<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED September 30, 2000
------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD From_________________ to __________________
Commission File number 0-935
AMPERSAND MEDICAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-4296006
------------------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
414 N. Orleans Street, Suite 510
Chicago, IL 60610
--------------------------------------------
(Address of principal executive offices)
(Zip Code)
(312) 222-9550
-------------------------------
(Registrant's telephone number, including area code)
--------------------------------------------------------------------------------
414 N. Orleans Street, Suite 305, Chicago, IL 60610
(Former name, former address and former fiscal year,
if changed since last report)
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 periods 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
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by the court. Yes No
---------- -----------
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, $0.001 par value per share-----30,056,468 shares as of November
10, 2000
<PAGE> 2
INDEX
AMPERSAND MEDICAL CORPORATION AND SUBSIDIARIES
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets - September 30, 2000 and December
31, 1999
Consolidated Statements of Operations -- Nine months ended
September 30, 2000 and September 30, 1999 and three months
ended September 30, 2000 and September 30, 1999
Consolidated Statements of Cash flows -- Nine months ended
September 30, 2000 and September 30, 1999
Notes to consolidated financial statements - September 30,
2000
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosure of Market Risk
Part II. Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults on Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
2
<PAGE> 3
Part I. Financial Information
Item 1 Financial Statements
AMPERSAND MEDICAL CORPORATION AND SUBSIDIARIES
(Formerly Bell National Corporation)
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
-------------- --------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 21 $ 36
Accounts receivable, net of allowance of $ 22 495 398
Note receivable - related party 750 -
Note receivable 300
Inventories 159 62
Refundable taxes 101 131
Deposits 190 -
Prepaid expenses 75 54
-------------- --------------
Total current assets 2,091 681
Fixed assets, net 342 177
Other assets:
Prepaid royalties 1,016 -
License, patent, and technology, net of amortization 1,705 696
Goodwill, net 173 317
-------------- --------------
Total assets $ 5,327 $ 1,871
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 1,720 $ 1,449
Customer deposits 23 40
Accrued payroll costs 217 450
Accrued royalties - 250
Accrued expenses 307 399
Deferred revenue 58 68
Revolving line of credit 173 134
Current maturities of notes payable - related party 25 125
Current maturities of notes payable 100 970
-------------- --------------
Total current liabilities 2,623 3,885
Notes payable - related party, less current maturities - 26
Stockholders' Equity (deficit)
Common stock, $0.001 par value;
Authorized 50,000,000
Issued and outstanding, 30,056,468 shares
at September 30, 2000, 19,027,570 shares at 30 19
December 31, 1999
Additional paid in capital 13,095 3,039
Accumulated deficit (10,275) (5,015)
Accumulated comprehensive loss -
Cumulative translation adjustment (146) (83)
-------------- --------------
Total stockholder's equity (deficit) 2,704 (2,040)
-------------- --------------
Total liabilities and stockholders'
equity (deficit) $ 5,327 $ 1,871
============== ==============
The accompanying notes are an integral part of these consolidated
financial statements
</TABLE>
3
<PAGE> 4
AMPERSAND MEDICAL CORPORATION AND SUBSIDIARIES
(Formerly Bell National Corporation)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except for per share amounts)
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales $ 839 $ 912 $ 298 $ 370
Cost and expenses
Cost of goods sold 543 600 194 289
Research and development 2,403 865 1,084 351
Selling, general and administrative 3,366 1,422 712 399
------------ ------------ ------------ ------------
6,312 2,887 1,990 1,039
------------ ------------ ------------ ------------
Operating loss (5,473) (1,975) (1,692) (669)
Other income (expense)
Interest income 54 -- 27
Interest expense - related party (27) (12) (25) 5
Interest expense (38) (37) (10) (23)
Other, net 224 (123) 225 (122)
------------ ------------ ------------ ------------
213 (172) 217 (140)
------------ ------------ ------------ ------------
Loss before income taxes (5,260) (2,147) (1,475) (809)
Income taxes -- -- -- --
------------ ------------ ------------ ------------
Net loss $ (5,260) $ (2,147) $ (1,475) $ (809)
============ ============ ============ ============
Basic and fully diluted net loss
per common share $ (0.19) $ (0.16) $ (0.05) $ (0.05)
============ ============ ============ ============
Weighted average number of
common shares outstanding 27,074,026 13,091,814 30,056,468 14,729,534
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE> 5
AMPERSAND MEDICAL CORPORATION
(Formerly Bell National Corporation)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER SEPTEMBER
30, 2000 30, 1999
----------- -----------
Operating activities:
Net loss $(5,260) $(2,147)
Adjustments to reconcile net loss to
net cash used in operating activities:
Forgiveness of amounts due to service providers
recognized as expense in the prior year (220) --
Depreciation and amortization 284 126
Amortization of debt discount 25 --
Interest expense paid with stock 25 --
Stock, warrants, and options issued
to non-employees for services 384 --
Compensation expense related to
stock appreciation rights 928 --
Changes in assets and liabilities
Accounts receivable (97) (296)
Notes receivable (1,050) --
Inventories (97) (57)
Prepaid royalties (500) --
Deposits, prepaids and other assets (197) (39)
Accounts payable 271 655
Customer deposits (17) 50
Accrued royalties (250) --
Deferred revenue (10) --
Accrued expenses (199) 400
------- -------
Net cash used in operating activities (5,980) (1,308)
Cash used in investing activities
Expenditure for license, patent
and technology (327) (524)
Capitalized software -- (110)
Purchase of fixed assets, net of loss on disposal (221) (123)
------- -------
Net cash used in investing activities (548) (757)
Cash flows from financing activities
Proceeds from issuance of
convertible notes 600 1,045
Proceeds from revolving line of
credit, net of payments 39 --
Payment of notes payable - related party (26) (10)
Proceeds from issuance of common stock,
net of costs incurred 5,963 399
------- -------
Net cash provided by financing activities 6,576 1,434
Effect of exchange rate changes on cash (63) (64)
------- -------
Net increase (decrease) in cash and cash
equivalents (15) (695)
Cash and cash equivalents at beginning of period 36 700
------- -------
Cash and cash equivalents at end of period $ 21 $ 5
======= =======
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ 10 $ --
======= =======
The accompanying notes are an integral part of these consolidated
financial statements
5
<PAGE> 6
AMPERSAND MEDICAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited September 30, 2000)
NOTE A. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine-month period ended September 30,
2000 are not necessarily indicative of the results that may be expected for the
year ended December 31, 2000.
