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U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
AMENDMENT NO. 2
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996.
[ ] TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1943
Commission file number 0-20652
AccuMed International, Inc.
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(Name of small business issuer in its charter)
Delaware 36-4054899
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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900 N. Franklin Street, Suite 401, Chicago, IL 60610 Issuer's telephone number: (312) 642-9200
(Address of principal (Zip Code)
executive offices)
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Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $0.01 per share
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(Title of Class)
Common Stock purchase warrants
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(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports) and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
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Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
Issuer's revenues for the year ended December 31, 1996: $6,222,000
Aggregate market value of the voting stock held by non-affiliates as
of March 26, 1997: $70,561,000
Number of shares of Common Stock outstanding as of March 26, 1997: 22,073,939
Transitional Small Business Disclosure Format (check one): Yes No X
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ITEM 6 OF THIS FORM 10-KSB ENTITLED "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" CONTAINS FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF SECTION 27a OF THE SECURITIES ACT OF 1933 AND
SECTION 21e OF THE SECURITIES EXCHANGE ACT OF 1934. FORWARD-LOOKING STATEMENTS
ARE INHERENTLY UNCERTAIN AND ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
EXPRESSED IN OR IMPLIED BY THE FORWARD-LOOKING STATEMENTS.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
OVERVIEW
Effective December 29, 1995, AccuMed, Inc. was merged with and into the Company.
The results of operations reflected in the Company's consolidated statement of
operations for 1996 include the operations of the two merged businesses, whereas
results of operations from prior periods and years reflect the operations and
sales of the Alamar microbiology product line only. The historical results of
operations of the Company presented herein are not necessarily indicative of
future results of operations of the Company.
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The Merger has been accounted for as a purchase, which resulted in
certain charges. The value of the securities not subject to contingencies
issued by the Company upon consummation of the Merger exceeded the value of the
assets acquired by $6.6 million. At December 31, 1995, $4.0 million of such
amount was allocated to acquired in-process research and development and
written off immediately as a non-cash charge against operations. The remaining
$2.6 million was recorded as purchased technology and is being amortized over
ten years beginning December 31, 1995. Certain of the securities issued by the
Company upon consummation of the Merger were subject to forfeiture if specified
earnings per share or stock price performance goals were not met following the
Merger. During the quarter ended March 31, 1996, the contingencies were
satisfied with respect to a portion of such securities having a then current
fair market value of $5.4 million. Of such amount, $3.5 million was allocated
to acquired in-process research and development and written off immediately as
a non-cash charge against operations. The remaining $1.9 million was recorded
as purchased technology and is being amortized over ten years beginning March
31, 1996. During the quarter ended March 31, 1997, specified contingencies
applicable to the remaining 940,955 shares of Common Stock and warrants to
purchase up to 63,472 shares of Common Stock issued in the Merger were met.
Therefore, in accordance with the accounting treatment required with respect to
the Merger transaction, an amount equal to the fair market value of such
securities at the time such contingencies were satisfied was recorded as
goodwill. Management believes that the profitability and cash flow generated
by products being manufactured by the Company at the time of the Merger are not
sufficient to provide adequate recoverability of this recorded higher level of
goodwill as prescribed by the Company's accounting policies and, therefore, an
impairment of said goodwill exists. As a result of this impairment the Company
has written-off the recorded goodwill as a charge against operations during the
first quarter of 1997.
Pending consummation of the Merger, the Company took various actions to
streamline and relocate its operations. The Company's manufacturing facility in
Sacramento, California was closed in August 1995, and all obligations under its
lease were satisfied during the second quarter of 1996. During the summer and
fall of 1995, the Company terminated the employment of all its employees, other
than two officers. From July 1, 1995 until consummation of the Merger, the
Company's manufacturing, marketing, sales, distribution and research and
development functions were performed by AccuMed, Inc. under contracts. After
consummation of the Merger, the Company resumed research and development,
manufacturing and marketing and sales activities, and hired a significant
number of employees.
On October 15, 1996, the Company acquired a two-thirds interest in
Oncometrics for aggregate consideration of $4.0 million in cash. Of such
consideration, $2.0 million was paid to Oncometrics' parent company, Xillix for
outstanding Oncometrics stock and $2.0 million was paid to Oncometrics for
newly issued Oncometrics stock.
On October 15, 1996, the Company also acquired all the outstanding RADCO Stock
not already
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owned by the Company of RADCO and retired approximately $1.2 million in
aggregate principal amount of RADCO Notes sold by RADCO to its initial
investors at an aggregate cost to the Company of approximately $1.4 million in
cash.
Effective on November 15, 1996, RADCO, which became a wholly-owned
subsidiary of the Company upon consummation of the RADCO Acquisition, was
merged with and into the Company pursuant to a Merger Agreement between the
Company and RADCO. At the effective time of the Merger, the Company assumed
all the assets, rights and liabilities of RADCO which ceased to exist as a
separate corporate entity.
At December 31, 1996, the Company had an accumulated deficit of $27.2
million.
On December 31, 1995, the Company changed its fiscal year end from
September 30 to December 31.
RESULTS OF OPERATIONS
Year Ended December 31, 1996 as Compared to the Year Ended September 30, 1995.
Revenues. The Company's revenues for the year ended December 31, 1996
were $6.2 million compared to $515,000 for the year ended September 30, 1995.
The increase in 1996 revenues is the result of sales of Microbiology Division
products acquired by the Company as a result of the Merger, expansion of the
microbiology sales base, and the initial commercial shipments of newly
developed products of the Company's Cytopathology Division. These increases
were offset somewhat by a decline in the sales of original Alamar microbiology
products.
Cost of Sales. Cost of sales increased to $4.0 million for the year
ended December 31, 1996 from $1.4 million in the year ended September 30, 1995.
The primary reason for the 1996 increase was the expansion in volume and type
of products sold by the Company. In addition, the 1996 amount reflects costs
related to the ramp-up of cytopathology instrument manufacturing and costs
related to the transfer of manufacturing for certain Alamar microbiology
products to a third party. Costs reflecting manufacturing capacity problems
were reduced from 1995 levels.
Operating Expenses. General and administrative expenses were $4.9
million for the year ended December 31, 1996 compared to $2.0 million for the
year ended September 30, 1995. The current year increase is the result of an
increase in administrative staff needed to manage a larger business, costs of
consolidating staff and relocating operations, recognition of a non-cash charge
related to the issuance of warrants to purchase Common Stock, and increased
investor relations efforts.
Research and development expenses increased to $3.1 million for the
year ended December 31, 1996 from $387,000 for the year ended September 30,
1995. The increase reflects the reinstatement of an active research and
development program which had been curtailed in 1995. Research programs
covering newly acquired AccuMed microbiology and cytopathology products, were
continued and expanded during 1996.
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Acquired research and development expenses for the year ended December
31, 1996 were $6.0 million. These expenses represent the write off of $3.5
million of in-process research and development which arose as a result of the
Merger and an additional $2.5 million of in-process research and development
which arose as a result of the acquisition of RADCO and the acquisition of the
two-thirds interest in Oncometrics. There were no such expenses incurred in
the year ended September 30, 1995.
Sales and marketing expenses were $2.5 million for the year ended
December 31, 1996 compared to $309,000 for the year ended September 30 1995.
The primary reason for the increase was the expansion of the sales staffs for
both the microbiology and cytopathology product lines, additional support
technical support staff to service the new distribution relationships, and the
establishment of a client services organization. The amounts for 1995 reflect
the curtailment of selling efforts as the company sought to focus its resources
in pursuing a patent infringement litigation.
Other Income (Expense). The Company realized net other income in the
amount of $2.7 million for the year ended December 31, 1996 compared to net
other expenses of $52,000 for the year ended September 30, 1995. The $2.9
million reported as other income represents a net amount consisting of the full
recognition of a $3.5 million licensing fee for certain technology related to
microbiology products and certain other individual income items of a
non-material nature offset by a charge of $852,000, which represents the
calculated fair value of warrants issued in conjunction with the formation
RADCO Ventures, Inc. Of the licensing fee, $1.5 million was received in 1995
subject to certain contingencies which were satisfied in 1996. Of the total
licensing amount, $3.0 million represents a one-time license fee and $500,000
represents advance royalty payments. The Company is under no obligation to
refund any of the license fee or royalty payments should the licensed
technology not be used to create a marketable product. In addition, the
1996-year amount also reflects the $124,000 one-third minority interest share
in the net operating loss of Oncometrics, offset by an increase of $412,000 in
interest expense for the period.
Net Loss. The net loss for the year ended December 31, 1996 was $11.6
million or $0.68 per share on 16,975,000 weighted average shares outstanding,
compared to a net loss for the year ended September 30,1995 of $3.8 million or
$0.59 per share on 6,376,000 weighted average shares outstanding. The primary
reason for the increase in the net loss was the write off of $6.0 million in
acquired research and development costs and the increase in expenses related to
the expansion of administration, sales and marketing and research and
development necessary to support a larger growing business. These increased
expenses were offset in part by the licensing fees received during the year.
