain of its products each of which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
DEPENDENCE ON PRENATAL SCREENING PRODUCTS; RAPID TECHNOLOGICAL CHANGE AND RISK
OF TECHNOLOGICAL OBSOLESCENCE
The Company is dependent on the successful development and commercialization
of the Company's prenatal screening products. Unfavorable preclinical or
clinical results, failure to obtain regulatory clearances or approvals in a
timely manner, or at all, or failure to gain widespread market acceptance for
the products would have a material adverse effect on the Company's business,
financial condition and results of operations. Although the Company's new
prenatal screening products may reduce the number of amniocentesis procedures
performed (and the consequent number of prenatal cytogenetic studies ordered),
laboratory demand for karyotype analysis, which is the currently recognized
standard, is expected to continue for prenatal confirmatory applications and
for an increasing number of cancer cytogenetic studies. The Company's imaging
system for prenatal screening is expected to be sold to existing and new
laboratory customers or provided via reagent acquisition programs.
The medical device industry, particularly the prenatal testing, diagnostic,
and screening markets, is characterized by rapid and significant technological
change. The sale of the Company's current products is largely dependent upon
the continued use of prenatal testing methodologies that require the location
of fetal cells in metaphase and the karyotyping of chromosomes identified in
the metaphase cells. In addition, the Company's current products require a
testing laboratory to make a large one-time investment, and the availability
of less expensive automated cytogenetic equipment could have a material
adverse effect on the Company's business financial condition, and results of
operations. The Company's future success will depend in large part on the
Company's ability to continue to respond to such changes. There can be no
assurance that the Company will be able to respond to such changes or that new
or improved competing products will not be developed that render the Company's
products obsolete. Product research and development will require substantial
expenditures and will be subject to inherent risks, and there can be no
assurance that the Company will be successful in developing products that have
the characteristics necessary to screen or diagnose particular indications or
that any new product introduced will receive regulatory clearance or approval
or will be successfully commercialized.
UNCERTAINTY OF FDA OR OTHER REGULATORY CLEARANCES OR APPROVALS
The testing, manufacturing, labeling, distribution, sale, and marketing, of
the Company's products are subject to government regulation in the United
States and other countries. The Company's future success will be significantly
dependent upon commercial sales of its prenatal screening products under
development. The Company will not be able to market these prenatal screening
products for commercial use in the United States until the Company obtains
clearance or approval from the FDA for each device and will not be able to
market
6
<PAGE>
such products overseas until it meets the safety and quality regulations of
each foreign jurisdiction in which the Company seeks to sell such products.
Noncompliance with applicable FDA requirements can result in severe
administrative, civil and criminal sanctions.
The Company's Cytoscan products were marketed until 1994 in the United
States pursuant to 510(k) pre-market notifications. A 510(k) pre-market
notification must be supported by appropriate data establishing, to the
satisfaction of the FDA, that a newly developed device is "substantially
equivalent" to a legally marketed device that does not itself require FDA
approval of a premarket approval application ("PMA"). The Company's CytoVision
product is the current model of the Cytoscan product, marketed pursuant to the
original 510(k) filing.
In late 1996 and early 1997, the Company submitted three additional 510(k)
filings. The first submission was for a product that enriches the
concentration of any one of a number of cell types from whole blood based on
the Company's patented hematological techniques. The Company received
notification in December of 1997 from the FDA that it could market the ENRICH
Kit for these purposes. The second submission was for the automated image
analysis instrument which is able to automatically identify and enumerate
nucleated red blood cells from peripheral blood on a microscope slide. The
instrument, called the WINSCAN, presents these cells for operator review, and
further testing and analysis in the prenatal screening procedure. The Company
received notification in June of 1998 from the FDA that it may market WINSCAN
for these purposes. The third submission covers the reagents used to identify
cells containing fetal hemoglobin so that they may be further characterized.
The DNA probe product will require either FDA clearance of a 510(k) with a
tier III level of review or a PMA.
The Company submitted a protocol for clinical trials of the DNA probe
product to the FDA in November of 1996. The Company intends to initiate a
multisite, U.S. and international, clinical trial of the DNA probe product to
detect chromosomal disorders in isolated fetal cells during 1999, based upon
the review of the protocol by the FDA. There can be no assurance regarding the
timing or nature of the FDA response regarding the DNA probe related protocol
or the timing for the commencement of clinical trials. There can be no
assurance that 510(k) clearance for any of the Company's products under
development or any other future product or modification of an existing product
will be granted or that the clearance process will not be unduly lengthy and
subjected to a thorough FDA review. The FDA has stated that the DNA probe
product will require at least a 510(k) tier III level of review. Further, in
its draft guidance for in vitro diagnostic devices utilizing cytogenetic in
situ hybridization technology for the detection of genetic mutations, the FDA
states that when such devices are intended for use as a "stand-alone" for test
reporting based on interphase analysis, they will require a PMA that must be
reviewed and approved by the FDA prior to sales, distribution and marketing of
these products in the United States.
The regulation of medical devices continues to develop and there can be no
assurance that new laws or regulations will not have a material adverse effect
on the Company's business, financial condition and results of operations.
Delays in receipt of clearance or approvals to market its products, failure to
receive these clearances or approvals, the loss of previously received
clearances or approvals, the determination that 510(k) clearance, pre-market
approval or other approval is required for a product being marketed without
such clearance or approval, or failure to comply with existing or future
regulatory requirements could have a material adverse effect on the Company's
business, financial condition and results of operations.
NEED TO COMPLY WITH INTERNATIONAL GOVERNMENT REGULATION
The regulatory review process varies from country to country. Currently, the
Company's products are subject to pre-market approval in several of the
countries that are members of the European Union ("EU") and subject to other
regulatory requirements in those and other countries. In addition, the
regulation of in vitro diagnostic devices ("IVDs") and other medical devices
continues to change. The Company may rely, in some circumstances, on its
international distributors for compliance with regulatory requirements in
those countries where the Company intends to use distributors. Any enforcement
action by regulatory authorities with respect to regulatory noncompliance may
have a material adverse effect on the Company's business, financial condition
and results of operations.
