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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998.
OR
[_] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________. TO
______________.
COMMISSION FILE NO. 0-21371
APPLIED IMAGING CORP.
(Exact name of registrant as specified in its charter)
Delaware 77-0120490
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2380 WALSH AVENUE, BUILDING B
SANTA CLARA, CALIFORNIA 95051
(Address of principal executive offices, including zip code)
(408) 562-0250
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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As of March 31, 1998, 7,670,703 shares of the Registrant's Common Stock were
outstanding.
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APPLIED IMAGING CORP.
INDEX
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Page
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
Condensed Consolidated Balance Sheets
March 31, 1998 and December 31, 1997.................... 3
Condensed Consolidated Statements of Operations
Three months ended March 31, 1998 and 1997............. 4
Condensed Consolidated Statements of Cash Flows
Three months ended March 31, 1998 and 1997.............. 5
Notes to Interim Condensed Consolidated
Financial Statements.................................... 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................. 8-9
PART II. OTHER INFORMATION
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Item 2. Changes in Securities and Use of Proceeds
From the date of the sale of securities under the Company's
Registration Statement on Form S-1 (File No. 333-06703), which was declared
effective on November 7, 1996 (the "Offering"), through March 31, 1998, the
Company has used all proceeds of the Offering.
Item 6. Exhibits and Reports on Form 8-K.............................. 10
Signatures.................................................... 11
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2
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PART I - FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
APPLIED IMAGING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
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<CAPTION>
March 31, December 31,
1998 1997
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(Unaudited)
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ASSETS
Current assets:
Cash and cash equivalents.............. $ 1,020 $ 2,918
Short term investments................. 4,954 5,460
Trade accounts receivable, net......... 2,818 3,358
Inventories............................ 840 849
Prepaid expenses and other assets...... 651 268
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Total current assets........... 10,283 12,853
Property and equipment, net.................... 1,849 1,793
Other assets, net.............................. 83 68
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TOTAL ASSETS................... $ 12,215 $ 14,714
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of bank debt........... $ 725 $ 333
Accounts payable....................... 1,438 1,754
Accrued expenses....................... 2,340 2,434
Deferred revenue....................... 1,062 1,161
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Total current liabilities...... 5,565 5,682
Long-term liabilities.................. 83 89
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Total liabilities.............. 5,648 5,771
Stockholder' equity:
Common stock........................... 8 8
Additional paid-in capital............. 29,642 29,636
Deferred compensation.................. (704) (801)
Other comprehensive income............. (367) (367)
Accumulated deficit.................... (22,012) (19,533)
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Total stockholders' equity..... 6,567 8,943
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY........ $ 12,215 $ 14,714
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See accompanying notes to condensed consolidated financial statements.
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APPLIED IMAGING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
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<CAPTION>
Three months ended
March 31,
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1998 1997
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Revenues.............................................. $ 2,674 $ 3,722
Cost of revenues...................................... 1,241 1,643
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Gross profit.................................. 1,433 2,079
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Operating expenses:
Research and development...................... 1,923 1,584
Sales and marketing........................... 1,329 832
General and administrative.................... 727 688
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Total operating expenses.............. 3,979 3,104
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Operating loss........................ (2,546) (1,025)
Other income/(expense), net........................... 67 81
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Net loss...................................... $(2,479) $ (944)
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Net loss per share - basic and diluted................ $ (0.32) $ (0.14)
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Weighted average shares outstanding................... 7,668 6,825
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See accompanying notes to condensed consolidated financial statements.
4
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APPLIED IMAGING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
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<CAPTION>
Three months ended March 31,
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1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss.................................................................. $(2,479) $ (944)
Adjustments to reconcile net loss
to net cash provided (used) by operating activities:
Depreciation and Amortization........................................ 216 134
Compensation expense on stock options................................ 97 96
Unrealized gain...................................................... -- 8
Changes in operating assets and liabilities:
Accounts receivable, net......................................... 540 (1,350)
Inventories...................................................... 9 (104)
Prepaid expenses and other assets................................ (384) 39
Accounts payable................................................. (316) (1)
Accrued expenses................................................. (94) (17)
Deferred revenue................................................. (99) --
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Net cash provided/(used) by operating activities:.................... (2,510) (2,139)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....................................... (271) (156)
Purchase of marketable securities......................................... (2,057)
Sales of marketable securities............................................ 506 --
Other assets.............................................................. (15) 1
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Net cash provided/(used) by investing activities:.................... 220 (2,212)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Bank loan proceeds/(payments), net........................................ 386 (24)
Proceeds from stock options exercises..................................... 6 2
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Net cash provided/(used) by financing activities:.................... 392 (22)
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NET DECREASE IN CASH AND CASH EQUIVALENTS..................................... (1,898) (4,373)
Cash and cash equivalents at beginning of period.............................. 2,918 12,318
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CASH AND CASH EQUIVALENTS AT END OF PERIOD.................................... $ 1,020 $ 7,945
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid during period.......................................... $ 28 $ 7
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</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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APPLIED IMAGING CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE I - BASIS OF PRESENTATION
- ------------------------------
The accompanying condensed consolidated financial statements include the
accounts of Applied Imaging Corp. and subsidiaries (the "Company") for the three
months ended March 31, 1998 and 1997. These financial statements are unaudited
and reflect all adjustments, consisting only of normal recurring adjustments,
which are, in the opinion of management, necessary for a fair presentation of
the Company's financial position, operating results and cash flows for those
interim periods presented. The results of operations for the three months
ended March 31, 1998 are not necessarily indicative of results to be expected
for the fiscal year ending December 31, 1998. These condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto, for the year ended December 31, 1997.