Three Months Ended December 31, 1994 and 1995
The three months ended December 31, 1995 represent the transition
period resulting from the change in the Company's fiscal year end from
September 30 to December 31. While revenues remained virtually unchanged, cost
of sales increased from $227,000 in the 1994 quarter to $339,000 in the 1995
period. General and administrative costs increased substantially from $384,000
in the 1994 quarter to $1.4 million in the 1995 period, primarily due to (i)
legal expenses related to subsequently resolved litigation, (ii) expenses of
relocating the Company's operations, and (iii) payments to AccuMed, Inc. for
its services pursuant to manufacturing, distribution and research and
development agreements pending consummation of the Merger. Research and
development expenses decreased from $151,000 in the 1994 quarter to $32,000
reflecting the continued curtailment of programs. Acquired research and
development expenses for the 1995 period were $4.0 million which represented
the write off of the on-process research and development arising from the
Merger of AccuMed, Inc. into the Company in December 1995. Sales and marketing
expenses decreased from $171,000 in the 1994 period to $7,000 in the 1995
period, as the sales and marketing activities were performed by AccuMed, Inc.
prior to the Merger pursuant to a distribution agreement.
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The net loss increased from $846,000 for the 1994 period to $5.7
million for the 1995 period. The increase resulted primarily from a non-cash
charge against operations relating to the write-off of in-process research and
development acquired in connection with the Merger, and increased
administrative expense. The net loss per share for the 1994 period was $0.17
compared to $0.49 for the 1995 period.
Fiscal Years Ended September 30, 1994 and 1995
Revenues for the fiscal years ended September 30, 1994 and 1995 were
$1.2 million and $515,000, respectively. Revenues in fiscal 1994 included
approximately $473,000 of international instrument shipments and $92,000 of
contract research, both of which were absent from the fiscal 1995 year and
account for the decrease in revenues from fiscal 1994 to fiscal 1995. Cost of
sales decreased from $1.5 million in fiscal 1994 and to $1.4 million in fiscal
1995. The cost of sales relative to revenues was higher in 1995 as compared to
1994 due to increased sales of instruments in 1994 which carry a higher margin
as compared to the test panels to which the 1995 revenues related. General and
administrative expenses increased from $1.2 million in fiscal 1994 to $2.1
million in fiscal 1995. The increase from fiscal 1994 to fiscal 1995 was
primarily due to legal and accounting expenses related to the Merger and
subsequently resolved litigation. Research and development expenses decreased
from $580,000 in fiscal 1994 to $387,000 in fiscal 1995, primarily due to the
suspension of virtually all research and development activities during the 1995
fiscal year. Sales and marketing expenses decreased from $960,000 in fiscal
1994 to $309,000 in fiscal 1995, due to suspension of virtually all of the
Company's domestic sales and marketing efforts beginning in November 1994.
The net loss increased from $3.1 million for fiscal 1994 to $3.8
million for fiscal 1995, primarily due to increased legal and administrative
expenses associated with subsequently resolved litigation. The net loss per
share decreased from $0.65 in 1994 to $0.59 in 1995, primarily due to increases
in the weighted average shares outstanding offset in part by a lower net loss
in fiscal 1994 compared to fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company has been substantially dependent on the private placements
of its debt and equity securities and the proceeds of its initial public
offering of securities consummated in October 1992 to fund its cash
requirements through September 1996. Pursuant to the Becton Agreement, Becton
paid to the Company $3.5 million in cash for use of the Licensed Technology, of
which $1.5 million was received during 1995 and $2.0 million was received
during the first quarter of 1996. Of such amount, $500,000 will be creditable
against future royalty payments, if any, resulting from sales of products
incorporating the Licensed Technology. To the Company's knowledge, as of the
date of this Report, Becton has not produced or sold any products incorporating
the Licensed Technology.
In October 1996, the Company consummated an underwritten public
offering of 3,000,000 shares of Common Stock for net proceeds of approximately
$11.7 million (the "Underwritten Offering"). Of such proceeds, $4.0 million
was used to fund the acquisition of the two-thirds interest in Oncometrics and
$1.4 million was used to fund the RADCO Acquisition, including repayment of the
RADCO Notes. Additional proceeds were expended to reduce past due payable
balances, and to fund
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the initial expansion of the Company's cytopathology manufacturing facilities.
The balance of such proceeds will be used for working capital and to fund
on-going research and development programs.
In March 1997, AccuMed acquired from Difco the ESP Assets relating to
the ESP Product Line, consisting of accounts receivable, finished product
inventories, production equipment, and a portfolio of rental instruments. The
Company also assumed certain liabilities related to instrument warranties,
contracted product studies, and vacation and incentive accrued liabilities for
former Difco employees who were offered positions with the Company. The
aggregate purchase price of $6.0 million in cash was funded from the proceeds
of a loan (the "Bridge Loan") in the principal amount of $6.0 million made
pursuant to a Loan Agreement dated as of February 19, 1997 among the Company
and Robert L. Priddy and Edmund H. Shea, Jr. (collectively, the "Lender"),
evidenced by a Convertible Promissory Note dated as of February 19, 1997 made
by the Company in favor of the Lender. Interest on the indebtedness under the
Bridge Loan accrued at a rate of 12% per annum payable at maturity. All
amounts owed to the Lender by the Company pursuant to the Bridge Loan,
including an aggregate of $130,000 representing the loan origination fee,
interest and the prepayment premium were paid in full as of March 14, 1997 with
a portion of the proceeds of a private placement of the Company's securities.
On March 14, 1997, the Company consummated a private placement (the
"Private Placement") an aggregate original principal amount $8.5 million of 12%
Convertible Promissory Notes (the "Notes") and Warrants (the "Warrants") to
purchase an aggregate of 850,000 shares of Common Stock. The Company received
net proceeds of approximately $7.8 million from the Private Placement after
deducting commissions and related expenses. The Notes bear interest at the
rate of 12% per annum, payable semi-annually in arrears on August 15 and
February 15 of each year during the term of the Notes. Principal under the
Notes is due March 14, 2000. Commencing three months following the date of
issuance, and subject to shareholder approval of an amendment to the
Certificate of Incorporation to increase the authorized shares of Common Stock
by an amount sufficient to permit the Company to reserve for issuance a
sufficient number of shares to allow for the conversion of the Notes, the Notes
will become convertible at the option of the holder into shares of Common Stock
at a conversion price equal to $3.125 (the "Conversion Price"). If the Company
does not have sufficient authorized shares to accommodate conversion of the
Notes by May 31, 1997, (i) the Notes will become due and payable 30 days
thereafter at an amount equal to 150% of the outstanding principal amount, and
(ii) the Conversion Price will be reduced by 20%. If the Company defaults on
its obligations to pay interest or principal under the Notes, (i) the interest
rate thereunder will increase to 16% per annum during the continuance of such
default, (ii) the Conversion Price will be reduced by 20%, and (iii) the
holders will have the right to accelerate the Notes. During the three months
beginning March 14, 1997, the Company may redeem the Notes at an amount equal
to 110% of the outstanding principal amount; if the Company so redeems the
Notes, the term of the Warrants will be extended from six months to five years
following March 14, 1997. Thereafter, the Company may redeem the Notes at the
amount of outstanding principal if the Common Stock has traded for a minimum of
20 consecutive days trading days at a minimum price of 175% of the Conversion
Price, if the Notes are then convertible. The Warrants are exercisable to
purchase Common Stock at an exercise price of $3.125 per share.
In connection with the Company's initial public offering and certain
private placements, the Company issued warrants to purchase an aggregate of
2,702,905 shares of Common Stock (the
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"Redeemable Warrants"). As of April 1, 1997, 200 shares of Common Stock had
been issued as a result of the exercise of Redeemable Warrants. If the closing
price per share of Common Stock exceeds $7.50 per share (subject to adjustment)
for a minimum of 20 consecutive trading days, the Company would have the right
to redeem the Redeemable Warrants, upon notice of not less than 60 days given
to holders within three days following any such 20 day period, at a redemption
price of $0.25 per underlying share. The exercise price of the Redeemable
Warrants, which expire October 1, 1997, is $5.00 per share. If all Redeemable
Warrants were exercised, of which there can be no assurance, the Company would
receive approximately $13.5 million in gross proceeds. The Company has agreed
not to redeem the Redeemable Warrants without the consent of the
representatives of the several underwriters in the public offering consummated
in October 1996 prior to October 3, 1997.
The Company's future liquidity and capital requirements will depend
upon numerous factors, including the costs and timing of expansion of
manufacturing capacity, the costs, timing and success of the Company's product
development efforts, the costs and timing of potential acquisitions, the extent
to which the Company's existing and new products gain market acceptance,
competing technological and market developments, the progress of
commercialization efforts of the Company and its distributors, the costs
involved in preparing, filing, prosecuting, maintaining, enforcing and
defending patent claims and other intellectual property rights, developments
related to regulatory and third party reimbursement matters, including CLIA,
and other factors. The Company believes that through its expanded direct sales
efforts, relationships with new distribution partners, and new products
introduced into the market by both the microbiology and cytopathology
divisions, its on-going operations will be able to generate sufficient cash to
fund its business in the future.
ITEM 7. FINANCIAL STATEMENTS.
Consolidated Balance Sheets dated December 31, 1996, December 31, 1995
and September 30, 1995.
Consolidated Statements of Operations for the year ended December 31,
1996, the three months ended December 31, 1995 and the year ended September 30,
1995.
Consolidated Statements of Shareholders Equity (Deficit) for the year
ended December 31, 1996, the three months ended December 31, 1995 and the year
ended September 30, 1995.
Consolidated Statements of Cash Flows for the year ended December 31,
1996, the three months ended December 31, 1995 and the year ended September 30,
1995.
Notes to the Consolidated Financial Statements.