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The time required to obtain approval for sale in foreign countries may be
longer or shorter than that required for FDA clearance, and the requirements
may differ. In addition, there may be foreign regulatory barriers other than
approval for sale.
The Company plans to bring its instruments, when required, into compliance
with the European Parliament's Electromagnetic Compatibility Directive
(89/336/EEC) (the "ECD") and to be entitled to apply the CE mark, with respect
to the ECD, to its instruments. The European Parliament has made a distinction
between Medical Devices ("MDs") and IVDs. The Company's instruments are not
now subject to the requirements or advantages of the Medical Device Directive
(93/42/EEC) (the "Directive"). There can be no assurance, however, that some
or all of the Company's products will not be redefined as MDs and made subject
to this Directive by the EU or its member states, which may have a material
adverse effect on the Company's business, financial condition, and results of
operations. There can be no assurance, moreover, that member states, or any
other European country, will not adopt other statutes or regulations that
require approval to sale the Company products, or that will otherwise have a
material adverse effect on the Company's business, financial condition, or
results of operations.
Although not required by the European Medical Device Directive, most of the
Company's products have the right to affix the CE mark approved, and the
Company is entitled to apply the CE mark. At this time, the CE mark has not
impacted the Company's ability to sell its products in Europe. Depending on
the complexity of the electromagnetic compatibility of each product, the
testing and certification process may take a day to months and cost from the
several hundred to several thousand dollars.
DEPENDENCE UPON PATENTS AND PROPRIETARY TECHNOLOGY; RISK OF INFRINGEMENT
The Company holds two issued U.S. patents that materially relate to the
prenatal screening system, patent no. 5,432,054, issued July 11, 1995 and
entitled "Method for Separating Rare Cells from a Population of Cells," and
patent no. 5,731,156, issued March 24, 1998 and entitled "Use of Anti-
Embryonic Hemoglobin Antibodies to Identify Fetal Cells." These patents expire
in July 2012 and March 2015, respectively. Additionally, the Company relies on
trade secret protection and on its unpatented proprietary know-how in the
development and manufacturing of its products. There can be no assurance that
the Company's trade secrets or proprietary technology will not become known or
be independently developed by competitors in such a manner that the Company
has no practical recourse. Nor can there be any assurance that others will not
develop or acquire equivalent expertise or develop products that render the
Company's current or future products noncompetitive or obsolete. There can be
no assurance that the claims allowed under its patents will be sufficiently
broad to protect what the Company believes to be its proprietary rights. In
addition, there can be no assurance that issued patents will not be disallowed
or circumvented by competitors, or that the rights granted thereunder will
provide competitive advantages to the Company. Companies have filed
applications for, or have been issued patents relating to, products or
processes that may be competitive with certain of the Company's products or
processes. The Company is unable to predict how the courts would resolve
issues relating to the validity and scope of such patents.
The validity and breadth of claims in medical technology patents involve
complex legal and factual questions and, therefore, may be highly uncertain.
No assurance can be given that any issued patent or patents based on pending
patent applications or any future patent application will exclude competitors,
that any of the Company's patents in which it has licensed rights will be held
valid if subsequently challenged or that others will not claim rights in or
ownership of the patents and other proprietary rights held or licensed by the
Company. Furthermore, no assurance can be given that others have not developed
or will not develop similar products, duplicate any of the Company's products
or design around any patents issued to or licensed by the Company or that may
be issued in the future to the Company. Since patent applications in the
United States are maintained in secrecy until patents issue, the Company also
cannot be certain that others did not first file applications for inventions
covered by the Company's pending patent applications, nor can the Company be
certain that it will not infringe any patents that may issue to others on such
applications.
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In addition, patent applications in foreign countries are maintained in
secrecy for a period after filing. Publication of discoveries in the
scientific or patent literature tends to lag behind actual discoveries and the
filing of related patent applications. The Company has not conducted an
extensive search of patents issued to other companies, research or academic
institutions, or others, and no assurances can be given that such patents do
not exist, have not been filed, or could not be filed or issued, which contain
claims relating to the Company's technology, products or processes. Patents
issued and patent applications filed in the United States or internationally
relating to medical devices are numerous and there can be no assurance that
current and potential competitors and other third parties have not filed or in
the future will not file applications for, or have not received or in the
future will not receive, patents or obtain additional proprietary rights
relating to products or processes used or proposed to be used by the Company.
There are pending applications, which if issued with claims in their present
form, might provide proprietary rights to third parties relating to products
or processes used or proposed to be used by the Company. The Company may be
required to obtain licenses to patents or proprietary rights of others.
The medical device industry in general, and the industry segment that
includes products for prenatal diagnostic screening in particular, have been
characterized by substantial competition. Litigation regarding patent and
other intellectual property rights, whether with or without merit, could be
time-consuming and expensive to respond to and could divert the Company's
technical and management personnel. The Company may be involved in litigation
to defend against claims of infringement by the Company, to enforce patents
issued to the Company, or to protect trade secrets of the Company. If any
relevant claims of third-party patents are held as infringed and not invalid
in any litigation or administrative proceeding, the Company could be prevented
from practicing the subject matter claimed in such patents, or would be
required to obtain licenses from the patent owners of each such patent, or to
redesign its products or processes to avoid infringement. In addition, in the
event of any possible infringement, there can be no assurance that the Company
would be successful in any attempt to redesign its products or processes to
avoid such infringement. Accordingly, an adverse determination in a judicial
or administrative proceeding or failure to obtain necessary licenses could
prevent the Company from manufacturing and selling its products, which would
have a material adverse effect on the Company's business, financial condition
and results of operations. Costly and time-consuming litigation brought by the
Company may be necessary to enforce patents issued to the Company, to protect
trade secrets or know-how owned by the Company, or to determine the
enforceability, scope and validity of the proprietary rights of others.