The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Ampersand Medical Corporation and
Subsidiaries' annual report on Form 10-K for the year ended December 31, 1999.
NOTE B. OVERVIEW
Ampersand Medical Corporation ("Ampersand" and together with its subsidiaries
the "Company") was incorporated in Delaware on December 15, 1998, as a wholly
owned subsidiary of Bell National Corporation. At the Annual Meeting of Bell
National on May 25, 1999, the stockholders approved the merger of Bell National
into Ampersand. The merger was affected on May 26, 1999 and Bell National ceased
its existence. At the Annual Meeting, the stockholders also approved an increase
in the authorized shares of Common Stock of the Company from 20,000,000 to
50,000,000 shares.
From a historical perspective prior to its merger into Ampersand, Bell National
Corporation ("Bell National") was incorporated in California on October 1, 1958.
Through 1985, its principal subsidiary was Bell Savings and Loan Association
("Bell Savings"), a state chartered savings and loan association. On July 25,
1985, the Federal Home Loan Bank Board appointed the Federal Savings & Loan
Insurance Corporation ("FSLIC") as receiver of Bell Savings. At the same time,
the assets of Bell Savings were transferred to a new, unrelated, federally
chartered mutual savings and loan association, Bell Federal. The FSLIC's action
followed shortly after a determination that Bell Savings had a negative net
worth. On August 20, 1985, Bell National filed a voluntary petition under
Chapter 11 of the Bankruptcy Code. A plan of reorganization was approved by the
Bankruptcy Court, and became effective June 29, 1987.
On June 15, 1990, Bell National purchased 100% of the Common Stock of Payne
Fabrics, Inc., a designer and distributor of decorative drapery and upholstery
fabrics, for a purchase price of $6,493,000 and the issuance of stock
appreciation rights. On August 4, 1997 Payne Fabrics, Inc. sold substantially
all of its assets and most of its liabilities related to the business of
designing and distributing decorative drapery and upholstery fabrics to Westgate
Fabrics, Inc. ("Westgate"), an unaffiliated third party (the "Asset Sale"). The
Asset Sale included the transfer to the buyer of the use and rights to the Payne
Fabrics name, accordingly, Payne Fabrics, Inc., changed its name to PFI National
Corporation ("PFI"). The Asset Sale left PFI without any substantial assets and
on August 4, 1997 all operations were ceased. Bell National's other wholly owned
subsidiaries, Bell Savings and Pacific Coast Holdings Insurance Company, had no
significant assets or liabilities. After the Asset Sale and before December
1998, the Company had no business operations and its only activities were
administrative.
6
<PAGE> 7
On December 4, 1998, Bell National acquired InPath, LLC, a development-stage
company engaged in the design and development of medical instruments and related
tests. In the acquisition, Bell National issued 4,288,790 shares of Common Stock
and warrants to purchase 3,175,850 shares of Common Stock to the members of
InPath in exchange for their units of membership interest in InPath and the
senior executives of InPath assumed management control of Bell National.
Subsequent to the Annual Meeting of the stockholders on May 25, 1999, all of the
warrants were exercised and exchanged for shares of Common Stock in the company.
Based upon the terms of the acquisition agreement, for financial reporting and
accounting purposes the acquisition has been accounted for as a reverse
acquisition whereby InPath is deemed to have acquired Bell National. However,
Bell National was the continuing legal entity and registrant for both Securities
and Exchange Commission filing purposes and income tax filing purposes, until
its merger into Ampersand in May 1999. Because Bell National was a non-operating
public shell company with nominal assets and InPath was a private operating
company, the acquisition has been recorded as the issuance of stock for the net
monetary assets of Bell National, accompanied by a recapitalization and no
goodwill or other intangible assets were recorded
In December 1998, the Company formed a French limited liability company
subsidiary, Samba Technologies, Sarl ("Samba"), for the purpose of acquiring the
automated image cytometry and tele-medicine technology used in the business of
the Samba department of Unilog Regions, SA, a French company engaged in the
design, development and installation of commercial software programs and
networks for business application. Samba completed the acquisition of the
department's assets on January 4, 1999, and at the same time entered into
employment arrangements with the former department employees and assumed the
day-to-day operations. Since the acquisition, Samba has continued to develop and
market the image cytometry and tele-medicine products previously developed and
marketed by the department.
On September 22, 2000, the Company signed a Letter of Intent to merge with and
into AccuMed International, Inc. Under the terms of the Letter of Intent, the
stockholders of the Company will exchange all of their shares for newly issued
and registered shares of AccuMed. The Letter of Intent also provides that
simultaneous with the merger, AccuMed will change its name to Ampersand Medical
Corporation and the current directors and management of the Company will be
elected to similar positions with the combined company. The Company anticipates
that, as the result of the share exchange, current stockholders of the Company
will hold in excess of seventy-five percent (75%) of the combined company. The
proposed merger is subject to the completion of Definitive Agreements and
approval of the stockholders of both companies.
The Company has incurred significant net losses since its inception. The Company
expects that significant on-going operating expenditures will be necessary to
successfully implement its business plan and develop, manufacture and market its
products. These circumstances raise substantial doubt about the Company's
ability to implement its business plan and continue as a going concern unless
management obtains additional capital or acquires other sources of financing.
Management's plans include continuing efforts to obtain additional capital.
During the first nine months of 2000, the Company raised approximately
$5,963,000 in new equity to finance its operations. In addition, the holder of a
Senior Subordinated Note converted the $50,000 principal and $1,250 in accrued
interest due thereon into shares of Common Stock thus reducing the Company's
outstanding liabilities. On April 28, 2000 the Company automatically converted
$969,600 of 6% Convertible Subordinated Notes Due 2000 plus approximately
$61,658 in accrued interest due thereon into Common Stock also reducing the
Company's outstanding liabilities. On September 22, 2000 the Company borrowed
$500,000 from a related party under a promissory note due on September 21, 2001.
There can be no assurance that the Company will continue to be successful in
raising capital should the need for such capital arise in the future. If the
Company is unable to obtain additional financing, should the need arise, or
generate profitable sales revenues, management may be required to curtail the
Company's product development and other activities and may be forced to cease
operations.