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ITEM 13. EXHIBITS LIST AND REPORTS OF FORM 8-K.
(a) Exhibits. The following exhibits are filed herewith.
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Exhibit
No. Description of Exhibit
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3.1 Certificate of Incorporation of the Registrant. (1)
3.2 Bylaws of the Registrant. (1)
4.1 Specimen stock certificate for Common Stock. (1)
4.2 Certificate of Appointment of American Stock Transfer & Trust Company as
Transfer Agent and Registrar. (2)
10.1 Agreement and Plan of Reorganization dated as of April 21, 1995 between
the Registrant and AccuMed, Inc., as amended by Amendment No. 1 dated as
of August 1, 1995 and Amendment No. 2 dated as of October 6, 1995. (3)
10.2 The Registrant's Board of Directors Compensation Plan (the "Plan") as
amended by Minutes of Board of Directors meeting dated January 18, 1996
authorizing grants of stock options to non-employee directors. (1)(4)
10.3 Employment Agreement between the Registrant and Peter P. Gombrich dated
August 1, 1994. (1)(4)
10.4 Employment Letter between the Registrant and Donald M. Dorfman dated as
of October 14, 1996. (4)
10.5 Employment Letter between the Registrant and Joyce L. Wallach dated as
of November 25, 1996. (4)
10.6 Employment Letter between the Registrant and Michael D. Burke dated
April 21, 1995. (1)(4)
10.7 Employment Agreement between the Registrant and Norman J. Pressman dated
June 13, 1996 and Addendum to Employment Agreement between the
Registrant and Norman J. Pressman dated July 16, 1996. (4)(5)
10.8 Escrow Agreement dated as of March 22, 1994, between the Registrant and
G&G Dispensing, Inc. (3)
10.9 License Agreement between the Registrant and Becton,
Dickinson and Company effective as of October 11, 1995. (3)
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10.10 License and Distribution Agreement dated February 20, 1996 between the
Registrant and BioKit, S.A. (1)
10.11 1995 Stock Option Plan. (1)(4)
10.12 Amendment No. 1 to the Registrant's 1995 Stock Option Plan. (4)(8)
10.13 Amendment No. 2 to the 1995 Stock Option Plan. (4)
10.14 Form of Non-Qualified Stock Option Agreement governing options granted
to former employees of AccuMed, Inc. pursuant to the Agreement and Plan
of Reorganization dated as of April 21, 1995, as amended. (1)(4)
10.15 Form of Non-Qualified Stock Option Agreement governing options granted
to employees and consultants under the 1995 Stock Option Plan. (1)(4)
10.16 Form of Incentive Stock Option Agreement governing options granted to
employees under the 1995 Stock Option Plan. (1)(4)
10.17 Amended and Restated 1990 Stock Option Plan. (4)(9)
10.18 Amendment No. 1 to Amended and Restated 1990 Stock Option Plan. (4)
10.19 The Registrant's Amended and Restated 1992 Stock Option Plan. (11)(4)
10.20 Amendment No. 1 to Amended and Restated 1992 Stock Option Plan. (4)
10.21 Lease between the Registrant and NCP, LTD dated February 20, 1995
pertaining to the offices located at 29299 Clemens, Suite I-K, Westlake,
Ohio 44145. (1)
10.22 Franklin Square Commercial Lease dated July 13, 1994 between the
Registrant and the Lumber Company as Agent for the Beneficiary of
LaSalle National Trust, N.A. pertaining to the premises located at Suite
401, 4th Floor North, 900 North Franklin Street, Chicago, Illinois. (1)
10.23 Rider 1 to Franklin Square Commercial Lease between the Registrant and
the Lumber Company dated May 30, 1996.(5)
10.24 Collaboration Agreement and Worldwide Exclusive License between the
Registrant and G&G Dispensing, Inc. dated March 22, 1994. (5)
10.25 Amendment No. 2 effective as of August 6, 1996 to the Collaboration
Agreement and Worldwide Exclusive License between the Registrant and G&G
Dispensing, Inc. dated March 22, 1994. (6)
10.26 O.E.M. Supply Agreement between Olympus America, Inc., Precision
Instrument division and
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the Registrant dated May 31, 1996.(12)
10.27 Securities Purchase Agreement dated May 31, 1996 among the Registrant,
Kingdon Associates, L.P., Kingdon Partners, L.P., and Kingdon Offshore
N.V. (13)
10.28 Share Purchase Agreement between the Registrant and Xillix Technologies
Corp. dated as of August 16, 1996.(11)
10.29 Subscription Agreement between the Registrant and Oncometrics Imaging
Corp. dated as of August 16, 1996.(11)
10.30 Stock Purchase Agreement by and among the Registrant, RADCO Ventures,
Inc. and the Selling Stockholders named therein dated as of August 15,
1996. (10)
10.31 Distribution Agreement by and between the Registrant and Fisher
Scientific Company, dated September 10, 1996. (12)+
10.32 Employment Agreement between the Registrant and Leonard R. Prange dated
September 9, 1996. (4)(10)
10.33 Promissory Note dated as on February 11, 1997 made by the Registrant in
favor of Oncometrics Imaging Corp. evidencing indebtedness in the
original principal amount of $500,000. (6)
10.34 Security Agreement dated as of February 11, 1997 between the Registrant
and Oncometrics Imaging Corp. (6)
10.35 Convertible Promissory Note made as of February 19, 1997 by the
Registrant in favor of Robert L. Priddy and Edmund H. Shea, Jr. as
Payees evidencing indebtedness in the original principal amount of $6.0
million. (6)
10.36 Loan Agreement dated as of February 19, 1997 among the Registrant and
Robert L. Priddy and Edmund H. Shea, Jr. (6)
10.37 Agency Agreement between the Registrant and Commonwealth Associates
dated as of March 3, 1997. (6)
10.38 Warrant Agreement among the Registrant, Commonwealth Associates and
American Stock Transfer and Trust Company as transfer agent relating to
Warrants to purchase an aggregate of 850,000 shares of Common Stock
dated March 13, 1997. (6)
10.39 Form of Warrant Certificate dated as of March 13, 1997 evidencing right
to acquire an aggregate of 850,000 shares of Common Stock issued to
several investors in a private placement consummated March 13, 1997.
(6)
10.40 Form of Subscription Agreement between the Registrant and several
investors in the private
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placement consummated on March 13, 1997. (6)
10.41 Form of 12% Convertible Promissory Note evidencing indebtedness in the
original aggregate principal amount of $8.5 million made by the
Registrant in favor of several investors in the private placement
consummated on March 13, 1997. (6)
10.42 Stock Purchase Warrant between the Registrant and Commonwealth
Associates dated as of March 13, 1997 pertaining to Warrants to purchase
an aggregate of 200,000 shares of Common Stock and Form of Warrant
Certificate dated as of March 13, 1997 evidencing the right to acquire
an aggregate of 200,000 shares of Common Stock issued to Commonwealth
Associates and/or its designees, issued in connection with the private
placement consummated March 13, 1997. (6)
10.43 Manufacturing and License Agreement dated December 30, 1996, between the
Registrant and Salcom S.r.l. (6)
10.44 Asset Purchase Agreement dated as of March 3, 1997 between the
Registrant and Difco Microbiology Systems, Inc. (14)
10.45 Manufacturing Agreement dated as of March 3, 1997 among the Registrant,
Difco Laboratories Incorporated, a Michigan corporation, and Difco
Laboratories Incorporated, a Wisconsin corporation, as amended by
Amendment No. 1 dated as of March 10, 1997. (6)
10.46 Transition Services and Facilities Agreement dated as of March 3, 1997
between the Registrant and Difco Laboratories Incorporated, a Michigan
corporation. (6)
10.47 Base Media License Agreement dated as of March 3, 1997 between the
Registrant and Difco Laboratories Incorporated. (6)
10.48 Sale and Leaseback Agreement between the Registrant and Leasetec, Inc.
(9)
10.49 License Agreement dated July 6, 1994, between the Registrant, Vanellus
AB, and Uppsala Bildbehandlings AB. (1)
10.50 Promissory Note dated December 30, 1996 made by Dr. Norman Pressman in
favor of the Registrant evidencing indebtedness in the original
principal amount of $64,409.20. (4)
</TABLE>
11
<PAGE> 13
<TABLE>
<S> <C>
10.51 Promissory Note dated December 30, 1996 made by Dr. Norman Pressman in
favor of the Registrant evidencing indebtedness in the original
principal amount of $100,000. (4)
22.1 Subsidiaries of the Registrant. (6)
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Coopers & Lybrand LLP.
27.1 Financial Data Schedule.
- ----------------
</TABLE>
+ Confidential treatment granted as to certain portions.
(1) Incorporated by reference to the Registrant's Transition Report on
Form 10-KSB for the transition period ended December 31, 1995.
(2) Incorporated by reference to Pre-Effective Amendment No. 4 to the
Registration Statement on Form S-1 (Reg. No. 33-48302), filed with the
Commission on October 9, 1993.
(3) Incorporated by reference to the Registrant's Registration Statement
on Form S-4 (File No. 33-99680), filed with the Commission on November
22, 1995.
(4) Represents a management contract or compensatory plan or arrangement
required to be filed as an exhibit to this Registration Statement.
(5) Incorporated by reference to the Registrant's Registration Statement
Form S-2 (Regis. No. 333-09011) filed with the Commission on July 26,
1996.
(6) Incorporated by reference to the Registrant's Annual Report on
Form 10-KSB for the year ended December 31, 1996.