LIMITED MANUFACTURING EXPERIENCE; NO MANUFACTURING EXPERIENCE FOR THE
CONSUMABLE ENRICHMENT KIT
To date, the Company's manufacturing activities have consisted primarily of
the assembly and testing of its cytogenetic products. If the Company obtains
necessary regulatory clearances, registrations and approvals for its prenatal
screening products and such technology is successfully introduced, the Company
will be required to increase its manufacturing capacity. The Company has no
experience in manufacturing the ENRICH Kit, WINSCAN or fetal hemoglobin
identification kit portions of its prenatal screening products. Manufacturers
often encounter difficulties in commencing and increasing production,
including problems involving production yields, adequate supplies of
components, quality control and assurance (including failure to comply with
the FDA's and State of California's GMP regulations, international quality
standards and other regulatory requirements) and shortages of qualified
personnel. Difficulties experienced by the Company in manufacturing could have
a material adverse effect on its business, financial condition and results of
operations. There can be no assurance that the Company will be successful in
commencing manufacture of the prenatal screening products in commercial
quantities, increasing manufacturing capacity or that it will not experience
manufacturing difficulties or product recalls in the future.
NEED TO MANAGE GROWTH
Significant future growth in the Company's sales and expansion in the scope
of its operations, should they occur, may place considerable strain on the
Company's management, financial, manufacturing and other capabilities,
procedures and controls. There can be no assurance that any existing or
additional capabilities, procedures or controls will be adequate to support
the Company's operations or that its capabilities, procedures
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<PAGE>
or controls will be designed, implemented or improved in a timely and cost-
effective manner. Failure to implement, improve and expand such capabilities,
procedures and controls in an efficient manner at an appropriate pace could
have a material adverse effect on the Company's business, financial condition
and results of operations.
SINGLE SOURCE COMPONENTS
Certain components of the Company's prenatal screening products under
development are expected to be in consumable enrichment kit form. The Company
intends to initially subcontract the manufacture of such consumable enrichment
kits; however, given the stage of the product's development, neither internal
nor third-party manufacturing processes have been established. The Company
currently relies on a sole supplier, Vysis, Inc. for the DNA probe component of
its consumable enrichment kit which is ordered by the Company using its
standard purchase order. There can be no assurance that reliable, high volume
commercial supplies of such component can be established at commercially
reasonable costs or that a new supplier could be qualified in a timely manner
if the supply of such component were interrupted. There can be no assurance
that reliable high volume manufacturing of such gradients can be established at
commercially reasonable costs or that a new supplier could be qualified in a
timely manner if the supply of such gradients were interrupted. In addition,
the Company proposes to use DNA probes in a prenatal screening kit under
development, which are currently provided by a limited number of vendors. Such
probes require FDA clearance or approval for marketing for clinical diagnostic
procedures in the United States and may require FDA approval for export. The
DNA probe market is characterized by extensive patent litigation and any court
order with respect to infringement of intellectual property could adversely
affect the supply of available and cost-effective DNA probes. While the Company
believes that other sources for such DNA probes are available, if there were to
be interruptions in obtaining supplies from its present source, the Company
would have to qualify new sources of approved supply.
DEPENDENCE ON KEY DISTRIBUTORS
Outside of North America and the United Kingdom, the Company relies
substantially on independent distributors and sales agents to market and sell
its products. There can be no assurance that distributors and agents will
devote adequate resources to support sales of the Company's products. Moreover,
agreements with a number of its distributors require that the Company indemnify
such distributors against costs, expenses and liabilities relating to
litigation regarding the Company's products and, despite these obligations of
the Company, distributors may decide to reduce or end their selling efforts
until an infringement dispute is resolved or settled.
RELIANCE ON INTERNATIONAL SALES AND OPERATIONS
The Company has significant international operations based in the United
Kingdom employing at June 30, 1998, approximately 47 employees. In 1997, 1996,
and 1995, approximately 59%, 60% and 61% respectively, of the Company's total
revenues were derived from customers and distributors outside of the United
States and Canada. Until such time, if ever, as the FDA clears or approves the
Company's fetal cell screening technology for marketing in the United States,
the Company expects that international sales of cytogenetic products will
continue to account for a significant portion of its revenues. Changes in
overseas economic conditions, currency exchange rates, foreign tax laws, or
tariffs or other trade regulations could have a material adverse effect on the
Company's business, financial condition and results of operations. The
international nature of the Company's business subjects it and its
representatives, agents and distributors to laws and regulations of the foreign
jurisdictions in which it operates or in which its products are sold. The
regulation of medical devices in a number of such jurisdictions, particularly
in the European Community, continues to develop and there can be no assurance
that new laws or regulations will not have a material adverse effect on the
Company's business. The laws of certain foreign countries may not protect the
Company's intellectual property rights to the same extent, as do the laws of
the United States.
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Currently, most of the Company's international sales are denominated in U.S.
dollars or the U.K. pound sterling. The Company has significant operations in
the U.K., and therefore, incurs significant operating expenses denominated in
U.K. pounds. Accordingly, the Company has not historically attempted to reduce
the risk of currency fluctuations by hedging, as changes in exchange rates
between the U.S. dollar and the U.K. pound sterling immaterially affect the
Company's results of operations. However, there can be no assurance that the
Company will not be disadvantaged with respect to its competitors operating in
a foreign country by foreign currency exchange rate fluctuations that make the
Company's products more expensive relative to those of local competitors.
Asian countries, particularly Japan and Korea, continue to experience
banking, currency and other difficulties that are contributing to economic
slowdowns or recessions in those countries. The region does not appear to be
responding quickly to significant efforts to stimulate its economies. If Asian
economies remain stagnant or continue to deteriorate, capital investment by
Asian customers could decrease from current levels. Customers in Japan and
Korea have already canceled or delayed a significant amount of orders for the
Company's products and may cancel or delay additional orders in the future. For
1997, net sales to customers located in Asian countries accounted for 19% of
the Company's total revenues. For the first half of 1998, net sales to
customers located in Asian countries have decreased 4%, as a percent of total
revenues over the corresponding prior year period. The Company cannot predict
if this decrease will continue nor can it predict the magnitude of any such
decrease.