7
<PAGE> 8
NOTE C. NOTE RECEIVABLE - RELATED PARTY
On April 28, 2000 the Company sold 1,333,333 shares of Common Stock at $1.50 per
share for total proceeds of $2,000,000, to Seaside Partners, LP, a hedge fund
which receives investment management services from Seaside Advisor, L.L.C., of
which Dr. Denis O'Donnell, a director of the Company, is a member and manager,
as part of the January 2000 Private Placement Offering. In lieu of cash, the
Company agreed to accept payment for the stock in the form of a $2,000,000
Promissory Note (the"Note"). The Note was due July 27, 2000 and bears interest
at the rate of 8% per annum. The Note may be prepaid in part or in full without
penalty, and the due date may be extended by mutual consent of both parties. In
addition the Company retains possession of the stock certificates representing
the purchased shares until the Note is paid in full. The Subscription Agreement
under which the shares were purchased and the related promise to pay are not
voidable or cancelable for any reason or circumstance whatsoever. Seaside has
made partial principal payments against the Note amounting to $1,250,000 through
September 30, 2000. An additional partial principal payment of $300,000 was
received during the month of October 2000. The Company has agreed to extend the
term of the Note until November 30, 2000.
NOTE D. NOTE RECEIVABLE
On September 22, 2000, in conjunction with the signing of the Letter of Intent
described in Note B above, the Company loaned AccuMed International, Inc.
$300,000. The loan is evidenced by a Promissory Note bearing interest at the
rate of 11% per annum. The note is due December 31, 2000 or immediately upon the
termination of the merger plan outlined in the Letter of Intent. The note is
fully secured by all of the assets of AccuMed and its due date may be extended
by written consent of the parties.
NOTE E. PREPAID ROYALTIES
On June 9, 2000 the Company and AccuMed International, Inc. signed an Amendment
to a Patent and Technology License Agreement dated September 4, 1998. Under the
Amendment the Company paid AccuMed $500,000 in cash, agreed to issue a
Convertible Promissory Note, effective June 9, 2000, in the principal amount of
$100,000 and authorized its transfer agent to issue 128,571 shares of Common
Stock to AccuMed. The Amendment characterizes the $500,000 cash payment, the
$100,000 principal amount of the note (see Note H below), and the fair value of
the Common Stock up to a maximum of $450,000, or $3.50 per share, as
non-refundable advance royalty payments. The Company had previously recorded a
liability and related expense for minimum royalty payments due under the
original License totaling $500,000, which was reclassified to prepaid royalties
in accordance with the Amendment. The Company recorded a fair value of $385,713
for the shares issued. Under the Amendment, the Company has agreed to price
protect the shares up to the maximum fair value level provided. The Company has
recorded a liability of $64,287 to reflect the potential cost of the price
protection guarantee as of the date of issuance of the shares.
For the nine months ended September 30, 2000, the Company charged $34,000 of
royalty expense against the prepaid royalty amount. This charge represents the
4% royalty due to AccuMed on all of the Company's revenue for the period.
NOTE F. LICENSE, PATENT, AND TECHNOLOGY
In June 2000, the Company entered into a License and Technology Agreement with
Invirion, Inc. Under the terms of the License, which was approved by the Board
of Directors in July 2000, the Company is granted exclusive rights to certain
HPV (Human Papillomavirus) detection technology developed and owned by Invirion.
The Agreement provides for license payments totaling $500,000 in cash with an
initial payment of $100,000 due upon delivery of an HPV probe formula. Three
additional cash payments of $150,000, $150,000, and $100,000 respectively are
due upon the subsequent delivery of milestones covering certain advanced HPV
detection technology and the integration of that technology into the
8
<PAGE> 9
Company's product line. In addition Invirion is entitled to receive three
warrants to purchase Common Stock at a purchase price of $0.01 per share, two
covering the purchase of 150,000 shares and one covering the purchase of 100,000
shares. The warrants are due in conjunction with the milestones mentioned above.
Invirion delivered the initial HPV probe formula in August 2000 and delivered
the second milestone of advanced HPV technology on September 12, 2000. The
Company capitalized $1,016,000 as License fees representing $250,000 in cash
payments due to Invirion and $766,000 as the fair value of two of the above
mentioned warrants to purchase a total of 250,000 shares of Common Stock issued
to Invirion on September 12, 2000. The Company used the Black-Scholes method to
determine the fair value of the warrants (see Note I for a further explanation
of the Black-Scholes calculation).
The Company is amortizing the License fees over a period of 10 years.
NOTE G. NOTES PAYABLE - RELATED PARTIES
On September 1, 1998 the Company issued a note payable in the amount of $175,000
to Mr. Peter P. Gombrich, its Chairman and CEO, in payment for funds advanced to
the Company. Principal payments in the amount of $130,000 and $19,000 were made
during 1999 and 1998 respectively. The remaining principal balance of $26,000
plus $15,600 in accrued interest over the entire life of the note was repaid
during the first quarter of 2000.
On May 11, 1999 the Company borrowed $75,000 under a 6% Convertible Subordinated
Note to Leonard R. Prange, President, COO/CFO. The note was issued under terms
identical to all 6% Convertible Subordinated Notes issued by the Company. The
note plus accrued interest due thereon was automatically converted into Common
Stock of the Company on April 28, 2000.
On December 10, 1999 the Company borrowed $50,000 from Azimuth Corporation, a
company controlled by Alexander M. Milley, a director and significant
shareholder of the Company, under a convertible senior subordinated promissory
note. On February 22, 2000 Azimuth Corporation exercised its right to convert
the principal amount of the note plus accrued interest due thereon in the amount
of $1,250 into 256,250 shares of Common Stock of the Company.
On September 22, 2000 the Company borrowed $500,000 from Azimuth Corporation.
The note is due on September 21, 2001 and bears interest at the rate of 15%. The
Company can prepay the note or Azimuth can convert the note into shares of
Common Stock of the Company, at a conversion price equal to $1.00 per share, at
any time after the expiration of 180 days from the issue date of the note. On
September 22, 2000 the Company borrowed $500,000 from Azimuth Corporation. The
note is due on September 21, 2001 and bears interest at the rate of 15%. The
Company can prepay the note or Azimuth can convert the note into shares of
Common Stock of the Company, at a conversion price equal to $1.00 per share, at
any time after the expiration of 180 days from the issue date of the note. As
this note has a beneficial conversion feature, a value of $500,000 has been
recorded as debt discount and will be amortized as interest expense pro rata
over the initial 180 day term of the note. During the three-months ended
September 30, 2000 the Company recorded $25,000 as interest expense related to
this beneficial conversion feature.