(7) Incorporated by reference to the Registrant's Annual Report on Form
10-KSB for the year ended September 30, 1994.
(8) Incorporated by reference to Pre-effective Amendment No. 1 to the
Registration Statement on Form S-2 (Regis. No. 333-09011) filed with
the Commission on August 29, 1996.
(9) Incorporated by reference to the Registrant's Registration Statement
on Form S-1 (Reg. No. 33-48302), filed with the Commission on June 3,
1992.
(10) Incorporated by reference to Pre-effective Amendment No. 4 to the
Registration Statement of Form S-2 (Regis. No. 333-09011) filed with
the Commission on October 3, 1996.
(11) Incorporated by reference to Pre-Effective Amendment No. 1 to Form
SB-2, filed with the Commission on November 8, 1993).
(12) Incorporated by reference to Pre-effective Amendment No. 2 to the
Registration Statement on
12
<PAGE> 14
Form S-2 (Regis. No. 333-09011) filed with the Commission on September
23, 1996.
(13) Incorporated by reference to the Registrant's Registration Statement
on Form S-3 (Reg. No. 333-07681), filed with the Commission on July 3,
1996.
(14) Incorporated by reference to the Registrant's Current Report on Form
8-K dated March 3, 1997.
(b) Reports on Form 8-K. During the fourth quarter of 1996, the
Company filed with the Securities and Exchange Commission the following Current
Reports on Form 8-K.
1. On October 30, 1996, a Current Report on Form 8-K dated October
15, 1996: Item 2- Acquisition or Disposition of Assets - reporting the
acquisition of (i) a two-thirds equity interest in Oncometrics Imaging Corp.
and (ii) of all of the outstanding shares of common stock of RADCO Ventures,
Inc. and Item 7 - Financial Statements and Exhibits.
2. On December 24, 1996, a Current Report on Form 8-K/A dated October
15, 1996, amending Item 7 - Financial Statements and Exhibits of the above
mentioned Current Report on Form 8-K to include the following financial
statements:
Oncometrics Imaging Corp.:
1. Auditors' Report.
2. Balance Sheets as of August 31, 1995, December 31,
1995, May 31, 1996 and September 30, 1996
(unaudited).
3. Statements of Operations and Deficit for the 12
months ended September 30, 1996 (unaudited).
4. Statement of Changes in Financial Position for the 12
months ended August 31, 1995, the four months ended
December 31, 1995, the five months ended May 31, 1996
and the four months ended September 30, 1996
(unaudited).
5. Notes to financial statements.
13
<PAGE> 15
RADCO Ventures, Inc.:
1. Independent Auditors' Report.
2. Balance Sheet as of September 30, 1996.
3. Statement of Operations for the period from March 6,
1996 (date of incorporation) thorough September 30,
1996.
4. Statement of Stockholders' Equity (Deficit) for the
period from March 6, 1996 (date of incorporation)
through September 30, 1996.
5. Statement of Cash Flows for the period form March 6,
1996 (date of incorporation) through September 30,
1996.
6. Notes to financial statements.
AccuMed International, Inc. and its subsidiaries:
1. Pro forma Condensed Combing Balance Sheet as of
September 30, 1996.
2. Pro Forma Condensed Combing Statements of Operations
for the nine months ended September 30, 1996.
3. Pro Forma Condensed Combing Statements of Operations
forth the three months ended December 31, 1995.
14
<PAGE> 16
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant has caused this Amendment No. 2 to the Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ACCUMED INTERNATIONAL, INC.
By: /s/ Leonard R. Prange
--------------------------------------------
Leonard R. Prange
Chief Operating Officer and Chief Financial
Officer (principal financial officer
and principal accounting officer)
Date: August 14, 1997
15
<PAGE> 17
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
AccuMed International, Inc.
We have audited the accompanying consolidated balance sheet of AccuMed
International, Inc. as of December 31, 1996 and December 31, 1995, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for the year ended December 31, 1996 and the three months ended December
31, 1995. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of AccuMed
International, Inc. as of December 31, 1996, and December 31, 1995, and the
results of their operations and their cash flows for the year ended December 31,
1996, and the three months ended December 31, 1995 in conformity with generally
accepted accounting principles.
/S/ KPMG Peat Marwick LLP
Chicago, IL
March 28, 1997
<PAGE> 18
INDEPENDENT ACCOUNTANTS' REPORT
The Shareholders
Alamar Biosciences, Inc.
We have audited the accompanying balance sheet of Alamar Biosciences, Inc.,
as of September 30, 1995, and related statement of operations, shareholders'
equity, and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provided a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Alamar Biosciences, Inc., at
September 30, 1995, and the results of its operations and its cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3, the Company
is involved in litigation and is proposing to merge with another company. The
Company has taken certain actions to meet cash flow requirements, including a
reduction in work force, overhead and product development, until the disputes
can be resolved. There can be no assurance that the Company's efforts related
to the lawsuits will be successful. In addition, there can be no assurance
that combined operations of the proposed merger will produce the necessary cash
flow required. These factors raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not
include any adjustments that might be necessary if the Company is unable to
continue as a going concern.
/s/ COOPERS & LYBRAND L.L.P.
Sacramento, California
November 19, 1995
<PAGE> 19
ACCUMED INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
-----------------------
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1996 1995 1995
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,801,359 $ 180,508 $ 716,211
Restricted cash 100,000 363,000 185,000
Accounts receivable 2,143,596 874,712 245,092
Prepaid expenses and deposits 217,198 124,836 73,260
Production inventory 1,772,127 1,143,120 314,006
----------- ---------- ----------
Total current assets 7,034,280 2,686,176 1,533,569
----------- ---------- ----------
Fixed assets, net 1,696,071 528,402 411,126
----------- ---------- ----------
Notes receivable 214,273 -- 700,000
Deferred merger cost -- -- 299,650
Intangible assets 5,340,411 2,644,556 --
Other assets 194,507 115,069 44,621
----------- ---------- ----------
$14,479,542 $5,974,203 $2,988,966
=========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 2,340,769 $2,005,861 $1,017,103
Other current liabilities 879,808 880,591 203,497
Deferred revenue 146,968 1,454,450 470,238
Notes payable 198,555 726,514 --
Capital lease obligation due within one year 89,810 88,270 89,406
----------- ---------- ----------
Total current liabilities 3,655,910 5,155,686 1,780,244
----------- ---------- ----------
Long term portion of capital lease obligation -- 89,810 110,806
Long term debt 230,795 -- --
Minority interest 456,841 -- --
Stockholders' equity
Common stock, $0.01 par value, 30,000,000
shares authorized, 20,854,157 shares issued
and outstanding at December 31, 1996,
15,571,184 at December 31, 1995 and
10,929,339 at September 30, 1995 208,542 155,712 109,293
Additional paid-in capital 44,424,646 23,334,495 18,008,086
Cumulative translation adjustment 32,586 -- --
Accumulated deficit (34,335,313) (22,761,500) (17,019,463)
Less treasury stock, 31,812 shares at December 31,
1996, and 0 shares at December 31, 1995, and
September 30, 1995, respectively (194,465) -- --
=========== ========== ==========
Total stockholders' equity 10,135,996 728,707 1,097,916
----------- ---------- ----------
$14,479,542 $5,974,203 $2,988,966
=========== ========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
2
<PAGE> 20
ACCUMED INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
-----------------------
<TABLE>
<CAPTION>
Three Months
Year Ended Ended Year Ended
December 31, December 31, September 30,
1996 1995 1995
------------ ------------ -------------
<S> <C> <C> <C>
Sales $ 6,222,449 $ 100,130 $ 514,776
Less Cost of sales (3,991,430) (338,730) (1,431,187)
------------ ----------- -----------
Gross profit (loss) 2,231,019 (238,600) (916,411)
------------ ----------- -----------
Operating expenses:
General and administrative 4,927,657 1,418,797 2,094,890
Research and development 3,110,426 32,600 386,882
Acquired research and
development 5,957,927 3,965,000 --
Sales and marketing 2,464,668 7,197 309,208
------------ ----------- -----------
Total operating expenses 16,460,678 5,423,594 2,790,980
------------ ----------- -----------
Operating loss (14,229,659) (5,662,194) (3,707,391)
Other income (expense):
Interest income 50,604 4,748 7,949
Interest expense (458,214) (10,862) (46,657)
Other income (expense) 2,939,537 (72,929) (13,211)
Minority interest 123,919 -- --
------------ ----------- -----------
Total other income (expense) 2,655,846 (79,043) (51,919)
------------ ----------- -----------
Loss before income taxes (11,573,813) (5,741,237) (3,759,310)
Income tax expense -- 800 800
------------ ----------- -----------
Net loss $(11,573,813) $(5,742,037) $(3,760,110)
============ =========== ===========
Net loss per share $ (0.68) $ (0.49) $ (0.59)
============ =========== ===========
Weighted average common shares
outstanding 16,975,470 11,742,980 6,375,627
============ =========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
3
<PAGE> 21
ACCUMED INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
-----------------------
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE TOTAL
--------------------- PAID-IN ACCUMULATED TRANSACTION TREASURY SHAREHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT STOCK EQUITY
---------- -------- ---------- ----------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at September 30, 1994 4,844,294 48,443 14,555,950 (13,259,353) - - 1,345,040
---------- -------- ----------- ------------ ------- --------- ------------
Issuances of common stock 6,085,045 60,850 3,309,636 - - - 3,370,486
Issuances of warrants - - 142,500 - - - 142,500
Net loss - - - (3,760,110) - - (3,760,110)
---------- -------- ----------- ------------ ------- --------- ------------
Balances at September 30, 1995 10,929,339 109,293 18,008,086 (17,019,463) - - 1,097,916
---------- -------- ----------- ------------ ------- --------- ------------
Issuances of common stock 4,501,845 45,019 4,984,557 - - - 5,029,576