For 1997, net sales to customers located in European countries accounted for
31% of the Company's total sales. In 1998, the Company has not experienced a
material decrease in the percentage of the Company's sales to Europe. The
unification of the European countries, including the standardization of
European currencies, as well as other factors, could contribute to certain
countries in the region experiencing banking, currency and other difficulties
that could, ultimately, impact the Company's sales in Europe.
UNITED STATES AND INTERNATIONAL AVAILABILITY OF THIRD-PARTY REIMBURSEMENT;
HEALTH CARE REFORM AND RELATED MATTERS
In the United States, hospitals, physicians and other health care providers
that purchase medical devices generally rely on third-party payors, and other
sources of reinbursement for health care costs ("Third-Party Payors"), to
reimburse all or part of the cost of the procedure in which the medical device
is being used. Certain Third-Party Payors are moving toward a managed care
system in which they contract to provide comprehensive health care for a fixed
cost per person. The fixed cost per person established by these Third-Party
Payors may be independent of the hospital's cost incurred for the specific case
and the specific devices used. Medicare and other Third-Party Payors are
increasingly scrutinizing whether to cover new products and the level of
reimbursement for covered products. Because the Company's fetal cell screening
technology is currently under development and has not received FDA clearance or
approval, uncertainty exists regarding the availability of third-party
reimbursement for procedures that would use the Company's fetal cell screening
technology. Failure by physicians, hospitals and other potential users of the
Company's products or products currently under development to obtain sufficient
reimbursement from Third-Party Payors for the procedures in which the Company's
products or products currently under the development are intended to be used
could have a material adverse effect on the Company's business, financial
condition and results of operation.
Third-Party Payors that do not use prospectively fixed payments increasingly
use other cost-containment processes that may pose administrative hurdles to
the use of the Company's products and products currently under development. In
addition, Third-Party Payors may deny reimbursement if they determine that the
device used in a treatment is unnecessary, inappropriate, experimental, used
for a non-approved indication or is not cost-effective. Potential purchasers
must determine that the clinical benefits of the Company's products justify the
additional cost or the additional effort required to obtain prior authorization
or coverage and the uncertainty of actually obtaining such authorization or
coverage.
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If the Company obtains the necessary foreign regulatory registrations or
approvals, market acceptance of the Company's products and products currently
under development in international markets would be dependent, in part, upon
the availability of reimbursement within prevailing health care payment
systems. Reimbursement and health care payment systems in international markets
vary significantly by country, and include both government-sponsored health
care and private insurance. There can be no assurance that any international
reimbursement approvals will be obtained in a timely manner, if at all. Failure
to receive international reimbursement approvals could have a material adverse
effect on market acceptance of the Company's products in the international
markets in which such approvals are sought.
The Company believes that in the future reimbursement will be subject to
increased restrictions both in the United States and in international markets.
The Company believes that the overall escalating cost of medical products and
services will continue to lead to increased pressures on the health care
industry, both foreign and domestic, to reduce the cost of products and
services, including the Company's products and products currently under
development. There can be no assurance in either United States or international
markets that third-party reimbursement and coverage will be available or
adequate, that future legislation, regulation or reimbursement policies of
Third-Party Payors will not otherwise adversely affect the demand for the
Company's products or products currently under development or its ability to
sell its products on a profitable basis. The unavailability of Third-Party
Payor coverage or the inadequacy of reimbursement could have a material adverse
effect on the Company's business, financial condition and results of
operations. In addition, fundamental reforms in the health care industry in the
United States and Europe continue to be considered, and there can be no
assurance that such reform will not materially adversely affect the Company's
business, financial condition and results of operations.
HIGHLY COMPETITIVE MARKET
The market for the Company's current cytogenetic products is competitive. The
Company believes that its primary competitors in this market include Perceptive
Scientific Instruments, Inc. (a subsidiary of International Remote Imaging
Systems, Inc.), and Vysis Inc. The principal competitive factors in this market
are the product features offered, ease of use, clarity of output, customer
service capabilities, price and installed base. The Company believes it
competes favorably with regard to these factors.
With respect to its prenatal screening products under development, the
Company is aware of other companies that are in the process of developing
genetic screening products based on competing technologies designed to
specifically isolate fetal blood cells in maternal blood samples. Certain of
these companies have greater research and development, marketing and financial
resources than the Company. These companies include Genzyme Inc. and
Bioseparations Inc. Genzyme, through its Integrated Genetics subsidiary,
specializes in providing genetic testing services, and Bioseparations is a
private research-stage company focusing on fetal cell isolation methods.
The medical diagnostic and biotechnology industries are subject to intense
competition. The Company's prenatal screening technology, if commercially
marketed, will also be subject to intense competition from existing procedures
such as the triple test. There can be no assurance that the Company's prenatal
cell screening technology under development will replace any existing
procedures. The Company expects the principal competitive factors in the
prenatal cell screening market to be risk to the fetus, reliability, accuracy,
cost savings to health care systems and payers and the price of testing.
Certain of the Company's competitors have greater financial and technical
resources and production and marketing capabilities than the Company. There can
be no assurance that these competitors will not succeed in developing
technologies and products that are more effective, easier to use or less
expensive than those which are currently offered or being developed by the
Company or that would render the Company's technology and products obsolete and
noncompetitive. In addition, some of the Company's competitors have
significantly greater experience than the Company in conducting clinical
investigations of new diagnostic products and in obtaining FDA and other
regulatory clearances and approvals of products. Accordingly, the Company's
competitors may succeed in developing and obtaining regulatory approvals for
such products more rapidly than the Company.