NOTE 2 - INVENTORIES (IN THOUSANDS)
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Balances as of March 31, 1998 December 31, 1997
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Raw materials........... $ 800 $ 721
Work in process......... 28 85
Finished goods.......... 12 43
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Total................... $ 840 $ 849
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NOTE - 3 EARNINGS (LOSS) PER SHARE
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The company has reported losses per share in accordance with the Financial
Accounting Standards Board (FASB) Statement of Financial Accounting Standards,
(SFAS) No. 128 "Earnings Per Share." SFAS No. 128 requires the presentation
of basic earnings per share ("EPS") and, for companies with complex capital
structures (or potentially dilutive securities, such as convertible debt,
options and warrants), diluted EPS.
There were no reconciling items of the numerators and denominators of the
basic and diluted EPS computation. Securities excluded from the computation of
EPS because their effect on EPS was antidilutive, but could dilute basic EPS in
future periods are as follows:
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Balance as of March 31, 1998 March 31, 1997
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<S> <C> <C>
Options................ 1,144,400 529,750
Warrants............... 681,747 508,734
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Total................... 1,826,147 1,038,484
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6
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NOTE - 4 RECENT ACCOUNTING PRONOUNCEMENTS
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In June 1997, the FASB issued FAS 131, "Disclosures about Segments of an
Enterprise and Related Information". The Statement requires that a public
business enterprise report financial and descriptive information about its
reportable operating segments on the basis that is used internally for
evaluating segment performance and deciding how to allocate resources to
segments.
This Statement is effective with fiscal 1998 financial statements.
Comparative information for interim periods in the initial year of application,
1998, is to be reported in financial statements for the interim periods in the
second year of application, 1999.
Effective January 1, 1998 the Company adopted the provisions of Statement
of Financial Accounting Standards (FASB) No. 130, "Reporting of Comprehensive
Income". FASB No. 130 establishes standards for the display of comprehensive
income and its components in a full set of financial statements. Comprehensive
income includes all changes in equity during a period except those resulting
from the issuance to shares of stock and distributions to stockholders. There
were no material differences between net loss and comprehensive loss during the
quarters ended March 31, 1998 and 1997.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the attached
condensed consolidated financial statements and notes thereto, and with the
Company's audited financial statements and notes thereto for the fiscal year
ended December 31, 1997.
The information set forth below contains forward-looking statements,
(designated by an *), and the Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth under "Item one" in the Company's
annual report on form 10-K for the fiscal year ended December 31, 1997.
RESULTS OF OPERATIONS
Revenues. The Company's revenues are derived primarily from the sale of
products, grants, and software maintenance and instrument service contracts.
Revenues for the three months ended March 31, 1998 were $2.7 million to $3.7
million the corresponding period in the prior year. The 28% decrease over the
prior year quarter is primarily attributable to lower sales of the Company's
cytogenetic instrumentation products sold into Asia.
Cost of revenues. Cost of revenues includes direct material and labor costs,
manufacturing overhead, installation costs, warranty related expenses and post-
warranty service and application support expenses. Costs of revenues, as a
percentage of total revenues, for the three months ended March 31, 1998 were 46%
compared to 44% for the corresponding prior year. The increase is primarily due
to lower absorption of labor and overhead costs and product mix.
Research and development expenses. Research and development expenses for the
three months ended March 31, 1998 were $1.9 million or 72% of total revenues
compared to $1.6 million or 43% of total revenues for the comparative prior year
period. The increase over the prior year period is primarily due to the
increased expenditures for salaries and consulting costs associated with the
development of the Company's prenatal screening products and development costs
for the Company's cytogentic instrument business.
Sales and marketing expenses. Sales and marketing expenses for the three
months ended March 31, 1998 were $1.3 million increasing $497,000 over the
corresponding prior year period. The increases is primarily due to increased
costs for salaries, travel and promotions. As a percentage of revenues, sales
and marketing expenses were 50% of total revenues for the three months ended
March 31, 1998 compared to 22% in the corresponding prior year period.
