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UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





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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





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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)





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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 May 9, 2002 there were 15,843,281 shares of the Registrants Common Stock outstanding.





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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

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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.




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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.




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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.




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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, 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.




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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.




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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




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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.




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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 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 favorable product mix.





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).




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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




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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




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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.




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Item 3.Quantitative and Qualitative Disclosures about Market RiskDerivatives 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.




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PART IIOTHER INFORMATION








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





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.




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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 our behalf by the undersigned thereunto duly authorized.





APPLIED IMAGING CORP. (Registrant)Date:  May 15, 2002



By:

/s/    CARL HULLCarl Hull President and Chief Executive Officer


By:

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




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