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RISK OF REMOVAL FROM THE NASDAQ NATIONAL MARKET
The shares of the Company's Common Stock are quoted on the Nasdaq National
Market. If the Company should continue to experience losses from operations, it
may be unable to maintain the standards for continued quotation on the Nasdaq
National Market, and the shares of Common Stock could be subject to removal
from the Nasdaq National Market. Trading, if any, in the Common Stock would
therefore be conducted on the Nasdaq SmallCap Market, which is a significantly
less liquid market than the Nasdaq National Market. As a result, an investor
could find it more difficult to dispose of the Company's Common Stock. Nasdaq
has recently promulgated new rules which make continued listing of companies on
both the Nasdaq National Market and the Nasdaq SmallCap Market more difficult
and has significantly increased its enforcement efforts with regard to the
standards for such listing. In addition, if the Company's Common Stock were
removed from the Nasdaq National Market and not qualify for listing on the
Nasdaq SmallCap Market, the Company's Common Stock could be subject to the so-
called "penny stock" rules that impose additional sales practice and market
making requirements on broker-dealers who sell and/or make a market in such
securities. Consequently, failure to qualify for listing on, or removal from,
the Nasdaq SmallCap Market, if it were to occur, could affect the ability or
willingness of broker-dealers to sell and/or make a market in the Company's
Common Stock and the ability of purchasers of the Company's Common Stock to
sell their securities in the secondary market. In addition, if the market price
of the Company's Common Stock is less than $5.00 per share, the Company may
become subject to certain penny stock rules even if still quoted on the Nasdaq
SmallCap Market. Such rules may further limit the market liquidity of the
Common Stock and the ability of purchasers in this Offering to sell such Common
Stock in the secondary market.
DEPENDENCE UPON KEY PERSONNEL
The Company's future success depends in significant part upon the continued
service of certain key scientific, technical and management personnel, and its
continuing ability to attract and retain highly qualified scientific, technical
and managerial personnel. Competition for such personnel is intense and there
can be no assurance that the Company can retain its key scientific, technical
and managerial personnel or that it can attract, assimilate or retain other
highly qualified scientific, technical and managerial personnel in the future.
Key employees of the Company include Jack Goldstein, Ph.D., its Chief Executive
Officer, Michael Zoccoli, Ph.D., Vice President of Research and Development,
Leslie G. Grant, Ph.D., Executive Vice President, and Carl Hull, Vice President
Worldwide Marketing. The Company has no key man insurance. The Company has
taken steps to retain its key employees, including the granting of stock
options that vest over time. Additionally, the Company has entered into
employment agreements with Dr. Goldstein and Mr. Hull. The loss of key
personnel especially if without advanced notice, or the inability to hire or
retain qualified personnel could have a material adverse effect upon the
Company's business, results of operations and financial condition.
RISK OF SOFTWARE DEFECTS
The Company's cytogenetic and prenatal screening products currently under
development involve a software component that facilitates the detection of
chromosomal and genetic abnormalities through the interaction of certain
imaging algorithms with the genetic sample under examination. The software,
including any new versions that may be released, may contain undetected errors
or failures. There can be no assurance that, despite testing by the Company and
current and potential customers, errors will not be found in the software
components of the Company's cytogenetic or prenatal screening products,
resulting in loss or delay in market acceptance, which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
PRODUCT LIABILITY RISK; POSSIBLE INSUFFICIENCY OF INSURANCE
The manufacture and sale of the Company's products involves the risk of
product liability claims. Although the Company believes that its insurance
policies carry sufficient coverage limits for its current operations, there can
be no assurance that such limits will continue to be adequate. The Company
intends to evaluate its coverage
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on a regular basis and in connection with the introduction of products
currently under development. Such insurance is expensive and may not be
available on acceptable terms, in sufficient amount of coverage, or at all. A
successful claim brought against the Company in excess of its insurance
coverage would have a material adverse effect on the Company's business,
results of operations and financial condition.
CONTROL BY CERTAIN STOCKHOLDERS
Certain stockholders, including certain executive officers and directors of
the Company and their affiliates, own approximately 54.5% of the outstanding
Common Stock. As a result, these stockholders will, to the extent they act
together, continue to have the ability to exert significant influence and
control over matters requiring the approval of the Company's stockholders,
including the election of a majority of the Company's Board of Directors.
POSSIBLE VOLATILITY OF STOCK
The market prices for securities of medical diagnostic instrument companies
have historically been highly volatile. Announcements of technological
innovations or new products by the Company or its competitors, developments
concerning proprietary rights, including patents and litigation matters,
publicity regarding actual or potential results with respect to products under
development by the Company or others, regulatory developments in both the
United States and foreign countries and public concern as to the safety of new
technologies, changes in financial estimates by securities analysts or failure
of the Company to meet such estimates and other factors, may have a significant
impact on the market price of the Common Stock. In addition, the Company
believes that fluctuations in its operating results may cause the market price
of its Common Stock to fluctuate, perhaps substantially.
POTENTIAL ADVERSE EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE
According to Forms 13D and 13G filed by the Company's stockholders,
approximately 2,951,400 shares of the Company's Common Stock (representing
approximately 25.6% of the total shares outstanding) are held by affiliates and
are therefore subject to volume limitations pursuant to Rule 144. In the event
any of such stockholders cease to be affiliates (for example, by resigning from
the Board of Directors and holding less than 10% of the shares outstanding),
(i) certain of the shares held by such stockholders will be eligible for
immediate resale in the public market and (ii) pursuant to Rule 144(k), certain
of such shares will no longer be subject to the manner of sale and volume
limitations of Rule 144 and will be eligible for resale in the public market
after 90 days from the date such stockholder ceases to be an affiliate. Any
sale of a substantial number of shares may have the effect of depressing the
trading price of the Company's publicly traded stock, which would lower the
Company's value and make it more difficult for the Company to raise capital.