General and administrative expenses. General and administrative expenses for
the three months ended March 31, 1998 were $727,000 compared to $688,000 for the
three months ended March 31, 1997. As a percentage of revenue general and
administrative costs were 27% of total revenues compared to 18% in the prior
year period.
8
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FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's operating results may vary significantly depending on certain
factors, including the effect of delays in its research and development program,
adverse results in its clinical studies, delays in the introduction or shipment
of new products, increased competition, adverse changes in the economic
conditions in any of the several countries in which the Company does business, a
slower growth rate in the Company's target markets, order deferrals in
anticipation of new product releases, lack of market acceptance of new products,
the uncertainty of FDA or other domestic and international regulatory clearances
or approvals, and the factors set forth in the Company's annual report on form
10-K for the fiscal year ended December 31, 1997.
Due to the factors noted above, the Company's future earnings and stock
price may be subject to significant volatility, particularly on a quarterly
basis. Any shortfall in revenues or earnings from levels expected by security
analysts could have an immediate and significant adverse effect on the trading
price of the Company's common stock.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had cash, cash equivalents and securities
available for sale of slightly under $6.0 million and working capital of $4.7
million. Cash used by operations for the three months ended March 31, 1998 was
$2.5 million compared to $2.1 million for the corresponding prior year period.
The increase in cash used in operations is primarily due to higher losses as
explained above. In addition, the Company consumed $271,000 for purchases of
capital equipment compared to $156,000 for the prior year period. Partially
offsetting these cash uses was net proceeds of $392,000 from financing
activities which were principally due to increases in the Company's U.K.
subsidiary's line of credit.
The Company expects negative cash flow from operations to continue into at
least 1999, as it continues the development of its fetal cell screening
technology, conducts clinical trials required for FDA clearance of the DNA probe
portion of that technology, expands its marketing, sales and customer support
capabilities and adds administrative infrastructure.* The Company currently
estimates that its existing capital resources will enable it to sustain
operations through 1998.* There can be no assurance, however, that the Company
will not be required to seek capital at an earlier date. The timing and amount
of spending of such capital resources cannot be accurately determined at this
time and will depend on several factors, including but not limited to, the
progress of its research and development efforts and clinical investigation, the
timing of regulatory approvals or clearances, competing technologies or products
that complement any such acquisitions.* For these reasons, the Company plans to
raise additional capital in the current fiscal year through equity or debt
financing, collaborative or other arrangements with other companies, or from
other sources.* No assurance can be given that additional financing will be
available when needed or on terms acceptable to the Company. If adequate funds
are not available, the Company could be required to delay development or
commercialization of certain of its products, to license to third parties the
rights to commercialize certain products or technologies that the Company would
otherwise seek to commercialize itself, or to reduce the marketing, customer
support or other resources devoted to certain of its products.
9
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PART II - OTHER INFORMATION
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ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
From the date of the sale of securities under the Company's Registration
Statement on Form S-1 (File No. 333-06703), which was declared effective on
November 7, 1996 (the "Offering"), through March 31, 1998, the Company has used
all proceeds of the Offering.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit
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Exhibit 27.1 Financial Data Schedule
There were no reports on Form 8-K during the quarter ended March 31, 1998.
10
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APPLIED IMAGING CORP.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
APPLIED IMAGING CORP.
(Registrant)
Date: May 5, 1998 By: /S/ JACK GOLDSTEIN
-----------------------------
Jack Goldstein
President and
Chief Executive Officer
By: /S/ MICHAEL J. BRADEN
-----------------------------
Michael J. Braden
Corporate Controller
11
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<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> MAR-31-1997 MAR-31-1998
<CASH> 7,945 1,020
<SECURITIES> 2,057 4,954
<RECEIVABLES> 3,109 3,018
<ALLOWANCES> (304) (200)
<INVENTORY> 936 840
<CURRENT-ASSETS> 14,039 10,283
<PP&E> 3,459 4,830
<DEPRECIATION> (2,203) (2,981)
<TOTAL-ASSETS> 15,594 12,215
<CURRENT-LIABILITIES> 4,219 5,565
<BONDS> 0 0
0 0
0 0
<COMMON> 25,578 29,650
<OTHER-SE> (14,418) (23,083)
<TOTAL-LIABILITY-AND-EQUITY> 15,594 12,215
<SALES> 3,032 1,935
<TOTAL-REVENUES> 3,722 2,674
<CGS> 1,303 985
<TOTAL-COSTS> 1,643 1,241
<OTHER-EXPENSES> 3,104 3,979
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (944) (2,479)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (944) (2,479)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (944) (2,479)
<EPS-PRIMARY> (0.14) (0.32)
<EPS-DILUTED> (0.14) (0.32)
</TABLE>