NOTE H. NOTES PAYABLE
On August 28, 1998, the Company issued a note payable in the amount of $75,000
to its former outside legal counsel, Holleb & Coff in payment for legal
services. In August 2000, the Company signed a settlement agreement with Holleb
& Coff under which the note, $18,000 in accrued interest, and all other
outstanding indebtedness to Holleb & Coff for legal services totaling $333,000
were settled in full for $200,000. The settlement amount was paid in two equal
installments on October 6, 2000 and November 6, 2000. The Company recorded other
income of $226,000 during the third quarter representing the amount forgiven by
Holleb & Coff that was charged to expense in prior periods.
In January 1999, the Board of Directors authorized the Company to raise up to
$1,500,000 in new equity or debt to provide funding for current operations. On
various dates between March 1, 1999 and June 29, 1999, the Company issued a
series of interest bearing 6% Convertible Promissory Notes totaling $969,600.
These series included a note in the amount of $500,000 issued to Seaside
Partners, L.P., a hedge fund, which receives investment management services from
Seaside Advisors, L.L.C., of which Dr. Denis M. O'Donnell, a director of the
Company, is a member and manager. The series also included a note in the amount
of $75,000 issued to Leonard R. Prange, President, COO/CFO (see Note G above),
in exchange for cash. The maturity date of the notes was January 28, 2000,
subject to extension by the Company to June
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<PAGE> 10
30, 2000. On January 25, 2000, the Company notified the note holders that it was
extending the maturity date of the notes until June 30, 2000. On April 28, 2000
the notes plus accrued interest due thereon were automatically converted into
shares of Common Stock.
In July 1999, the Company's wholly owned subsidiary, Samba, negotiated a
Revolving Credit Line ("Revolver") with the Banc National de Paris (BNP). In
July 2000, the Revolving Credit Line was renewed for an additional one-year
period. Under the terms of the renewal, Samba may borrow, in the form of an
advance on payment against monthly billings, up to a maximum of 900,000 French
Francs, approximately $120,000. In September, BNP increased the borrowing limit
by an additional 600,000 French Francs, approximately $80,000, to cover an
invoice issued by Samba under a certain government contract. The increased
borrowing limit will revert back to its original level upon Samba's receipt of
payment for this specific invoice. The terms of the Revolver require Samba to
pay interest at Euribor plus 2.5%, (currently equal to 7.7%) on advances
outstanding under the Revolver and grant BNP a security interest in Samba
accounts receivable. As of September 30, 2000 the amount outstanding under the
Revolver was approximately $173,000.
On June 9, 2000, the Company agreed to issue a convertible promissory note to
AccuMed International, Inc. The note, which is due on March 29, 2001, has a
principal amount of $100,000, bears interest at the rate of 11%, and is
convertible, at the option of AccuMed, into Common Stock of the Company at the
rate of $3.50 per share. The note was issued in conjunction with an Amendment to
a Patent and Technology License Agreement between the Company and AccuMed (dated
September 4, 1998) dated June 9, 2000. The License Amendment specifies that the
principal amount of the note shall be characterized as a prepaid royalty payment
(see Note E above).
NOTE I. STOCKHOLDERS EQUITY
During January 2000, upon receipt of cleared funds received under a 1999 Private
Placement Offering, the Company completed the sale of 1,712,120 shares of Common
Stock for total gross proceeds of $565,000.
In January 2000, the Board of Directors authorized the Company to raise a
minimum of $5,000,000 in new equity, at a price of $1.50 per share. Between
February 7, 2000 and April 30, 2000, the closing date, the Company sold
3,583,333 shares of Common Stock for total proceeds of $5,375,000 under this
Private Placement Offering.
The 6% Convertible Subordinated Notes issued by the Company during 1999
contained a clause which provided for the automatic conversion of the Notes plus
any accrued interest due thereon into Common Stock of the Company when a minimum
requirement of $5,000,000 in new equity was met. On April 28, 2000, the Company
reached the minimum new equity requirement as a result of the above mentioned
Private Placement Offering. Accordingly, on that date the Notes, including
$969,600 of principal and $61,658 of accrued interest due thereon, were
automatically converted into 5,156,294 shares of Common Stock at a conversion
price of $0.20 per share. The conversion price was computed in accordance with
the provisions of the Notes and represented an adjustment of the original
conversion price.
On February 22, 2000 Azimuth Corporation exercised its right to convert the
$50,000 principal amount of a Note plus $1,250 in accrued interest due thereon
into 256,250 shares of Common Stock of the Company, at a conversion price of
$0.20 per share.
On April 10, 2000 the Company received $23,100 to exercise a warrant held by The
Research Works to purchase 70,000 of Common Stock at an exercise price of $0.33
per share.
On June 9, 2000 the Company signed an Amendment to a License and Technology
Agreement dated September 4, 1998. Under the Amendment the Company was required
to, among other things, issue 128,571 shares of Common Stock to AccuMed
International, Inc. A fair value of $385,713 was recorded to equity to cover the
issued shares. Under the Amendment the Company has agreed to price protect the
value of these shares up to a maximum of $3.50 per share for a period of up to
60 days following the date on which the shares become freely tradable.
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<PAGE> 11
During 1999, the Company entered into contracts with several non-employee
consultants. Under the terms of the contracts, the Company issued options to
purchase 250,000 shares of Common Stock to these non-employees for consulting
services. The options vest over three years and have exercise prices of $0.394
and $0.406 per share. The Company issued these options to consultants as
consideration for services that commenced during 1999 and will be completed in
2002. Several of these contracts were terminated and 70,000 options previously
granted were cancelled in accordance with the terms of the contracts. On August
3, 2000, the Company and a consultant agreed to an early termination, without
cause, of a consulting contract entered into in 1999. This early termination
resulted in the immediate vesting of 50,000 options granted to the consultant
under the contract. As a measurement date for these options was determined, the
Company recorded consulting expense of $116,000 in the current period to reflect
the fair value of the 50,000 options at August 3, 2000, the termination date of
the contract. The measurement date for the remaining outstanding options has not
been determined as of September 30, 2000. Accordingly, a fair value for these
options of $305,000 was calculated at September 30, 2000 using the Black-Scholes
method. This value is charged to consulting expense over the term of the
consulting agreements. The actual amount of expense ultimately recognized will
vary depending on the market value of the Common Stock at the end of each
period. For the nine-month period ended September 30, 2000, the Company recorded
consulting expense of $74,000 related to these options.