SIGNIFICANT RESTRICTIONS ON CHANGE IN CONTROL
Certain provisions of the Company's Restated Certificate of Incorporation and
Bylaws may have the effect of making it more difficult for a third party to
acquire, or discouraging a third party from attempting to acquire, control of
the Company. Such provisions could limit the price that certain investors might
be willing to pay in the future for shares of the Company's Common Stock.
Certain of these provisions provide for the elimination of the right of
stockholders to act by written consent without a meeting and specify procedures
for director nominations by stockholders and submission of other proposals for
consideration at stockholder meetings. In addition, the Company has adopted a
Preferred Shares Rights Agreement, sometimes referred to as a poison pill,
designed to prevent hostile takeovers not approved by the Board of Directors.
Also, the Company is authorized to issue 6,000,000 shares of undesignated
Preferred Stock. Such shares of Preferred Stock may be issued by the Company
without stockholder approval upon such terms as the Company's Board of
Directors may determine. The issuance of Preferred Stock may have the effect of
delaying, deferring or preventing a change of control of the Company, may
discourage bids for the Company's Common Stock at a premium over the market
price of the Common Stock and may adversely affect the market price of the
voting and other rights of, the holders of
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Common Stock. At present, the Company has no plans to issue any of the
Preferred Stock. The rights of the holders of Common Stock will be subject to,
and may be adversely affected by, the rights of the holders of any Preferred
Stock that may be issued in the future. The issuance of Preferred Stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire a majority of the outstanding voting stock of the
Company. Certain provisions of Delaware law applicable to the Company could
also delay or make more difficult a merger, tender offer or proxy contest
involving the Company, including Section 203 of the Delaware General
Corporation Law, which prohibits a Delaware corporation from engaging in any
business combination with any interested stockholder for a period of three
years unless certain conditions are met.
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USE OF PROCEEDS
In private transactions in 1997 and 1998, the Company sold 4,629,350 shares
of common stock (796,020 and 3,833,330 shares, respectively) at prices of
$5.025 and $3.00 per share, respectively (collectively, the "Private
Placements"). The gross proceeds to the Company from the sale of such shares
were approximately $15,399,990, (plus an additional $1,000,000 if all 173,010
additional shares of common stock are issued upon exercise of warrants
(exercisable at $5.78 per share) issued in the private placement occurring in
May 1997) after deducting the estimated transaction expenses. The Company has
used and intends to continue to use the proceeds of the Private Placements for
research and development costs associated with its prenatal screen product,
capital equipment purchases and working capital and general corporate purposes.
DIVIDEND POLICY
The Company has not paid any cash dividends since its inception and does not
intend to pay any cash dividends in the foreseeable future.
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SELLING SECURITY HOLDERS
The following table provides the names of the Selling Security Holders and
the number of Securities being offered by each of them. After completion of
this offering, assuming all the Shares and Warrant Shares offered hereby are
sold, no Selling Security Holder will hold any securities of the Company
except as set forth in the footnotes below.
<TABLE>
<CAPTION>
NO. OF SHARES NO. OF WARRANT
SELLING SECURITY HOLDERS OFFERED SHARES OFFERED
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<S> <C> <C>
New Enterprise Associates VII, L.P. (1)............ 1,779,105 169,334
Mertz & Moyer (2).................................. 833,333 0
Maril & Co. (3).................................... 500,000 0
Special Situations Fund III, L.P. (4)(5)........... 350,000 0
Paragon Associates (6)............................. 333,333 0
New Venture Partners, IV, L.P. (7)................. 333,332 0
Special Situations Private Equity Fund (5)......... 200,000 0
Glynn Ventures IV L.P. (8)......................... 166,666 0
Special Situations Cayman Fund, L.P. (5)........... 116,666 0
NEA Presidents Fund, L.P. (9)...................... 15,920 3,460
NEA Ventures 1997, Limited Partnership (10)........ 995 216
</TABLE>
- --------
(1) New Enterprise Associates VII, L.P. owns 58,500 shares of Common Stock of
the Company in addition to the Shares and the Warrant Shares offered
hereby. NEA Partners VII, L.P. has voting control of New Enterprise
Associates VII, L.P. As general partners of NEA Partners VII, L.P., Peter
J. Barris, Frank A. Bonsal, Jr., Nancy L. Dorman, Ronald H. Kase, C.
Richard Kramlich, Arthur J. Marks, Thomas C. McConnell, Peter T. Morris,
John M. Nehra, Charles W. Newhall III and Mark W. Perry may be deemed to
have voting control over NEA Partners VII L.P. shares.
(2) Ashford Capital Management, Inc. and Anvil Investment Associates, L.P.
have voting control of 500,000 shares and 333,333 shares, respectively,
of Mertz & Moyer. Theodore H. Ashford has voting control of Ashford
Capital Management, Inc. and Anvil Investment Associates.
(3) Ashford Capital Management, Inc. has voting control of Maril & Co.
Theodore H. Ashford has voting control of Ashford Capital Management,
Inc.
(4) Special Situations Fund III, L.P. owns 605,800 shares of Common Stock of
the Company in addition to the Shares offered hereby.
(5) Austin W. Marxe has voting control of Special Situations Fund III, L.P.,
Special Situations Private Equity Fund and Special Situations Cayman
Fund, L.P.
(6) Paragon Associates owns 336,000 shares of Common Stock of the Company in
addition to the Shares offered hereby. Bradbury Dyer III has voting
control of Paragon Associates.
(7) Howard D. Wolfe Jr. has voting control of New Venture Partners, IV, L.P.
(8) John Glynn has voting control of Glynn Ventures IV L.P.
(9) NEA Presidents Partners, L.P. has voting control of NEA Presidents Fund,
L.P. As general partners of NEA Presidents Partners, L.P., Peter J.
Barris, Frank A. Bonsal, Jr., Nancy L. Dorman, Ronald H. Kase, C. Richard
Kramlich, Arthur J. Marks, Thomas C. McConnell, Peter T. Morris, John M.
Nehra, Charles W. Newhall III and Mark W. Perry may be deemed to have
voting control over the NEA Presidents Partners, L.P. shares.