Issuances of warrants - - 308,252 - - - 308,252
Warrants exercised 140,000 1,400 33,600 - - - 35,000
Net loss - - - (5,742,037) - - (5,742,037)
---------- -------- ----------- ------------ ------- --------- ------------
Balances at December 31, 1995 15,571,184 155,712 23,334,495 (22,761,500) - - 728,707
---------- -------- ----------- ------------ ------- --------- ------------
Issuances of common stock 4,280,955 42,810 17,838,083 - - - 17,880,893
Issuances of warrants - - 1,689,464 - - - 1,689,464
Stock options exercised 578,732 5,787 744,587 - - - 750,374
Warrants exercised 256,700 2,567 741,558 - - - 744,125
Conversion of debt 166,586 1,666 76,459 - - - 78,125
Cumulative translation adjustment - - - - 32,586 - 32,586
Shares received for litigation settlement - - - - - (194,465) (194,465)
Net loss - - - (11,573,813) - - (11,573,813)
---------- -------- ----------- ------------ ------- --------- ------------
Balances at December 31, 1996 20,854,157 $208,542 $44,424,646 $(34,335,313) $32,586 $(194,465) $ 10,135,996
========== ======== =========== ============ ======= ========= ============
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE> 22
ACCUMED INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
-----------------------
<TABLE>
<CAPTION>
Three Months
Year Ended Ended Year Ended
December 31, December 31, September 30,
1996 1995 1995
-------------- ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(11,573,813) $(5,742,037) $(3,760,110)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 1,026,231 38,400 235,529
Write-off of in-process research and development 5,957,927 3,965,000 --
Minority interest (123,919) -- --
Expenses paid with issuance of warrants 1,184,390 -- 142,500
Expenses paid with issuance of stock 257,094 606,750 166,000
Shares received for litigation settlement (194,465) -- --
Loss on disposal of assets 74,706 -- 63,609
Changes in assets and liabilities:
Decrease (Increase) in restricted cash 263,000 (178,000) (185,000)
Decrease (Increase) in accounts receivable (1,268,884) 107,906 271,145
Decrease (Increase) in prepaid expenses and deposits (92,362) 1,833 20,035
Decrease (Increase) in production inventory (629,007) 64,999 193,796
Decrease (Increase) in other assets and intangible assets 64,928 80,059 (1,525)
Increase in accounts payable 334,908 168,460 766,900
(Increase) in deferred merger cost -- (750,352) (299,650)
Increase (decrease) in other current liabilities (688) 155,941 8,571
Increase (Decrease) in deferred revenue (1,307,482) 946,429 470,238
------------ ----------- -----------
Net cash used in operating activities (6,027,436) (534,612) (1,907,962)
============ =========== ===========
Cash used in investing activities:
Purchase of fixed assets (1,479,694) (62,196) (49,834)
Acquisition of business, net (3,854,737) 48,237 --
------------ ----------- -----------
Net cash used in investment activities (5,334,431) (13,959) (49,834)
============ =========== ===========
Cash flows from financing activities:
Proceeds from issuances of common stock net 13,976,390 35,000 3,204,486
Notes receivable issued (214,273) -- (700,000)
Payment of capital lease obligation (89,907) (22,132) (50,115)
Proceeds from issuance of notes payable 1,025,000 -- --
Proceeds from Bank Loan 592,551 -- --
Payment of notes payable (1,339,629) -- --
------------ ----------- -----------
Net cash provided by financing activities 13,950,132 12,868 2,454,371
============ =========== ===========
Effect of exchange rate changes on cash 32,586 -- --
------------ ----------- -----------
Net increase (decrease) in cash and cash equivalents 2,620,851 (535,703) 496,575
Cash and cash equivalents at beginning of period 180,508 716,211 219,636
------------ ----------- -----------
Cash and cash equivalents at end of period $ 2,801,359 $ 180,508 $ 716,211
============ =========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
5
<PAGE> 23
ACCUMED INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
AccuMed International, Inc. develops, manufactures and markets
state-of-the-art medical devices and instruments for laboratories, hospitals and
others. The Company was founded in January 1988, incorporated in June 1988 and
reincorporated in Delaware in 1995.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of AccuMed
International, Inc. and its majority-owned subsidiaries ("the Company")(formerly
Alamar Biosciences, Inc.). The Company's interest in Oncometrics Imaging
Corporation (Oncometrics) was 66.7%, 0%, and 0% at December 31, 1996, 1995, and
September 30, 1995. All significant intercompany accounts and transactions have
been eliminated in consolidation.
Revenue Recognition
Revenue is recognized when the products are shipped. Contract revenue
from research agreements is recorded when earned and as the related costs are
incurred. Payments received which are related to future performance are deferred
and recognized as revenue when earned over future performance periods.
Cash and Cash Equivalents
Cash and cash equivalents include cash in banks and money market fund
investments with original maturities of three months or less.
Restricted Cash
Restricted cash as of December 31, 1996 consists of $100,000 as
security deposit for a letter of credit to a vendor. The letter of credit
agreement allows the vendor to draw upon the restricted cash if outstanding
invoices to the Company exceeded specified time limits. As of December 31, 1996,
no draws have been made and all invoices to the vendor are current.
The restricted cash as of December 31, 1995 consists of $310,000 of
certificates of deposit with maturities less than one year which were placed as
collateral against a loan made by a financial institution and $53,000 held in an
escrow account.
Restricted cash as of September 30, 1995 includes an escrow deposit of
$150,000 pursuant to an agreement entered into in 1995 between the Company and
an outside legal counsel to the Company. Pursuant to the agreement the Company
issued to their counsel 240,000 shares of common stock, net of issuance costs of
$19,500, in exchange for a reduction of $150,000 in accounts payable. The escrow
deposits were released in proportion to the amounts realized by the counsel from
the sale of such shares in the public market. As of December 31, 1995 $97,000
had been released from the escrow account with the remaining $53,000 released in
February 1996.
Inventories
Inventories consist primarily of raw materials and subassemblies and
are stated at the lower of cost (average cost) or market. Cost is determined by
the first-in first-out method (FIFO).
6
<PAGE> 24
ACCUMED INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fixed Assets
Fixed assets are stated at cost. Depreciation of plant and equipment is
provided using the straight line method over the estimated useful lives of the
assets. Amortization of leasehold improvements is provided on the straight-line
method over the shorter of the estimated useful life of the improvement or the
term of the lease. Expenditures for repairs and maintenance are charged to
operations when incurred.
Intangible Assets
Intangible assets consists principally of values assigned to acquired
proprietary technology and the excess of cost over the fair value of net assets
acquired. Such amounts are being amortized on a straight-line basis over the
expected periods to be benefited, generally 10 years. The Company assesses the
recoverability of the excess of cost over the fair value of net assets acquired
by determining whether the amortization of the balance over its remaining life
can be recovered through undiscounted future operating cash flows of the
acquired operation.
The amount of impairment, if any, is measured based on projected
discounted future operating cash flows of the related acquired businesses using
a discount rate reflecting the Company's average cost of funds. The assessment
of the recoverability of this asset will be impacted if the estimated future
operating cash flows are not achieved.
Research and Development Costs
Research and development costs are charged to operations as incurred.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to the difference between the financial statement
carrying amount of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Net Loss Per Share
Net loss per share is computed using the weighted average number of
common shares outstanding during each period. Common equivalent shares from
stock options and warrants are excluded from the computation as their effect is
anti-dilutive.
Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ from those
estimates.
7
<PAGE> 25
ACCUMED INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. BASIS OF PRESENTATION FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1995.
In November 1994, the Company filed a lawsuit in United States District
Court against Difco, a competitor, alleging misappropriation of its trade
secrets, and sought a constructive trust over a patent covering important
aspects of the Company's technology issued to Difco. The patent, which was
issued to Difco as a result of its alleged misappropriation, covers the basic
technology used in the Company's manual testing kits. A hearing on Difco's
summary judgment against the Company was held on September 8, 1995. Due to the
discovery of the alleged misappropriation, the Company declined to accept the
proceeds of a $2,500,000 financing scheduled to close on November 10, 1994 and
implemented significant cutbacks in operations pending the outcome of the
lawsuit, including the elimination of its domestic sales force and suspension of
research and development efforts and contract research. (The above referenced
litigation has been subsequently settled.)
On May 2, 1995, the Company received notice that MicroScan, Inc.,
(MicroScan), a wholly-owned subsidiary of Dade International, Inc., filed an
intervention complaint with the court against both the Company and Difco, which
alleged that one of the Company's founders misappropriated confidential
information of MicroScan while an employee of MicroScan prior to co-founding the
Company in 1988, and used such information to develop the Company's technology.
The Company filed a motion for summary judgment and, on October 17, 1995, the
Court granted the Company's summary judgment motion and dismissed the
intervention complaint with prejudice.
On December 29, 1995, the Company acquired all of the common stock of
AccuMed, Inc. and its wholly-owned subsidiary. (See Note 17.)