During 2000, the Company entered into contracts with several additional
non-employee consultants. Under the terms of these new contracts, the Company
issued options to purchase 185,000 shares of Common Stock to these
non-employees for consulting services. These new options also vest over three
years and have exercise prices of $2.6675 and $2.875 per share. These options
were issued as consideration for services that commenced during 2000 and will
be completed during 2003. The measurement date of all of these outstanding
options has not been determined at September 30, 2000. The value of these
options will be determined at the end of each interim period until a
measurement date is determined. The fair value calculated for these options at
September 30, 2000 using the Black-Scholes method was $16,500. The actual
amount of expense ultimately recognized over the life of the contracts, will
vary depending on the market value of the Common Stock at the end of each
period. The Company has recorded consulting expense of less than $1,000 related
to these options for the nine-months ended September 30, 2000. The Company has
recorded consenting expense of less than $1,000 related to these options for
the nine-months ended September 30, 2000.
In January 2000 the Company issued options to purchase 25,000 shares of Common
Stock to a non-employee for consulting services. The options were for consulting
services completed as of the date of the grant. The options vested immediately
and have an exercise price of $0.921. The fair value of the options, as
calculated using the Black-Scholes method, was estimated at $23,000 at the date
of the grant. The Company recorded the entire $23,000 amount as compensation
expense for the three-month period ended March 31, 2000.
In August 1999, the Company awarded 50,000 shares of restricted Common Stock to
a non-employee consultant under the terms of a consulting contract. The award
vests equally over the three-year life of the contract. The consultant must
maintain the consulting relationship with the Company, except in the case of
change of control or termination by the Company without cause, during the entire
vesting period. On August 3, 2000 the Company and the consultant agreed to an
early termination, without cause, of the consulting contract. This termination
resulted in the immediate vesting of the restricted shares awarded under the
contract. As a measurement date for these shares was determined, the Company
determined that the fair value of the shares at that date was $118,750 based on
the closing market price of the Common Stock on that date. This value is charged
to expense over the term of the agreement. For the nine-months ended September
30, 2000, the Company recorded consulting expense of $111,000 to reflect the
full vesting of these shares and the completion of services under the contract.
In August 1999 and July 2000, the Company awarded 50,000 shares of restricted
Common Stock each to two non-employee consultants under the terms of consulting
contracts. Vesting of the awards varies from the date of grant to the three-year
life of the contracts, under terms similar to those outlined above. The
measurement date for these restricted stock awards has not been determined as of
September 30, 2000. Therefore, the value of these shares will be based on the
market value of the Common Stock at the end of
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each interim reporting period until the measurement date is determined.
Accordingly, a fair value for these restricted shares of $280,000 was calculated
at September 30, 2000 using the Black-Scholes method. This value is charged to
expense over the term of the consulting agreements. For the nine-months ended
September 30, 2000 the Company recorded consulting expense of $70,000 related to
these shares.
In June 2000, the Company entered into a License and Technology Agreement with
Invirion, Inc. (see Note F above). The Company capitalized $766,000 in license
fees and recorded an offsetting amount as additional paid in capital
representing the fair value of warrants to purchase 250,000 of Common Stock
issued to Invirion on September 12, 2000 under the terms of the Agreement
In applying the Black-Scholes method, the Company has used an expected dividend
yield of zero, a risk-free interest rate of 5%, a volatility factor of 185% and
a fair value of the underlying common shares of $2.875 for options and
restricted stock issued to consultants and the closing market price on the date
of grant for warrants issued to consultants. The expected life equaled the term
of the options or restricted shares.
At September 30, 2000 and December 31, 1999, the Company had 450,000 stock
appreciation rights (SAR's) outstanding. These SAR's, issued in 1989, have an
exercise price of $0.30 and can be exercised through November 20, 2001. In
general, each SAR entitles the holder to receive upon exercise an amount equal
to the excess, if any, of the market value per share of Common Stock at the date
of exercise over the exercise price of the SAR, plus any dividends or
distributions per share made by the Company prior to the exercise date. In lieu
of making cash payments, the Company may elect to issue shares of Common Stock
on a one share for one SAR basis. The Company has recorded a compensation
expense in the amount of $928,000 for the nine-months September 30, 2000 to
reflect the difference between the respective closing market prices of the
Company's common stock at September 30, 2000 and December 31, 1999 and the
exercise price of the SAR's.
NOTE J. LITIGATION
On October 30, 2000 the Company, its' wholly owned subsidiary InPath, L.L.C.
and Peter P. Gombrich, Chief Executive of the Company, filed suit in Cook
County, Illinois, against SpectRx, Inc. and Welch Allyn, Inc. The suit seeks
injunctive relief and damages from SpectRx, Inc. based on a complaint of fraud
and breach of certain confidentiality agreements with regard to the Company's
business and marketing plans and its technology related to in-vivo diagnostic
devices. The suit also charges SpectRx, Inc. along with Welch Allyn, Inc. with
misappropriation of trade secrets belonging to Ampersand and InPath in
violation of the Illinois Trade Secrets Act. The Company's suit was filed in
response to a suit filed by the defendants in a Georgia court seeking a
Declaratory Judgment, but no monetary damages or other relief, that they did
not breach the confidentially agreements as the Company has charged in its
suit.
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Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
OVERVIEW
See Note B to the Consolidated Financial Statements for background and
historical information on the Company. The Company is primarily engaged in the
design and development of new products to serve the market for cancer screening.
With the exception of the software products and services marketed by the
Company's wholly owned subsidiary, Samba Technologies, Sarl, all other products
have not as yet been introduced to the market for sale.
