##### Table of Contents

---




UNITED STATES SECURITIES AND
EXCHANGE COMMISSION


Washington, D.C. 20549





---




AMENDMENT NO.  2 TO


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, 2002
|- |  | --------------------------------------------------------------------------------------------------------------------------------------




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 Number:  0-21371





---




APPLIED IMAGING CORP.


(Exact name of registrant as specified in its charter)





Delaware

77-0120490(State or other jurisdiction ofincorporation or organization)

(I.R.S. EmployerIdentification No.)





2380 Walsh Avenue, Building B,


Santa Clara, California 95051


(Address of principal executive offices including
zip code)





(408) 562-0250


(Registrants telephone number, including area code)





---




Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the 90 days.  Yes  x  No  ̈





As
of September 16, 2002 there were 15,885,281 shares of the Registrants Common Stock outstanding.





---



---

##### Table of Contents




EXPLANATORY NOTE





Applied Imaging Corp. is amending and restating in its entirety its Form 10-Q for the quarter ended March 31, 2002 to amend the cost of revenues section found in Item 2.
Managements Discussion and Analysis of Financial Condition and Results of OperationsResults of Operations.





APPLIED IMAGING CORP.





INDEX





PagePART I.    FINANCIAL INFORMATIONItem 1.

Financial Statements (Unaudited)Condensed Consolidated Balance SheetsMarch 31, 2002 and December 31, 2001

3Condensed Consolidated Statements of Operations and Comprehensive LossThree months ended March 31, 2002 and 2001

4Condensed Consolidated Statements of Cash FlowsThree months ended March 31, 2002 and 2001

5Notes to Condensed Consolidated Financial Statements

6-9Item 2.

Managements Discussion and Analysis of Financial Condition and Results of Operations

10-13Item 3.

Quantitative and Qualitative Disclosures about Market Risk Derivatives and Financial Instruments

14PART II.    OTHER INFORMATIONItem 6.

Exhibits and Reports on Form 8-K

15Signatures

16




2




---

##### Table of Contents




PART IFINANCIAL INFORMATION





Item 1.    Financial Statements





APPLIED IMAGING CORP. AND SUBSIDIARIES





Condensed Consolidated Balance Sheets


(In thousands)


(Unaudited)





March 31, 2002


December 31, 2001ASSETSCurrent assets:Cash and cash equivalents

$
3,581


$
2,538Restricted cash


249



245Short-term investments






652Trade accounts receivable, net


6,326



5,684Inventories


1,223



1,010Prepaid expenses/other current assets


431



547Total current assets


11,810



10,676Property and equipment, net


949



1,021Goodwill, net


2,352



2,344Other assets


56



56Total assets

$
15,167


$
14,097LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
2,044


$
1,758Accrued expenses


1,491



1,404Current portion of bank debt


1,928



1,687Current portion of capital lease obligation


6



14Deferred revenue, current


2,705



2,779Total current liabilities


8,174



7,642Deferred revenue, non-current


331



396Total liabilities


8,505



8,038Commitments and contingencies (Note 4)Stockholders equity:Common stock


16



15Additional paid-in capital


49,141



48,154Deferred stock compensation


(9
)


(7
)Accumulated other comprehensive loss


(367
)


(365
)Accumulated deficit


(42,119
)


(41,738
)Total stockholders equity


6,662



6,059Total liabilities and stockholders equity

$
15,167


$
14,097





The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.




3




---

##### Table of Contents




APPLIED IMAGING CORP. AND SUBSIDIARIES





Condensed Consolidated Statements of Operations and
Comprehensive Loss


( in thousands, except per share data)


(Unaudited)





Three months ended March 31,2002


2001Revenues

$
4,999


$
3,930Cost of revenues


1,846



1,943Gross profit


3,153



1,987Operating expenses:Research and development


822



935Sales and marketing


1,736



2,026General and administrative


697



759Amortization of goodwill






78Restructuring


222



Total operating expenses


3,477



3,798Operating loss


(324
)


(1,811
)Other income (expense), net


(57
)


49Net loss


(381
)


(1,762
)Other comprehensive income (loss)Change in unrealized loss on short-term investments


(2
)


4Comprehensive loss

$
(383
)

$
(1,758
)Net loss per sharebasic and diluted

$
(0.02
)

$
(0.12
)Weighted average shares outstandingbasic and diluted


15,627



15,150





The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.