(10) Lewis B. Van Dyck has voting control of NEA Ventures 1997, Limited
Partnership.
No Selling Security Holder has held any position, office or other material
relationship with the Company or any of its affiliates within the past three
years, other than Thomas C. McConnell, who is a director of the Company and is
(1) a general partner NEA Partners VII, L.P. which is the general partner of
New Enterprise Associates VII, L.P. and (2) a general partner NEA General
Partners, L.P. which is the general partner of NEA Presidents Fund, L.P.; he
disclaims beneficial ownership of the shares held by such entities except to
the extent of his proportionate ownership interest therein.
17
<PAGE>
The Company sold 796,020 shares of Common Stock and 173,010 Warrants on May
22, 1997, 3,333,331 shares of Common Stock on June 2, 1998, 166,666 shares of
Common Stock on July 7, 1998 and 333,333 shares of Common Stock on July 15,
1998 to the Selling Security Holders in private transactions. Such shares of
Common Stock and the 173,010 Warrant Shares which may be issuable upon exercise
of the Warrants are registered hereunder.
Each Selling Security Holder has represented to the Company that it purchased
the Securities for investment, with no present intention of distribution.
However, in recognition of the fact that investors, even though purchasing the
Securities for investment, may wish to be legally permitted to sell their
securities when they deem appropriate, the Company has filed with the
Commission under the Securities Act the Registration Statement with respect to
the resale of the Shares and the Warrant Shares from time to time in the over-
the-counter market through Nasdaq or in privately negotiated transactions,
through the writing of options on the Shares or the Warrant Shares, or through
a combination of the foregoing. The Company has agreed to prepare and file such
amendments and supplements to the Registration Statement as may be necessary to
keep the Registration Statement effective for two years from the date of
closing of the issuance of the Shares.
PLAN OF DISTRIBUTION
The sale of the Securities by the Selling Security Holders may be effected
from time to time in transactions in the over-the-counter market through
Nasdaq, in privately negotiated transactions, through the writing of options on
the Securities, or through a combination of such methods of sale, at fixed
prices, that may be changed, at market prices prevailing at the time of sale,
at prices relating to such prevailing market prices or at negotiated prices.
The Selling Security Holders may effect such transactions by selling the
Securities to or through broker-dealers, and such broker-dealers may receive
compensation in the form of discounts, concessions or commissions from the
Selling Security Holders and/or the purchasers of the Securities for whom such
broker-dealers may act as agents or to whom they may sell as principals, or
both (which compensation as to a particular broker-dealer may be in excess of
customary compensation). Any broker-dealer may act as a broker-dealer on behalf
of one or more of the Selling Security Holders in connection with the offering
of certain of the Securities by the Selling Security Holders.
The Selling Security Holders and any broker-dealers who act in connection
with the sale of the Securities hereunder may be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities Act, and any commissions
received by them and profit on any resale of the Securities as principal might
be deemed to be underwriting discounts and commissions under the Securities
Act. The Company has agreed to indemnify the Selling Security Holders against
certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
Applied Imaging by Wilson Sonsini Goodrich & Rosati, Professional Corporation,
Palo Alto, California. Thomas C. Klein, Secretary of the Company, is a member
of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
EXPERTS
The Consolidated Financial Statements of Applied Imaging Corp. incorporated
by reference in Applied Imaging Corp.'s Annual Report (Form 10-K) for the
fiscal year ended December 31, 1997, have been audited by KPMG Peat Marwick
LLP, independent certified public accountants, as set forth in their report
thereon, which report appears in the Form 10-K.A, and is incorporated herein by
reference. Such Consolidated Financial Statements are incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
18
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED IN CONNECTION
WITH ANY OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN OR INCORPORATED BY REFERENCE IN
THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE SECURITIES OFFERED HEREBY, NOR DO THEY CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------
TABLE OF CONTENTS
---------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information...................................................... 2
Information Incorporated by Reference...................................... 2
The Company................................................................ 3
Risk Factors............................................................... 4
Use of Proceeds............................................................ 14
Dividend Policy............................................................ 14
Selling Security Holders................................................... 15
Plan of Distribution....................................................... 17
Legal Matters.............................................................. 17
Experts.................................................................... 17
</TABLE>
---------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
APPLIED IMAGING CORP.
4,802,360 SHARES OF COMMON STOCK
---------------
PROSPECTUS
---------------
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All of the amounts shown are estimates
except the Securities and Exchange Commission registration fee and the Nasdaq
National Market listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................ $ 3,368
Nasdaq National Market listing fee................................. 17,500
Printing and engraving expenses.................................... 15,000
Legal fees and expenses............................................ 25,000
Accounting fees and expenses....................................... 7,500
Transfer agent and registrar fees and expenses..................... 1,500
Miscellaneous...................................................... 5,132
-------
Total............................................................ $75,000
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits a corporation to
include in its charter documents, and in agreements between the corporation
and its directors and officers, provisions expanding the scope of
indemnification beyond that specifically provided by the current law.
Article VII of the Registrant's Certificate of Incorporation provides for
the indemnification of directors to the fullest extent permissible under
Delaware law.
Article VI of the Registrant's Bylaws provides for the indemnification of
officers, directors and third parties acting on behalf of the corporation if
such person acted in good faith and in a manner reasonably believed to be in
and not opposed to the best interest of the corporation, and, with respect to
any criminal action or proceeding, the indemnified party had no reason to
believe his or her conduct was unlawful.
The Registrant has entered into indemnification agreements with its
directors and executive officers, in addition to indemnification provided for
in the Registrant's Bylaws, and intends to enter into indemnification
agreements with any new directors and executive officers in the future.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1(1) Stock and Warrant Purchase Agreement dated May 22, 1997 between the
Registrant and partnership affiliates of New Enterprise Associates
and exhibits thereto
1.2(2) Stock Purchase Agreement dated June 2, 1998 between the Registrant
and certain investors
1.3(3) Form of Stock Purchase Agreement between the Registrant and certain
investors used in connection with sales of Common Stock on July 7 and
July 15, 1998.