REVENUES
The Company's revenue of $839,000 for the nine-month period ended September 30,
2000 compared to $912,000 for the nine-month period ended September 30, 1999
were entirely derived during both periods from the sale of Samba products. The
average exchange rate between the U.S. Dollar and the Euro (the currency to
which Samba's operating currency, the French Franc, is fixed) for the current
nine-month period reflects a decline in the value of the Euro to the U.S. Dollar
of approximately 14% from the previous year's nine-month period. This decline
reduced the translated value of Samba's revenue for the current nine-month
period by approximately $115,000. The Company's revenue for the three-months
ended September 30, 2000, amounting to $298,000, declined $72,000 from revenues
of $370,000 for the three-months ended September 30, 1999. Approximately 65% of
the decrease resulted from the decline in the exchange rate with the balance
resulting from variability in the completion of customer contract orders from
period to period. Revenue for the current year three-month period reflects an
increase of approximately 66% compared to revenue for the immediately preceding
three-month period. This increase is primarily the result of the variability in
the timing of contracts received and completed from period to period offset by a
continuing decline in the exchange rate.
COST AND EXPENSES
COST OF GOODS SOLD
Cost of goods sold for the nine months ended September 30, 2000 amounted to
$543,000 a decrease of 10% from the $600,000 reported for the nine-months ended
September 30, 1999. Cost of goods sold for the three-months ended September 30,
2000 amounting to $194,000 represents a decrease of 33% from the $289,000
reported as cost of goods sold for the three-month period ended September 30,
1999. The variation in both periods is the result of changes in the product mix
between services and hardware on contracts completed during the periods. Amounts
reported for the current year's nine-month and three-month periods are affected
by currency translation issues outlined under revenues. The costs for both
periods were entirely related to Samba products and services. Gross margin for
the three-months ended September 30, 2000 increased to 35% from the 11% reported
for the three-months ended June 30, 2000. This increase is the result of changes
in product mix for the quarter and higher quarter revenues versus fixed costs.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses were $2,403,000 for the nine-months ended
September 30, 2000. These costs represent contracted development and consulting
services, manufacturing design services, contract research, and in-house
development personnel, laboratory expense, and research administration. R & D
costs for the nine-months ended September 30, 1999 were $865,000. The increase
of $1,538,000, or 178%, represents increased development cost of the instrument
and disposable components of the company's InPath System for cervical cancer
screening. The development ramp-up began late in the third
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quarter of 1999 and has continued at a pace intended to get the Company's
products into clinical trials as soon as possible. The current period increase
also includes $100,000 paid to Invirion under a contract to development
applications using Invirion technology on tests and instruments developed by the
Company. During the nine-months ended September 30, 2000 the Company also
recorded non-cash R & D consulting expense of $361,000 to reflect the current
market value of options and restricted stock granted to non-employee consultants
during the years 1999 and 2000. The options and stock are related to services
performed by the consultants over a three-year period and the charge for the
nine-month period reflects the adjusted amortization of their current value over
the period.
Research and development expenses for the three-months ended September 30, 2000
were $1,084,000 representing an increase of 209% over the $351,000 reported for
the three-months ended September 30, 1999. This increase was the result of the
ramp-up development efforts and the cost of the Invirion development contract
previously described. The R & D expenses for the three-months ended September
30, 2000 increased approximately $571,000 from similar expenses for the
three-months ended June 30, 2000. The primary reason for the increase was
additional non-cash R&D expense during the current period related to the above
options and stock awards and the cost of the Invirion development contract.. The
volume of the awards and grants outstanding increased during the current
three-month period, including certain options and awards, which reached a
measurement date as a result of the early termination of a consulting contract
The expenses related to the additional outstanding volume was somewhat offset by
a slight decline in the market price of the underlying Common Stock.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $3,366,000 for the nine-months
ended September 30, 2000, an increase of $1,944,000, or 137%, over the
$1,422,000 reported for the nine-months ended September 30, 1999. During the
nine-months ended September 30, 2000 the Company recorded a non-cash
compensation charge $928,000 to reflect the value of outstanding SARs at
September 30, 2000. The Company also recorded an additional non-cash
compensation charge of $23,000 to reflect the fair value of options granted to a
non-employee consultant for administrative services already completed. These
non-cash charges were offset by the reclassification of $250,000 of previously
recorded royalty expense to prepaid royalties. The reclassification was the
result of the settlement of a dispute related to a Patent and Technology License
Agreement between the Company and AccuMed International, Inc. These three items
represent approximately 36% of the total increase for the current nine-month
period. The balance of the increase reflects the larger scale of operations of
the Company during the period. The following expense categories account for a
majority of the increase in costs related to the scale of operations:
approximately $373,000 in sales and marketing costs covering additional
personnel for both the InPath and Samba product lines and international
marketing studies for the InPath product line; $105,000 in personnel recruitment
fees; $95,000 in regulatory personnel costs; $115,000 in additional
administrative personnel costs; $66,000 in additional travel costs; and public
company related costs(such as investor relations, legal, accounting, transfer
agent fees, etc.) of $208,000.
Selling, general and administrative expenses were $712,000 for the three-months
ended September 30, 2000, an increase of $313,000 from the $399,000 for the
three-months ended September 30, 1999. This increase was primarily the net
result of a reduction in SAR related compensation charges of $338,000 offset by
the following: marketing expenses of $206,000; $49,000 in regulatory personnel
costs; $29,000 in personnel recruitment fees; $90,000 in travel; $158,000 in
legal fees; and $97,000 in public company related costs. Selling, general, and
administrative expenses for the three-months ended September 30, 2000 increase
$541,000 from similar expenses for the three-months ended June 30, 2000. This
increase was primarily the result of a reduced level of expenses in the June
2000 quarter caused by the reclassification of $500,000 in previously recorded
royalty expense to prepaid royalty and an additional reduction in compensation
expense related to the mark to market value of outstanding SAR's of $85,000 in
the current quarter.
OTHER INCOME AND EXPENSE
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The Company incurred $65,000 and $49,000 in interest expense during each of the
nine-month periods ended September 30, 2000 and 1999. The increase primarily
reflects $25,000 in amortization of debt discount related to the Azimuth note
payable. During the nine-month period ended September 30, 2000 the Company
earned interest income of approximately $54,000 from a note receivable.
The Company incurred $35,000 in interest expense for the three-months ended
September 30, 2000 compared to $18,000 for the three-months ended September 30,
1999. The increase reflects the above mentioned debt discount offset by a
reduction in interest expense due to the conversion of outstanding 6% Notes
into Common Stock during the second quarter of 2000. The Company earned $27,000
in interest income from notes receivable during the 2000 period.