4




---

##### Table of Contents

APPLIED IMAGING CORP. AND SUBSIDIARIES





Condensed Consolidated Statements of Cash Flows


(In thousands)


(Unaudited)





Three months ended March 31,2002


2001Cash flows from operating activities:Net loss

$
(381
)

$
(1,762
)Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization


148



239Provision for doubtful accounts


(10
)


50Amortization related to deferred stock compensation


(8
)


5Loss on sale of fixed assets


58



Changes in operating assets and liabilities:Trade accounts and related party receivable


(632
)


1,100Inventories


(213
)


58Prepaid expenses/other current assets


116



85Accounts payable


286



(408
)Accrued expenses


87



(670
)Deferred revenue


(139
)


229Net cash used in operating activities:


(688
)


(1,074
)Cash flows from investing activities:Purchase of short-term investments






(8,135
)Proceeds from sale and maturities of investments


650



8,005Goodwill, net


(8
)


Purchases of equipment


(134
)


(177
)Net cash provided by (used in) investing activities:


508



(307
)Cash flows from financing activities:Net proceeds from issuance of common stock


994



(13
)Restricted cash


(4
)


167Bank and other loan proceeds


3,150



Bank and other loan payments


(2,909
)


(477
)Capital lease payments, principal portion


(8
)


Net cash provided by (used in) financing activities:


1,223



(323
)Net increase (decrease) in cash/cash equivalents


1,043



(1,704
)Cash and cash equivalents at beginning of period


2,538



4,447Cash and cash equivalents at end of period

$
3,581


$
2,743Supplemental disclosure of cash flow information:Cash paid for interest during the period

$
22


$
66Cash paid for taxes during the period

$
21


$
14Supplemental disclosure of non-cash investing and financing activities:Deferred stock compensation

$
(6
)

$
(18
)





The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.




5




---

##### Table of Contents

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, we, us, our) for the three months ended March 31, 2002 and 2001. 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 our financial position, operating results and cash flows for those interim periods presented. The
results of operations for the three months ended March 31, 2002 are not necessarily indicative of results to be expected for the fiscal year ending December 31, 2002. These condensed consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto, for the year ended December 31, 2001, contained in our 2001 annual report on Form 10-K.





Liquidity:    We expect negative cash flow from operations to continue through at least 2002, as we continue the development of our MDS    system, conduct clinical trials required for FDA clearance of new products, expand our marketing, sales and customer support capabilities, and add additional administrative infrastructure. In January 2002, we raised
approximately $1.0 million with a private placement of 571,500 shares of our common stock at a price of $1.75 per share. In addition, in January 2002, we instituted a series of actions to rationalize our operations to provide a lower operating cost.
We are closing our League City, Texas office and consolidating our manufacturing and engineering facilities. This is expected to result in a reduction in our operating expenses, beginning in the second quarter of 2002. As a result of these actions,
we currently estimate that our capital resources will enable us to meet our short-term capital needs through at least 2002.





However, expenditures required to achieve our plans may be greater than projected or the cash flow generated from operations may be less than projected. As a result, our long-term capital needs may require us to seek to obtain
additional funds through equity or debt financing, collaborative or other arrangements with other companies, bank financing and other sources. We have expended and will continue to expend substantial amounts of money for research and development,
preclinical testing, planned clinical investigations, capital expenditures, working capital needs and manufacturing and marketing of our products. Our future research and development efforts, in particular, are expected to include development of
additional applications of our current cytogenetic products and additional applications for the MDS  system, which may require additional funds.





There can be no assurance that we will be able to obtain additional
debt or equity financing when needed or on terms acceptable to us. If adequate funds are not available, we could be required to delay development or commercialization of certain products, to license to third parties the rights to commercialize
certain products or technologies that we would otherwise seek to commercialize internally, or to reduce the marketing, customer support, or other resources devoted to product development. Accordingly, our failure to obtain sufficient funds on
acceptable terms when needed could have a material adverse effect on our business, results of operations and financial condition.




6




---

##### Table of Contents



APPLIED IMAGING CORP. AND SUBSIDIARIES





NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)




We had a £750,000 ($1,073,000) gross and £500,000 ($715,000) net unsecured revolving line of
credit with an international bank in the United Kingdom that was guaranteed by the U.S. corporation. The line of credit expired on March 31, 2001. The international bank subsequently provided us with a £750,000 ($1,073,000) gross and net zero
borrowing facility with various renewals through October 31, 2001. The line of credit expired at that time and we had no loans under that facility at March 31, 2002. We collateralized various credit card, and bank guarantees (used for custom
clearance purposes) with cash deposits at the international bank amounting to £174,000 ($249,000) at March 31, 2002.