The fiscal year ended September 30, 1995 financial statements do not
include any adjustments that might be necessary if the Company is unable to
continue as a going concern.
4. CHANGE IN FISCAL YEAR
In 1995, the Company changed to a fiscal year ending December 31. The
consolidated statement of operations for the three months ended December 31,
1994 (unaudited) is presented for comparison purposes only.
8
<PAGE> 26
ACCUMED INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
December 31, 1994
------------------
<S> <C>
Sales $ 100,614
Less cost of sales (227,300)
----------
(126,686)
Operating expenses
General and administrative 384,181
Research and development 150,983
Sales and marketing 171,420
----------
Total operating expenses 706,584
----------
Operating loss (833,270)
Other income (expense)
Interest income 664
Interest expense (13,267)
----------
Total other income (expense) (12,603)
----------
Loss before income taxes (845,873)
Income tax expense 200
Net loss $ (846,073)
==========
Net loss per share $ (0.17)
==========
Weighted average common shares outstanding 4,894,294
==========
</TABLE>
5. ACCOUNTS RECEIVABLE
Accounts receivable includes the following at:
<TABLE>
<CAPTION>
December 31,
--------------------- September 30,
1996 1995 1995
--------- ------- -------------
<S> <C> <C> <C>
Trade receivables $2,269,688 $842,994 $221,767
Contract refunds due -- 43,050 43,050
Other receivables -- 6,600 --
Allowance for doubtful accounts (126,092) (17,932) (19,725)
--------- ------- -------
Total $2,143,596 $874,712 $245,092
========= ======= =======
</TABLE>
9
<PAGE> 27
ACCUMED INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. FIXED ASSETS
Fixed assets includes the following at:
<TABLE>
<CAPTION>
December 31,
Estimated useful ------------------------- September 30,
life 1996 1995 1995
---------------- -------------------------- -------------
<S> <C> <C> <C> <C>
Equipment 3 - 5 years $1,752,044 $ 871,595 $ 776,867
Leasehold improvements 5 - 13 years 544,892 60,947 --
Equipment under capital lease 5 years 299,090 299,090 299,090
---------- ---------- ----------
2,596,026 1,231,632 1,075,957
Less accumulated depreciation and amortization (899,955) (703,230) (664,831)
---------- ---------- ----------
$1,696,071 $ 528,402 $ 411,126
========== ========== ==========
</TABLE>
7. NOTES RECEIVABLE
At December 31, 1996 notes receivable consisted of two notes from
related parties in the aggregate amount of $214,273.
Pursuant to the merger agreement (note 16), the Company extended the
following loans, which bear interest at 10% per annum, to AccuMed Inc. to
provide working capital.
<TABLE>
<CAPTION>
DATE AMOUNT
- ---- ------
<S> <C>
May 9, 1995..................................................... $150,000
May 31, 1995.................................................... 125,000
June 28, 1995................................................... 125,000
August 7, 1995.................................................. 125,000
August 29, 1995................................................. 175,000
--------
$700,000
========
</TABLE>
On November 20, 1995, the Company's Board of Directors agreed to
consolidate the various notes above into a single $700,000 note. Upon
consummation of the merger on December 29, 1995, such amounts were eliminated in
consolidation at December 31, 1995.
10
<PAGE> 28
ACCUMED INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. OTHER CURRENT LIABILITIES
Other current liabilities consist of the following at:
<TABLE>
<CAPTION>
December 31,
----------------------- September 30,
1996 1995 1995
------- ------- -------------
<S> <C> <C> <C>
Payroll and related costs 95,211 286,998 84,970
Sales & use taxes -- -- 908
Customer deposits 94,333 47,169 2,169
Accrued rent -- 64,255 89,750
Other accrued expenses 690,264 482,169 25,700
------- ------- -------------
Total 879,808 880,591 203,497
------- ------- -------------
</TABLE>
9. DEFERRED REVENUE
Deferred revenue of $146,968 at December 31, 1996 consists of deposits
recorded during 1996 for research projects to be performed during 1997. The
Company will recognize revenue when performance milestones are met in future
periods.
On May 3, 1995, the Company entered into a letter of intent with Becton
Dickinson, Inc., (Becton) pursuant to which the Company agreed to grant Becton a
semi-exclusive, worldwide license of the Company's alamarBlue(TM) technology for
a specific field of use. On October 10, 1995, the license agreement (License)
between the Company and Becton was executed.
On signing the letter of intent, Becton paid the Company $100,000. On
June 28, 1995, Becton paid an additional $400,000 to the Company. In October
1995, the Company received $250,000 for executing the license agreement, and
$750,000 upon the initial favorable resolution of the MicroScan lawsuit. In
February 1996, Becton paid an additional $1,000,000 upon final favorable
resolution of the MicroScan lawsuit and $1,000,000 in March 1996 upon final
favorable resolution of the Difco lawsuit. Of this last amount, $500,000 is
creditable against future royalties.
The $1,500,000 received by the Company through December 31, 1995 was
deferred pending resolution of the above mentioned lawsuits. Due to the
settlement of the lawsuits in February and March 1996, all of the remaining
deferred revenues became income during the quarter ending March 31, 1996.
10. LONG-TERM DEBT
Long-term debt of $230,795 at December 31, 1996 consists of the
Company's portion of Oncometrics repayable contribution from the Western
Economic Diversification Program. The debt does not bear interest and is
repayable in semi-annual payments based on future sales of the Access device.
11
<PAGE> 29
ACCUMED INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. NOTES PAYABLE
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
-------- ---------
<S> <C> <C>
Notes payable consist of the following at:
Note payable to bank, guaranteed by $ -- $100,000
stockholders, interest at 11.75%
payable monthly with principal payment
due on April 30, 1996
Note payable to bank, guaranteed by -- 455,000
stockholders, interest at 10.75%
payable monthly with principal payment
due on April 30, 1996
Notes payable to stockholders, interest 25,100 90,610
at 10%, due on demand
Bank line of credit, collateralized by 173,455 80,904
substantially all assets of AccuMed
International Limited, a wholly-owned
subsidiary of the Company, due on demand
-------- --------
$198,555 $726,514
======== ========
</TABLE>
12. STOCKHOLDERS' EQUITY
The Board of Directors is authorized to issue 5,000,000 shares of
preferred stock, the terms and rights to be established upon issuance. Of these
shares, 382,500 have been designated as Series A 8% Cumulative Preferred Stock.
None of these shares have been issued.
Warrants
In March 1996, the Company granted to certain investors in a related
party in exchange for 10% of the outstanding common stock of such related party
warrants to purchase 687,500 shares of common stock at a price of $3.42 to $3.87
per share. These warrants expire in March 1999. The fair market value of these
warrants of $852,390 has been recorded as issuance of common stock warrants with
an offsetting charge reflected as other expense in the Consolidated Statements
of Operations. The Company utilized the Black Scholes pricing model to determine
the fair value of the warrants granted. The following assumptions were
incorporated into the model: risk free rate 7.5%, expected life of warrant 3
years, expected volatility 20%, and expected dividends 0.
In March 1996, the contingency associated with the issue of warrants
was resolved in the issuance of 63,472 warrants. The market value of
these warrants of $255,074 was included in consideration received from the
resolution of the contingency. The Company utilized the Black Scholes pricing
model to determine the fair value of the warrants granted. The following
assumptions were incorporated into the model: risk free rate 7.5%, expected life
of warrant 1 year, expected volatility 20%, and expected dividends 0.
(Note 17).
In January 1996, the Company granted to an individual in exchange for
consulting services rendered warrants to purchase 100,000 shares of common stock
at a price of $2.125 per share. These warrants expire in January 2001. The fair
market value of these warrants of $230,000 has been recorded as issuance of
common stock warrants with an offsetting charge reflected as administration
expense in the Consolidated Statement of Operations. The Company utilized the
Black Scholes pricing model to determine the fair value of the warrants granted.
The following assumptions were incorporated into the model: risk free rate 7.5%,
expected life of warrant 2 years, expected volatility 20%, and expected
dividends 0.
In January 1996, the Company received $250,000 cash in exchange for a
note payable bearing interest at 11% due in April 1996, and warrants to purchase
100,000 shares of common stock at $1.25 per share. The warrants have been
recorded at their estimated fair market value of $352,000. The Company utilized
the Black Scholes pricing model to determine the fair value of the warrants
granted. The following assumptions were incorporated into the model: risk free
rate 7.5%, expected life of warrant 5 years, expected volatility 20%, and
expected dividends 0. This note payable was paid in 1996, resulting in a charge
of $352,000 reflected as interest expense in the Consolidated Statement of
Operations for the year ended December 31, 1996.
During 1996 56,500 warrants were exercised at $0.25 and 200 at $5.00.