Interest expense for the three-months ended September 30, 2000 increased by
approximately $25,000 over the expense for the three-months ended June 30, 2000
reflecting the above mentioned debt discount amortization.
In September 2000, the Company agreed to pay $200,000 in settlement of all
amounts owed to its prior legal counsel for services. The settlement covered an
outstanding note payable in the amount of $75,000, accrued interest due on the
note of $18,000 and unpaid invoices for legal services amounting to $333,000.
The Company recorded the $226,000 difference between the total amount owing and
the settlement amount as other income for the three and nine-month periods ended
September 30, 2000. In September 1999, the Company terminated negotiations to
purchase a product line from AccuMed International, Inc. and wrote off a
non-refundable deposit of $100,000 made in conjunction with a "no shop" clause
included in the Letter of Intent governing the proposed transaction. The company
also relocated its corporate offices in September 1999 and wrote off $23,000
representing the unamortized value of leasehold improvements in the former
office space.
NET LOSS
The net loss for the nine-months ended September 30, 2000 was $5,235,000, or
$0.19 per share, on 27,074,026 weighted average outstanding shares. The net loss
for the nine-months ended September 30, 1999 was $2,147,000, or $0.16 per share,
on 13,091,814 weighted average shares outstanding. The net loss for the
three-months ended September 30, 2000 was $1,450,000, or $0.05 per share on
30,056,468 weighted average shares outstanding. The net loss for the
three-months ended September 30, 1999 was $809,000, or $0.05 per share on
14,729,534 shares outstanding. $1,311,000, or 25%, of the net loss increase in
the 2000 nine-month period is directly related to the recording of non-cash
compensation and consulting expenses related to options, restricted stock, and
outstanding SARs.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash requirements continue to be for research, development
and design expenses of its InPath System products and the conversion of those
designs through the process of clinical trials and manufacturing. At September
30, 2000 the Company had cash on hand of $21,000, a decrease of $15,000 over
cash on hand at the previous year-end. The Company also held notes receivable
due November 30, and December 3, 2000 amounting to $1,050,000, plus accrued
interest due of $58,000.
During January 2000, upon receipt of $565,000 the Company completed the sale of
Common Stock under a 1999 Private Placement Offering.
In January 2000, the Board of Directors authorized the Company to raise a
minimum of $5,000,000 in new equity, at a price of $1.50 per share. The Company
completed the Private Placement Offering on April 30, 2000 the Company having
received $5,375,000 in proceeds between February and April 2000.
On February 22, 2000 Azimuth Corporation exercised its right to convert the
$50,000 principal amount of a note plus $1,250 in accrued interest into shares
of Common Stock of the Company.
On April 10, 2000 the Company received $23,100 to exercise a warrant to purchase
Common Stock held by The Research Works.
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As a result of the completion of the above-mentioned January Private Placement
Offering, $969,600 in principal of 6% Convertible Subordinated Notes Due 2000
plus $61,658 in accrued interest due thereon was automatically converted into
Common Stock of the Company.
On March 29, 2000, to resolve a dispute between InPath and AccuMed
International, Inc. (AccuMed) over a Patent and Technology License Agreement
(the "License") dated September 4, 1998, including related payments due
thereunder, the Company and AccuMed signed a Letter Agreement amending the
License. The original License, covering certain "Point of Care" related
applications, requires the payment of a minimum license fee of $500,000, against
which InPath had made payments of $400,000, and a 7% royalty rate. The original
License also required InPath to make minimum royalty payments of $1,000,000 each
during the second and third years of the License, $1,500,000 each during the
fourth and fifth years, and $2,000,000 each year thereafter. The original
License cannot be cancelled by InPath, without the occurrence of a breach by
AccuMed, prior to the payment of $5,000,000 in royalties, or 5 years, whichever
occurs first. InPath may elect to terminate its exclusivity under the original
License upon written notice to AccuMed at which time its obligation to make the
minimum required royalty payments cease. InPath would then only be obligated to
make royalty payments based on actual sales of products.
The new Amendment provides for the assignment of the License to the Company,
elimination of the minimum royalty payment schedule, while retaining the
$5,000,000 minimum royalty payment due over the 20-year life of the License, and
a reduction in the royalty rate to 4%. Upon signing the Letter Agreement to
amend the License, the Company paid AccuMed the remaining $100,000 minimum
license fee, and agreed to make additional payments totaling $500,000, issue a
$100,000 convertible promissory note due one year from the date the License
Amendment is signed, and issue 128,571 shares of Common Stock to AccuMed. The
note is convertible at AccuMed's option into Common Stock, at a conversion price
of $3.50 per share and the Company has agreed to provide AccuMed with price
protection equal to $3.50 per share on the 128,571 shares of Common Stock until
a measurement date 60 days following the date on which the shares are registered
and freely tradable. The additional cash payments are characterized as advanced
non-refundable royalty payments. The $100,000 principle amount of the note and
the 128,571 shares of Common Stock to a value of $450,000 are also characterized
as advanced non- refundable royalty payments.
The Amendment to the License was executed on June 9, 2000, the additional
$500,000 cash payment was made, the Company agreed to issue the $100,000 note
payable, and the 128,571 shares of Common Stock were issued. At the same time
the Company reclassified minimum royalty payments previously expensed, including
$250,000 during the three-months ended March 31, 2000 and $250,000 during the
final quarter of 1999, due under the License to prepaid royalties in accordance
with the terms of the License Amendment.
On September 22, 2000 the Company signed a Letter of Intent to merge with and
into AccuMed. The proposed merger is subject to completion of a Definitive
Agreement, and the approval of the stockholders of both companies. Under the
terms of the Letter of Intent, the Company loaned AccuMed $300,000 evidenced by
a promissory note bearing interest at 11% per annum. The note, which is secured
by all of the assets of AccuMed, is due on December 31, 2000 or earlier in the
event that merger negotiations are terminated.
In June 2000, the Company entered into a License and Technology Agreement with
Invirion, Inc. granting the Company exclusive rights to certain HPV detection
technology developed and owned by Invirion. The agreement provides for license
payments totaling $500,000. The timing of the license payments is based on
technology delivery milestones specified in the agreement. During the third
quarter Invirion delivered the technology specified under the first and second
milestones entitling Invirion to license payments totaling $250,000. Invirion
agreed to accept payment of the amount due at the rate of $25,000 per month for
10 months. The Company made the initial $25,000 payment on September 12, 2000.