We executed a new loan agreement with Silicon Valley Bank (SVB) on September 28, 2001. This new facility replaced a three-year term loan and a $500,000 revolving line of credit that had an outstanding balance of $1.2 million on
September 28, 2001. The new loan agreement provides the capability to borrow up to $2 million based on the level of certain of our North American accounts receivable and inventories. At March 31, 2002 we had used $1.9 million of the facility with
$46,000 available but not used. The interest rate on the new facility was 6.75% at March 31, 2002, computed as the SVB prime rate plus 2 percent. The loan is collateralized by the assets of the U.S. corporation and requires us to maintain a minimum
level of tangible net worth amounting to $2,000,000 at March 31, 2002. We were in compliance with the SVB loan covenants through March 31, 2002.








NOTE 2Inventories





Balance as ofMarch 31, 2002

December 31, 2001(in thousands)Raw materials

$
1,188

$
898Work in process


7


49Finished goods


28


63Total

$
1,223

$
1,010








NOTE 3Loss per share





There were no reconciling items of the numerators and denominators of the basic and diluted EPS computations.
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:





Balance as ofMarch 31, 2002

December 31, 2001Options

3,003,802

2,393,799Warrants

650,790

650,790Total

3,654,592

3,044,589








NOTE 4Commitments and Contingencies





We have various noncancelable operating leases for equipment, vehicles, and facilities expiring through 2006.
The facility leases generally contain renewal options for periods ranging from two to five years and require us to pay all executory costs such as maintenance, property taxes, and insurance.




7




---

##### Table of Contents



APPLIED IMAGING CORP. AND SUBSIDIARIES





NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)







We have future minimum lease payments under non-cancelable operating
leases amounting to: $882,000 in 2002, $796,000 in 2003, $501,000 in 2004, $84,000 in 2005 and $70,000 in 2006, totaling $2,333,000.





We are subject to claims and assessments from time to time in the ordinary course of business. We do not believe that any such matters, individually or in the aggregate, will have a material adverse effect on our financial
condition, results of operations or cash flows.








NOTE 5Goodwill





In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS)
No. 142 Goodwill and Other Intangible Assets, which establishes financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. 17, Intangible Assets. The Company has
adopted SFAS No. 142 beginning with the first quarter of fiscal 2002. SFAS 142 requires that goodwill and intangible assets that have indefinite useful lives will not be amortized but rather they will be tested at least annually for impairment.
Intangible assets that have finite useful lives will continue to be amortized over their useful lives. The goodwill test for impairment consists of a two-step process that begins with an estimation of the fair value of a reporting unit. The first
step is a screen for potential impairment and the second step measures the amount of impairment, if any. SFAS 142 requires an entity to complete the first step of the transitional goodwill impairment test within six months of adopting the Statement.
Effective January 1, 2002, the Company adopted SFAS 142 and has determined that no impairment of the recorded goodwill exists.





The following table reconciles the Companys fiscal 2002 and 2001 first quarter net loss, loss per sharebasic and diluted adjusted to exclude goodwill amortization pursuant to SFAS No. 142 to amounts previously reported:





Three months ended March 31,2002


2001(in thousands, except per share data)Reported net loss

$
(381
)

$
(1,762
)Add back:  goodwill amortization






78Adjusted net loss

$
(381
)

$
(1,684
)Earnings per sharebasic and diluted:Reported net loss

$
(0.02
)

$
(0.12
)Adjusted net loss

$
(0.02
)

$
(0.11
)Weighted average shares outstandingbasic and diluted


15,627



15,150




8




---

##### Table of Contents



APPLIED IMAGING CORP. AND SUBSIDIARIES





NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)




NOTE 6Restructuring





In January 2002, we instituted a series of actions to rationalize our operations to provide a lower operating cost. We are closing our League City, Texas office and consolidating our manufacturing and
engineering facilities. We recorded a restructuring charge of $222,000 in the first quarter of 2002 that was reflected in the Condensed Consolidated Statement of Operations and Comprehensive Loss as a separate line item under operating expenses.
This charge is related to the costs of terminating 12 employees (five in engineering, three in manufacturing, two in administration and two in sales and support) and closing the League City, Texas office. The following table summarizes the costs
that were charged and whether they were cash or non-cash charges ( in thousands):





Description

March 31, 2000

NoteEmployee separation costs

$
132

All cash chargesLeague City office closure costs

$
90

$40 of cash charges and $50 of non-cash chargesTotal costs

$
222Reserve balance at March 31, 2002

$
63

Expected to be paid in 2002





The restructuring program is expected to result in a reduction in
our operating expenses beginning in the second quarter of 2002.