12
<PAGE> 30
ACCUMED INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At December 31, 1996, outstanding warrants to purchase shares of common
stock at any time through the expiration date were as follows:
<TABLE>
<CAPTION>
Shares Price Expiration Date
--------- ----- ---------------
<S> <C> <C>
2,702,705 $5.00 10/97
104,000 2.13 10/97
120,000 3.42 3/99
367,500 3.87 3/99
400,000 0.25 12/99
175,000 5.00 12/99
25,275 5.00 4/00
264,840 0.63 5/00
100,438 0.82 8/00
100,437 1.64 8/00
100,437 2.47 8/00
300,000 0.63 8/00
63,500 0.25 9/00
75,000 1.13 12/00
750,000 1.25 12/00
100,000 1.25 1/01
100,000 $2.13 3/01
---------
5,849,132
=========
</TABLE>
In February 1995, the Company granted warrants to a consulting firm for
the right to purchase 140,000 shares of the Company's common stock at a price of
$.25 per share in lieu of the Company's liability of $105,000 to the consulting
firm. These warrants were exercised in December 1995. In May 1995, the Company
granted warrants to a placement agent for the right to purchase 100,000 shares
of the Company's common stock at a price of $.25 per share as compensation for
services performed relating to the canceled $2.5 million financing in November
1994. The warrants expire in August 2000. The difference between the fair market
value of the stock and the common stock purchase price has been recorded as
issuance of common stock warrants.
Additionally, contingent upon consummation of the merger, a consulting
firm was granted a five year warrant to purchase up to 750,000 shares of common
at a price of $1.25 per share, subject to certain limitations. The fair value of
these warrants has been recorded as issuance of common stock warrants. (Note
17)
13
<PAGE> 31
ACCUMED INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At December 31, 1995, outstanding warrants to purchase shares of common
stock at any time through the expiration date were as follows:
Stock Option Plan
The Company has in effect three stock options plans for certain
employees. On October 15, 1990, the Company adopted the 1990 Stock Option Plan
(1990 Plan). The Company's employees, directors, and consultants are eligible to
participate in the Plan. The Company has reserved shares of authorized
but unissued common stock for issuance under the 1990 Plan.
On February 4, 1992, the Company adopted the 1992 Stock Option Plan
(1992 Plan), for which the Company has reserved shares of authorized but
unissued common stock. Options issued under the 1992 Plan are issued,
exercisable, and governed by substantially the same terms as options issued
under the 1990 Plan, with the exception of provisions in the 1990 Plan
accelerating the vesting of options in instances of acquisition or liquidation,
which have been deleted from the 1992 Plan.
On November 17, 1992 the Board of Directors also approved an increase,
approved by the stockholders on March 2, 1993, of the number of shares of common
stock reserved for issuance under the 1992 Plan from 405,000 to 505,000 shares.
On December 29, 1995, the Company adopted the 1995 Stock Option Plan
(1995 Plan), for which the Company has reserved an additional 1,832,483 shares
of authorized but unissued common stock. Options issued under the 1995 Plan are
issued, exercisable, and governed by substantially the same terms as options
issued under the 1992 Plan.
Terms of the Plans include:
Exercise Price _ For the 1990 Plan, fair market value determined by the Board
of Directors and not less than 110% of the determined fair market value in
certain instances. For the 1992 Plan and the 1995 Plan fair market value as
determined by the closing price of the Common Stock on the date of issuance as
reported by NASDAQ.
14
<PAGE> 32
ACCUMED INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Vesting Period _ A portion of the options granted to participants vested
immediately with the remaining options vesting on varying schedules not
exceeding five years from date of grant.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its Stock Option Plans. Accordingly, no compensation cost has
been recorded with the exception of stock options granted to consultants, which
are recorded at fair value. Had compensation cost for the Company's Stock Option
Plans been determined consistent with FASB Statement No. 123, the Company's net
loss and loss per share would have been increased to the pro forma amounts
indicated below.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1996 1995 1995
------------ ------------ -------------
<S> <C> <C> <C> <C>
Net loss As reported $(11,573,813) $(5,742,037) $(3,760,110)
Pro forma (12,147,534) (5,775,556) (3,770,971)
Net loss per share As reported $ (0.68) $ (0.49) $ (0.59)
Pro forma (0.72) (0.49) (0.59)
</TABLE>
Pro forma net loss and loss per share reflect only options granted in
1996 and 1995. Therefore, the full impact of calculating compensation cost for
stock options under SFAS No. 123 is not reflected in the pro forma net loss
amounts presented above because compensation cost is reflected over the options'
vesting period of up to 10 years and compensation cost for options granted prior
to January 1, 1995 is not considered.
The compensation cost of each option grant is estimated on the date of
grant using the Black-Scholes option pricing model with the following weighted
average assumptions used for grants in 1996 and 1995.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1996 1995 1995
------------ ------------ -------------
<S> <C> <C> <C>
Dividend yield 0% 0% 0%
Volatility 136% 136% 136%
Risk free interest rate 7% 7% 7%
Expected term in years 9.13 9.57 9.57
</TABLE>
15
<PAGE> 33
ACCUMED INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A summary of the status of the Company's Stock Option Plans as of
September 30, 1995 and as of December 31, 1995 and 1996 and changes during the
periods then ended is presented below:
<TABLE>
<CAPTION>
Weighted
Average
Shares Exercise Price
--------- --------------
<S> <C> <C>
Outstanding at September 30, 1994 532,855 $ 4.96
Granted 106,020 $ 1.07
Exercised -- $ --
Expired (cancelled) (123,023) $ 1.07
---------
Outstanding at September 30, 1995 515,852 $ 1.32
Granted 1,103,910 $ 1.11
Exercised -- $ --
Expired (cancelled) (32,917) $ 1.39
---------
Outstanding at December 31, 1995 1,586,845 $ 1.23
Granted 909,000 $ 4.99
Exercised (578,732) $ 1.30
Expired (cancelled) (182,084) $ 1.13
---------
Outstanding at December 31, 1996 1,735,029 $ 3.15
=========
</TABLE>
The following table summarizes information about stock options outstanding as
of December 31, 1996:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
-------------------------------------------- ----------------------------
Weighted avg
remaining Weighted avg Weighted avg
Number contractual exercise Number exercise
Range of exercise prices outstanding life price exercisable price
- ------------------------ ----------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
$0.63 to $1.13 881,779 8.26 $1.11 650,439 $1.11
$1.44 to $3.75 259,250 6.12 2.57 185,917 2.11
$5.38 to $8.38 594,000 4.56 6.41 186,335 6.54
--------- ---------
$0.63 to $8.38 1,735,029 6.67 $3.15 1,022,691 $1.34
========= =========
</TABLE>
16
<PAGE> 34
ACCUMED INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Common Stock
A registration statement on Form SB-2 was declared effective by the
Securities and Exchange Commission on October 3, 1996, and net proceeds of the
offering approximating $11,700,000 were received by the Company on October 8,
1996.
In July 1996 the Company issued 25,000 shares of the Company's common
stock at a price of $6.25 per share to a related party. Administrative expense
in the amount of $156,250 has been recorded in the Consolidated Statement of
Operations.
In June 1996 the Company issued 255,000 shares of common stock in
private placements with net proceeds of $1,409,665.
In June 1996, 166,586 shares of common stock were issued to a related
party pursuant to an agreement requiring conversion of the outstanding principal
and the accrued and unpaid interest totaling $78,125 into 68,500 shares of
common stock of AccuMed, Inc. prior to the merger.
In January 1996, the Company issued 60,000 shares of common stock at a
price of $1.125 per share to related parties. Administrative expense in the
amount of $67,500 has been reflected in the Consolidated Statement of
Operations.
In November 1995, the Company issued 20,000 shares of the Company's
common stock at a price of $.625 per share to a director for consulting services
performed related to the merger. Consulting expense in the amount of $12,500 has
been reflected in the Consolidated Statements of Operations.
In October 1995, the Company issued to each non-employee director of
the Company 10,000 shares of the Company's common stock at a price of $.625 per
share as compensation for services performed. Compensation expense in the amount
of $31,250 has been reflected in the Consolidated Statements of Operations.
In August 1995, the Company issued 16,000 shares of the Company's
common stock at a price of $1 per share to a vendor as compensation for services
performed in lieu of the Company's liability of $16,000 to the vendor.
During May and August 1995, the Company completed two separate private
offerings for an aggregate of 5,648,400 shares of the Company's common stock
providing net proceeds of $2,931,486 (net of $598,764 of financing expenses).
Also, the Company's placement agent received warrants for the future purchase of
564,840 shares of the Company's common stock at an exercise price of $0.625.
Such warrants expire from May through August 2000.
In March 1995, the Company issued 80,645 shares of the Company's
common stock at a price $0.62 per share for a total of $42,500 (net of financing
costs of $7,500) to a private investor.
In March 1994, the Company finalized an agreement with one of the
Company's distributors, to purchase the Company's securities in exchange for
certain distribution, licensing and product development rights. Under the terms
of the agreement, the Company was obligated to issue 200,000 shares of common
stock for a total consideration of $500,000. At September 30, 1994, the
distributor had purchased $250,000 in common stock. In November 1994, the
distributor purchased the remaining $250,000 in common stock and was issued
warrants to purchase 166,667 additional shares of stock at an exercise price of
$3.00 per share, which warrants expired in December 1995.
In March 1996, the contingency associated with 940,955 shares of
common stock was resolved, and the shares were subsequently issued. The fair
value of these shares of $5,175,252 was included in consideration received from
the resolution of the contingency, see Note 16.