In addition to the cash payments, due under the license, Invirion is also
entitled to receive warrants to purchase 450,000 shares of Common Stock at a
price of $0.01 per share. The issuance of the warrants is dependent on the
delivery of technology under the above milestones. On September 12, 2000 the
Company issued warrants to purchase 250,000 shares of Common Stock upon the
delivery of technology specified under the first and
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second milestones. The Company capitalized a fair value of $766,000 for these
warrants, as determined using the Black-Scholes, as license fees and additional
paid in capital.
The Company also entered into a separate development agreement with Invirion to
develop applications of Invirion technology for use in Ampersand's tests and
instruments. In August 2000, the Company paid Invirion $100,000 to cover the
full development costs of these applications.
In September 2000 the Company borrowed $500,000 from Azimuth Corporation. The
note is due on September 21, 2001 and bears interest at the rate of 15% per
annum. The Company may prepay the note or Azimuth may convert the note into
shares of Common Stock of the Company, at a conversion price of $1.00 per share,
at any time after the expiration of 180 days from the issue date of the note.
This note has a beneficial conversion feature. The Company recorded a value of
$500,000 as debt discount to reflect this beneficial conversion feature. The
amount will be amortized as interest expense pro rata over the initial 180 day
term of the Note. During the three-months ended September 30, 2000 the Company
recorded $25,000 of interest expense related to the beneficial conversion
feature.
In September 2000, the Company's wholly owned subsidiary, Samba Technologies,
Sarl, negotiated an increase in its revolving credit line from approximately
$140,000 to approximately $200,000. Samba's outstanding borrowings under the
revolver at September 30, 2000 amounted to $173,000, an increase of $39,000 over
the amount outstanding at December 31, 1999.
The Company has incurred significant net losses since its inception. The Company
expects that significant on-going operating expenditures will be necessary to
successfully implement its business plan and develop, manufacture and market its
products. These circumstances raise substantial doubt about the Company's
ability to implement its business plan and continue as a going concern unless
management obtains additional capital or acquires other sources of financing.
Management's plans include continuing efforts to obtain additional capital. The
Company has been successful in raising new equity and reducing debt through the
conversion of notes and accrued interest into Common Stock as outlined above.
However, there can be no assurance that the Company will continue to be
successful in raising capital should the need for such capital arise in the
future. If the Company is unable to obtain additional financing, should the need
arise, or generate profitable sales revenues, management may be required to
curtail the Company's product development and other activities and may be forced
to cease operations.
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CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995.
Certain statements throughout this report are forward looking. These statements
are based on the Company's current expectations and involve many risks and
uncertainties. Some of these risks and uncertainties are factors that affect all
international businesses, while others are specific to the Company and the areas
of the medical products industry in which it operates.
The factors below in some cases have affected and could affect the Company's
actual results, causing results to differ, possibly materially, from those
expressed in this report's forward-looking statements. These factors include:
economic conditions; technological advances in the medical field; demand and
market acceptance risks for new and existing products, technologies, and
healthcare services; the impact of competitive products and pricing;
manufacturing capacity; new plant start-ups; U.S. and international regulatory,
trade, and tax policies; product development risks, including technological
difficulties; ability to enforce patents; and unforeseen foreign regulatory and
commercialization factors.
Currency fluctuations are also a significant variable for global companies,
especially fluctuations in local currencies where hedging opportunities are
unreasonably expensive or unavailable. If the value of the U.S. dollar
strengthens relative to the currencies of the countries in which the Company
markets or intends to market its products, the Company's ability to achieve
projected sales and net earnings in such countries could be adversely affected.
The Company believes that its expectations with regard to forward-looking
statements are based upon reasonable assumptions within the bounds of its
knowledge of its business and operations, but there can be no assurance that the
actual results or performance of the Company will conform to any future results
or performance expressed or implied by such forward-looking statements.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk inherent in the Company's financial statements is the potential
loss in fair value arising from adverse changes in interest rates. The Company
does not engage in any hedge transactions or use derivative financial
instruments to reduce its exposure to interest rate changes since all of the
Company's indebtedness is financed at fixed rates. At September 30, 2000, the
carrying amount of the Company's debt instruments approximated their fair value.
In addition, as of September 30, 2000, the Company was not exposed to any
material foreign-currency, commodity-price, equity-price or other type of market
or price risk. The Company's wholly owned subsidiary, Samba, conducts the
majority of its operations in Europe using EURO and local European currencies.
At September 30, 2000 the Company has recorded a negative cumulative translation
adjustment of ($146,000) reflecting the current valuation of the Company's
investment in and current account with Samba.
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Part II. Other Information
Item 1 Legal Proceedings
On October 30, 2000 the Company, its' wholly owned subsidiary
InPath, L.L.C. and Peter P. Gombrich, Chief Executive of the
Company, filed suit in Cook County, Illinois, against SpectRx,
Inc. and Welch Allyn, Inc. The seeks injunctive relief and
damages from SpectRx, Inc. based on a complaint of fraud and
breach of certain confidentiality agreements with regard to
the Company's business and marketing plans and its technology
related to in-vivo diagnostic devices. The suit also charges
SpectRx, Inc. along with Welch Allyn, Inc. with
misappropriation of trade secrets belonging to Ampersand and
InPath in violation of the Illinois Trade Secrets Act. The
Company's suit was filed in response to a suit filed by the
defendants in a Georgia court seeking a Declaratory Judgment,
but no monetary damages or other relief, that they did not
breach the confidentially agreements as the Company has
charged in its suit.
Item 2 Changes in Securities
None
Item 3 Defaults on Senior Securities
None
Item 4 Submission of Matters to Vote of Security Holders
None
Item 5 Other Information
None
Item 6 Exhibits and Reports on Form 8-K
Exhibits The following exhibits are filed herewith:
Exhibit Number Description
10.20 License and Development Agreement for
Specific Medical Technology for
detection of Oncogenic HPV Virus,
between Invirion and the Company dated
June 23, 2000.
27 Financial Data Schedule
Reports on Form 8-K
None
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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.
Ampersand Medical Corporation
/s/ Leonard R. Prange
---------------------
Leonard R. Prange
------------------------------------
President, Chief Operating Officer, Chief
Financial Officer and Secretary
Principal Accounting Officer
Date: November 14, 2000
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