9




---

##### Table of Contents

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 our audited financial
statements and notes thereto for the fiscal year ended December 31, 2001.





This quarterly report contains
forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements relating to operating performance, the adequacy of our current capital resources and the
timing of future capital requirements. Our actual results could differ materially from those predicted in the forward-looking statements as a result of risks and uncertainties including, but not limited to, those discussed in this quarterly report
and those discussed under Item 1Business, Additional Factors That Might Affect Future Results, and under Item 7Managements Discussion And Analysis Of Financial Condition And Results Of Operations; Factors that May
Affect Future Results, commencing on pages 9 and 25, respectively, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2001. These risks and uncertainties include, but are not limited to, competition, continued adverse
changes in general economic conditions in the United States and internationally, adverse changes in the specific markets for our products, adverse changes in customer order patterns, pricing pressures, risks associated with foreign operations, delay
or failure to launch new products and failure to reduce costs or improve operating efficiencies. You should not rely on these forward-looking statements, which reflect our position as of the date of this report. We are under no obligation to revise
or update any forward-looking statements.








Results of Operations





Revenues.    Our revenues are derived primarily from the sale of products, instrument service
contracts and grant revenues. Revenues for the three months ended March 31, 2002 were $5.0 million, compared to $3.9 million for the corresponding period in 2001. This 27% increase in revenues in the quarter was due primarily to increased sales
volume of our MDS  systems, which were $0.7 million in the quarter compared to $0.1 million in the
first quarter of 2001. Revenues increased by 63% in North America and decreased by 9% in overseas markets.





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, 2002 were 37% compared to 49% for the corresponding prior year period. The decrease is primarily due to the increase in sales of our MDS  systems, discussed above, at a lower cost percent and lower sales of our QUIPS ® systems that had a higher cost percent.





Research and development expenses.    Research and development expenses for the three months ended March 31, 2002 were $822,000 compared to
$935,000 for the comparative prior year period. The decrease over the prior year period is primarily due to the consolidation of our software support operations in January 2002 resulting in the elimination of five personnel positions.





Sales and marketing expenses.    Sales and marketing expenses for the three months ended March 31,
2002 were $1.7 million compared to $2.0 million in the first quarter of 2001. The decrease is primarily related to reduced international sales expenses ($200,000) and reduced travel expenses in the U.S. ($90,000).




10




---

##### Table of Contents

Included in the sales and marketing expenses for the first quarter of 2002 was $108,000 for the termination of an under-performing sales
distributor in Europe.





General and administrative expenses.    General and
administrative expenses for the first quarter were $697,000, compared to $759,000, a decrease of $62,000 (8%) from the first quarter of 2001 due primarily to expenses incurred in the first quarter of 2001 for our investor relations program.





Amortization of goodwill.    Amortization of goodwill amounted to $78,000 for the
first quarter of 2001 with no such expense in the first quarter of 2002. This represents the amortization of goodwill resulting from the acquisition of the cytogenetic imaging business of Vysis, Inc. in July 1999 and the purchase of the United
States-based PowerGene ® business of Perceptive Scientific Instruments, LLC in July 2000.





Restructuring costs.    In January 2002, we instituted a series of actions to
rationalize our operations to provide a lower operating cost while increasing efficiencies. We are closing our League City, Texas office and consolidating our manufacturing and engineering facilities. We recorded a restructuring charge of $222,000
in the first quarter of 2002 that is due to the costs of terminating 12 employees ($132,000) and closing the League City, Texas office ($90,000). These actions are expected to result in a reduction in our operating expenses of approximately
$0.4$0.5 million per quarter, beginning in the second quarter of 2002. There were no restructuring costs in the first quarter of 2001.





Other income (expense), net.    There was $57,000 of other expense in the first quarter of 2002 primarily comprised of $36,000 of foreign currency losses incurred in the
translation of various balance sheet items from foreign currencies into the U.S. dollar and $21,000 of tax expense.The $49,000 of other income in the first quarter of 2001 was primarily due to foreign currency gains incurred in the
translation of various balance sheet items from foreign currencies into the U.S. dollar.