4.1(4) Restated Certificate of Incorporation of Registrant
4.2(5) Bylaws of Registrant, as amended
4.3(4) Form of Common Stock Certificate
4.4(6) Preferred Shares Rights Agreement dated as of May 29, 1998, between
the Registrant and Norwest Bank Minnesota, N.A., including the Form
of Rights Certificate, the Certificate of Designation and the Summary
of Rights attached thereto as Exhibits A, B and C, respectively.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation
23.1 Consent of KPMG Peat Marwick, LLP, independent certified public
accountants
23.2* Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(included in Exhibit 5.1)
24.1* Power of Attorney (included on P. II-3)
</TABLE>
II-1
<PAGE>
- --------
*Previously filed.
(1) Filed as exhibit 10.1 to the Registrant's Report on Form 8-K filed with
the Commission on June 4, 1997 and incorporated herein by reference.
(2) Filed as exhibit 10.1 to the Registrant's Report on Form 8-K filed with
the Commission on June 16, 1998 and incorporated herein by reference.
(3) Filed as exhibit 10.1 to the Registrant's Report on Form 8-K filed with
the Commission on July 28, 1998 and incorporated herein by reference.
(4) Filed as an exhibit to the Registrant's Registration Statement on Form S-1
(File No. 333-06703) and incorporated herein by reference.
(5) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 and incorporated herein by reference.
(6) Filed as an Exhibit to the Registrant's Registration Statement on Form 8-A
filed with the Commission on June 5, 1998 and incorporated herein by
reference.
ITEM 17. UNDERTAKING
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and persons controlling the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer of controlling persons of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to include any
material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material
change to such information in the registration statement.
2. That, for the purpose of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall
be deemed to be part of this registration statement as of the time it
was declared effective.
3. That, for purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
4. For purposes of determining any liability under the Securities Act of
1933, each filing of the Registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in the registration statement shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
5. To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Applied Imaging
Corp. certifies that it has reasonable grounds to believe that it meets all
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Santa Clara, State of California, on this 27th day
of October 1998.
Applied Imaging Corp.
By: /s/ Jack Goldstein
-----------------------------------
JACK GOLDSTEIN
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
SIGNATURE TITLE DATE
/s/ Jack Goldstein President and Chief Executive October 27, 1998
- ------------------------------- Officer and Director
(JACK GOLDSTEIN) (Principal Executive Officer)
Michael J. Braden* Corporate Controller October 27, 1998
- ------------------------------- (Principal Accounting
(MICHAEL J. BRADEN) Officer)
John F. Blakemore, Jr.* Director October 27, 1998
- -------------------------------
(JOHN F. BLAKEMORE, JR.)
Gilbert J. R. McCabe* Director October 27, 1998
- -------------------------------
(GILBERT J. R. MCCABE)
Thomas C. McConnell* Director October 27, 1998
- -------------------------------
(THOMAS C. MCCONNELL)
Andre F. Marion* Director October 27, 1998
- -------------------------------
(ANDRE F. MARION)
Robert C. Miller* Director October 27, 1998
- -------------------------------
(ROBERT C. MILLER)
G. Kirk Raab* Director October 27, 1998
- -------------------------------
(G. KIRK RAAB)
*By: /s/ Jack Goldstein
- -------------------------------
ATTORNEY-IN-FACT
</TABLE>
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1(1) Stock and Warrant Purchase Agreement dated May 22, 1997 between the
Registrant and partnership affiliates of New Enterprise Associates
and exhibits thereto
1.2(2) Stock Purchase Agreement dated June 2, 1998 between the Registrant
and certain investors
1.3(3) Form of Stock Purchase Agreement between the Registrant and certain
investors used in connection with sales of Common Stock on July 7 and
July 15, 1998.
4.1(4) Restated Certificate of Incorporation of Registrant
4.2(5) Bylaws of Registrant, as amended
4.3(4) Form of Common Stock Certificate
4.4(6) Preferred Shares Rights Agreement dated as of May 29, 1998, between
the Registrant and Norwest Bank Minnesota, N.A., including the Form
of Rights Certificate, the Certificate of Designation and the Summary
of Rights attached thereto as Exhibits A, B and C, respectively.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation
23.1 Consent of KPMG Peat Marwick, LLP, independent certified public
accountants
23.2* Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(included in Exhibit 5.1)
24.1* Power of Attorney (included on P. II-3)
</TABLE>
- --------
* Previously filed.
(1) Filed as exhibit 10.1 to the Registrant's Report on Form 8-K filed with
the Commission on June 4, 1997 and incorporated herein by reference.
(2) Filed as exhibit 10.1 to the Registrant's Report on Form 8-K filed with
the Commission on June 16, 1998 and incorporated herein by reference.
(3) Filed as exhibit 10.1 to the Registrant's Report on Form 8-K filed with
the Commission on July 28, 1998 and incorporated herein by reference.
(4) Filed as an exhibit to the Registrant's Registration Statement on Form S-1
(File No. 333-06703) and incorporated herein by reference.
(5) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 and incorporated herein by reference.
(6) Filed as an Exhibit to the Registrant's Registration Statement on Form 8-A
filed with the Commission on June 5, 1998 and incorporated herein by
reference.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Applied Imaging Corp.:
We consent to incorporation by reference in the registration statement to be
filed on October 27, 1998, on Form S-3 of Applied Imaging Corp. of our report
dated February 6, 1998, relating to the consolidated balance sheets of Applied
Imaging Corp. and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1997,
and the related financial statement schedule which report appears in the
December 31, 1997, annual report on Forms 10-K and 10-K/A of Applied Imaging
Corp. We also consent to the reference to our firm under the heading "Experts"
in the registration statement.
/s/ KPMG Peat Marwick LLP
Mountain View, California
October 27, 1998