Liquidity and Capital Resources





At March 31, 2002, we had cash, restricted cash, cash
equivalents and securities available for sale of $3.8 million and working capital of $3.6 million compared to $3.4 million and $3.0 million respectively at December 31, 2001. Restricted cash, which collateralizes various credit card and bank
guarantees in the United Kingdom, amounted to $0.2 million at March 31, 2002 and at December 31, 2001.





Cash used
in operations for the quarter ended March 31, 2002 was $0.7 million compared to $1.1 million for the 2001 first quarter. The $0.4 million decrease in cash used in operations was primarily due to the reduced net loss amounting to $1.4 million (a
decrease from a net loss of $1.8 million in the first quarter of 2001 to a net loss of $0.4 million in the first quarter of 2002), offset by increased requirements for accounts receivables of $1.7 million (an increase of $0.6 million in 2002
reflecting higher sales versus a decrease of $1.1 million in 2001) and for inventories of $0.3 million (an increase of $0.2 million in 2002 reflecting a build-up in components for new products versus a decrease of $0.1 million in 2001.) These
increases were partially offset by reduction in the need for funds for accounts payable and accrued expenses of $0.7 million and $0.8 million, respectively.





Cash provided by investing activities was $0.5 million in the first quarter of 2002 compared to cash used in investing activities of $0.3 million in the first quarter of 2001. This change was primarily
due to a decrease in our short-term investments of $0.7 million in 2002 versus an increase in our short-term investments of $0.1 million in 2001. We invested $0.1 million in the




11




---

##### Table of Contents

first quarter of 2002 for purchases of capital equipment compared to $0.2 million in the first quarter of 2001.





Cash provided by financing activities was $1.2 million in the first quarter of 2002 compared to cash used in financing activities of $0.3
million in the first quarter of 2001. We received $1.0 million from the issuance of common stock in a private placement in the first quarter of 2002 and $0.2 million from bank loans. In the first quarter of 2001, we repaid $0.5 million of bank loans
offset by a $0.2 million decrease in restricted cash.





On January 31, 2002, we completed a private placement of
571,500 shares of our common stock to an institutional investor (purchasing for three separate funds) at a purchase price of $1.75 per share. Additional shares may be issuable to the investors under provisions contained in the Stock Purchase
Agreement between the investors and us, which we filed with the Securities & Exchange Commission on Form S-3 on March 27, 2002. Beginning on July 29, 2002, subject to the occurrence of triggering events contained in the Stock Purchase Agreement,
each investor shall be entitled to a warrant exercisable for a number of shares of our common stock equal to the number of shares of common stock purchased in the January 31, 2002 financing. The warrants would be exercisable for four years from
issuance at a price of $2.25 per share.





We had a £750,000 ($1,073,000) gross and £500,000 ($715,000)
net unsecured revolving line of credit with an international bank in the United Kingdom that was guaranteed by the U.S. Corporation. The line of credit expired on March 31, 2001. The international bank subsequently provided us with a £750,000
($1,073,000) gross and net zero borrowing facility with various renewals through October 31, 2001. The line of credit expired at that time and we had no loans under that facility at March 31, 2002. We collateralized various credit card, and bank
guarantees (used for custom clearance purposes) with cash deposits at the international bank amounting to £174,000 ($249,000) at March 31, 2002.





We executed a new loan agreement with Silicon Valley Bank (SVB) on September 28, 2001. This new facility replaced a three-year term loan and a $500,000 revolving line of credit that had an outstanding
balance of $1.2 million on September 28, 2001. The new loan agreement provides the capability to borrow up to $2 million, with the amount of the loan depending on the level of our North American accounts receivable and inventories. At March 31, 2002
we had used $1.9 million of the facility with $46,000 available but not used. The interest rate on the new facility was 6.75% at March 31, 2002, computed as the SVB prime rate plus 2 percent. The loan is collateralized by the assets of the U.S.
corporation and requires us to maintain a minimum level of tangible net worth amounting to $2,000,000 at March 31, 2002. We were in compliance with the SVB loan covenants through March 31, 2002.





We expect negative cash flow from operations to continue through at least 2002, as we continue the research and development of our MDS  System, expand our marketing, sales and customer support capabilities and add administrative infrastructure. We
currently estimate that our existing capital resources will enable us to meet our short-term capital needs through at least 2002. There can be no assurance, however, that we will not be required to seek capital at an earlier date. Our long-term
capital needs may require us to seek to obtain additional funds through equity or debt financing, collaborative or other arrangements with other companies, bank financing and other sources. If we raise funds by issuing equity securities, there will
be dilution of existing shareholders holdings in our common stock. There can be no assurance that additional financing will be available when needed or on terms acceptable to us. If adequate funds are not available, we could be required to
delay development or commercialization of certain products, to license to third parties the rights to commercialize




12




---

##### Table of Contents

certain products or technologies that we would otherwise seek to commercialize ourselves, or to reduce the marketing, customer support, or other
resources devoted to product development. Accordingly, our failure to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on our business, results of operations, and financial condition. 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 our research and development efforts and clinical investigations, the timing of
regulatory approvals or clearances, competing technological and market developments, commercialization of products currently under development and market acceptance and demand for our products. In addition, as opportunities arise, capital may also
be used to acquire businesses, technologies or products.




13




---

##### Table of Contents

Item 3.Quantitative and Qualitative Disclosures about Market Risk Derivatives and Financial Instruments.





For the three months ended March 31, 2002, there were no material changes from the disclosures made in our Form 10-K for the year ended December 31, 2001.




14




---

##### Table of Contents

PART IIOTHER INFORMATION








Item 6.Exhibits and Reports on Form 8-K.





(a)  Exhibits.None.





(b)  Reports on Form 8-K.During
the quarter ended March 31, 2002, we filed the following Current Reports on Form 8-K:





(1)  Current Report on Form 8-K dated February 13, 2002 to disclose the private placement of 571,500 shares of common stock to an institutional investor (purchasing for three separate funds) at a purchase price of $1.75 per
share.





(2)  Current Report on Form 8-K dated February 19, 2002 to disclose that we were
in compliance with the Nasdaq Marketplace Rules for continued listing of our common stock on the Nasdaq National Market.




15




---

##### Table of Contents

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 our behalf by the undersigned thereunto
duly authorized.





APPLIED IMAGING CORP. (Registrant)Date:  October 3, 2002



By:

/s/    CARL HULLCarl Hull President and Chief
Executive Officer


By:

/s/    BARRY
HOTCHKIESBarry Hotchkies Vice President,
Chief Financial Officer




16




---

##### Table of Contents




CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER


PURSUANT TO


SECTION 13(a) OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934


AS ADOPTED PURSUANT TO


SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002





I, Carl Hull, certify that:





|1. |  | I have reviewed Amendment No. 2 to the Quarterly Report of Applied Imaging Corp. on Form 10-Q for the quarter ended March 31, 2002;
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------




|2. |  | Based on my knowledge, this amended quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this amended quarterly report; and
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|3. |  | Based on my knowledge, the financial statements, and other financial information included in this amended quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this amended quarterly report.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Date: October 3, 2002



By:

/S/    CARL
HULLCarl Hull President and Chief
Executive Officer





CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL
OFFICER


PURSUANT TO


SECTION 13(a) OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


AS ADOPTED PURSUANT TO


SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002





I, Barry Hotchkies, certify that:





|1. |  | I have reviewed Amendment No. 2 to the Quarterly Report of Applied Imaging Corp. on Form 10-Q for the quarter ended March 31, 2002;
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------




|2. |  | Based on my knowledge, this amended quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this amended quarterly report; and
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|3. |  | Based on my knowledge, the financial statements, and other financial information included in this amended quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this amended quarterly report.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Date: October 3, 2002



By:

/S/    BARRY
HOTCHKIESBarry Hotchkies Vice President,
Chief Financial Officer




17




---

##### Table of Contents




CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER


PURSUANT TO 18 U.S.C. SECTION 1350


AS
ADOPTED PURSUANT TO


SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002





I, Carl Hull, certify, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that Amendment No. 2 to the Quarterly Report of Applied Imaging Corp. on
Form 10-Q for the quarter ended March 31, 2002 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such amended quarterly report fairly presents in all material
respects the financial condition and results of operations of Applied Imaging Corp.





Date: October 3, 2002



By:

/S/    CARL
HULLCarl Hull President and Chief
Executive Officer





I, Barry Hotchkies, certify, pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that Amendment No. 2 to the Quarterly Report of Applied Imaging Corp. on Form 10-Q for the quarter ended March 31, 2002 fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 and that information contained in such amended quarterly report fairly presents in all material respects the financial condition and results of operations of Applied Imaging Corp.





Date: October 3, 2002



By:

/S/    BARRY
HOTCHKIESBarry Hotchkies Vice President,
Chief Financial Officer




18