17
<PAGE> 35
ACCUMED INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. INCOME TAXES
The net deferred tax assets and liabilities consist of the following
at:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1996 1995 1995
---- ---- ----
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.............. $8,165,000 $ 6,520,000 $5,460,000
Research and development credits.............. 479,000 300,000 295,000
Capitalized research and development costs.... -- -- 280,000
Depreciation.................................. 420,000 162,000 175,000
Other......................................... 184,000 114,000 65,000
---------- ----------- ----------
Total $9,248,000 7,096,000 6,275,000
Valuation allowance (9,248,000) (7,096,000) (6,275,000)
---------- ----------- ----------
Net deferred tax assets and liabilities $ -- $ -- $ --
========== =========== ==========
</TABLE>
At December 31, 1996, the Company had approximately $22,931,000 and
$7,966,000 in net operating losses for federal and state tax purposes,
respectively, available to be carried forward to future periods. The
carryforwards expire from 2004 to 2012 for federal purposes and from 2011 to
2012 for state purposes. The Company also has credits for research and
development of $479,000 available to offset future federal income taxes, which
expire from 2004 to 2012.
As a result of providing a valuation allowance equal to the deferred
tax assets, there is no federal tax provision. The provision for tax for the
three months ended December 31, 1995 and the year ended September 30, 1995 is
the state minimum tax.
During the last three years, the Company has had more than a 50% change
in ownership. Section 382 of the Internal Revenue Code and comparable state
statutes impose certain annual limitations on the utilization of net operating
loss carryforwards and research and development credits that can be used to
offset income in future periods.
14. LEASES
Operating Leases
The Company leased its facilities and one automobile under operating
leases. Rental expense is recognized on a straight-line basis over the life of
the lease. Rental expense for the year ended December 31, 1996, the three months
ended December 31, 1995 and the year ended September 30, 1995 was $380,205,
$71,000, and $156,000, respectively.
18
<PAGE> 36
ACCUMED INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Minimum future annual rent payments are as follows for years ending December 31:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C>
1997 $325,321
1998 269,125
1999 269,125
2000 205,775
2001 143,198
Thereafter 1,288,000
----------
Total $2,500,544
==========
</TABLE>
Capital Leases
In July and September 1994, the Company entered into capital leases for
production equipment in the total amount of $231,693, with principal and
interest payable monthly, interest at approximately 21%, and total residuals of
$34,754 due in July and September 1997.
In October 1994, the Company entered into a capital lease for office
equipment in the total amount of $29,000, with principle and interest payable
monthly, interest at 8.71%, and a residual of $4,350, due in October 1997.
Future minimum lease payments under capital lease obligations for the
year ending December 31, 1996 are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C>
1997 97,958
Less amount representing interest (8,148)
------
89,810
======
</TABLE>
15. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Non-cash investing and financing activities:
During the year ended December 31, 1996, the Company issued common
stock and warrants for the payment of expenses. The value of common stock and
warrants issued was $257,094 and $1,184,390, respectively. A shareholder
returned previously issued shares to the Company as compensation for the
settlement of litigation which amounted to $194,465.
During the three month period ending December 31, 1995 and the
year ended September 30, 1995 the Company acquired assets under capital
leases in the amounts of $0 and $21,341, respectively.
During the three months ended December 31, 1995, the Company acquired
all of the outstanding shares of AccuMed, Inc. in exchange for common stock of
the Company. The fair value of net liabilities assumed was $828,476. Cash
acquired totaled $48,237.
19
<PAGE> 37
ACCUMED INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Cash paid for interest and income taxes:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED YEAR ENDED
DECEMBER 31, 19996 DECEMBER 1, 1995 SEPTEMBER 30, 1995
------------------ ---------------- ------------------
<S> <C> <C> <C>
Cash paid during the period for:
Interest 76,350 19,122 46,657
Income taxes -- -- 800
</TABLE>
16. COMMITMENTS
Pfizer Agreement
In October 1992, the Company entered into an agreement to conduct a
research project for the purpose of developing a testing procedure for another
entity. The maximum payments the Company may receive for completion of the
agreement are $246,000. As of December 31, 1996, the Company had received
payments of $184,500 based on procedures completed to date.
17. MERGER AND RELATED TRANSACTIONS
On December 29, 1995, the Company acquired all of the common stock of
AccuMed, Inc. and its wholly owned subsidiary ("AccuMed"). AccuMed is primarily
engaged in the research and development of diagnostic screening products for the
cytopathology and microbiology clinical laboratory, pharmaceutical and
veterinary segments of the health care industry. Following the acquisition,
AccuMed ceased to exist as a legal entity and the merged entity was renamed
AccuMed International, Inc. Pursuant to the terms of the merger agreement the
Company issued 3,931,401 unconditional shares of common stock valued at
$4,422,826 and 237,840 warrants valued at $68,252 on December 29, 1995. An
additional 1,881,910 shares and 126,945 warrants were issued to AccuMed
stockholders on December 29, 1995, however, such shares and warrants are
contingent and subject to forfeiture if specified performance goals are not
achieved by the merged entity during the 24 months beginning January 1, 1996.
The contingent consideration will be recorded when the goals are achieved and
will be computed based upon the stock price on such date.
The acquisition has been accounted for using the purchase method of
accounting, and, accordingly, the purchase price has been allocated to the
assets purchased and liabilities assumed based upon the fair values at the date
of acquisition. The excess of the purchase price over the fair value of the
tangible assets has been allocated to identifiable intangibles of acquired
proprietary technology ($2,644,556) and in-process research and development
($3,965,000). The acquired proprietary technology will be amortized over the
expected period to be benefited, which is estimated to be 10 years with the
in-process research and development charged to operations at the date of
acquisition.
The contingency associated with 940,955 shares and 63,472 warrants was
resolved (performance goal achieved) in March 1996 resulting in contingent
consideration of approximately $5,273,000. Such amount has been allocated to
acquired proprietary technology ($1,775,000) and in-process research and
development ($3,498,000) and recorded in March 1996.
20
<PAGE> 38
ACCUMED INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The results of operations of AccuMed have not been included in the
Consolidated Statements of Operations for the three months ended December 31,
1995 or for the year ended September 30, 1995 because the acquisition occurred
at the end of the three month period ended December 31, 1995. The following pro
forma information has been prepared assuming that the acquisition had taken
place at the beginning of the respective periods. The pro forma information
includes adjustments for the amortization of intangibles and write-off of
in-process research and development arising from the transaction. The pro forma
financial information is not necessarily indicative of the results of operations
as they would have been had the transaction been effected on the assumed dates.
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1995
----------------- ------------------
(UNAUDITED)
<S> <C> <C>
Sales............................................................. $1,109,506 $3,979,930
Net loss.......................................................... (7,016,824) (9,844,326)
Net loss per share................................................ $(0.60) $(1.00)
</TABLE>
The Company, AccuMed and AccuMed International Limited, a wholly-owned
subsidiary of AccuMed, entered into a Manufacturing and Supply Agreement
effective as of July 1, 1995, (the Manufacturing Agreement) pursuant to which
the Company purchased ID/MIC panels from Sensititre Limited. The Manufacturing
Agreement was terminated on December 29, 1995. Amounts paid to AccuMed for the
year ended September 30, 1995 under the Manufacturing Agreement were $277,172.
Additionally, the Company gave a deposit to AccuMed of $50,000 in October 1995,
for the purchase of supplies and raw materials in relation to this agreement.
Pursuant to a Distributor Agreement effective as of July 1, 1995
between AccuMed and the Company (the Distributor Agreement), the Company
appointed AccuMed as its distributor for microbiology products. AccuMed was the
exclusive distributor in the United States, Canada, Mexico, Puerto Rico, Japan,
the Far East, Australia and Europe (except Italy, Portugal, Germany, Austria,
Belgium, Cyprus, Greece, Luxembourg, The Netherlands, Switzerland and Turkey),
and a non-exclusive distributor in Central America, South America, Africa, South
Africa, Korea, East Europe, the Middle East, China and Taiwan. The Distributor
Agreement was terminated on December 29, 1995. Amounts paid to AccuMed for the
year ended September 30, 1995 under the Distributor Agreement were $35,677.
Pursuant to an oral agreement (the Oral Agreement), the Company paid
AccuMed an amount equal to 30% of AccuMed's lease payment (approximately $2,500
per month) for its manufacturing facility in Cleveland, Ohio and 30% of
AccuMed's general overhead expenses in consideration for AccuMed providing
sales, marketing and distribution services on behalf of the Company. Such
arrangement terminated on December 29, 1995. Amounts paid to AccuMed for the
year ended September 30, 1995, under this Oral Agreement were $67,508.
Pursuant to a Research and Development Agreement, effective as of July
1, 1995, (the R&D Agreement) between the Company and AccuMed the Company granted
to Sensititre Limited, a wholly-owned subsidiary of AccuMed, a non-exclusive
license to use the Company's intellectual property, including know-how, trade
secrets and technology relating to alamarBlue(TM) for the sole purpose of
conducting research and development activities using such intellectual property.
Under the R&D Agreement, the Company paid the actual hourly wage per employee
hour spent on such research and development and reimburses AccuMed for its
expenses relating thereto. The R&D Agreement terminated on December 29, 1995.
Amounts paid to AccuMed for the year-ended September 30, 1995, under this R&D
Agreement were $20,000.
At September 30, 1995, the Company had recorded an accounts receivable
of $53,499 from AccuMed which resulted from the sale of inventory to AccuMed.
Additionally, the Company had recorded approximately $123,000 of accounts
payable to AccuMed for services received pursuant to the Manufacturing,
Distributor and Oral Agreements. Upon consummation of the merger on December 29,
1995 such amounts were eliminated in consolidation.
21
<PAGE> 39
ACCUMED INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company recorded a deferred asset at September 30, 1995, of
$299,650 relating to direct costs paid to unrelated entities for services
performed related to the merger. These deferred costs have been included in
determining the cost of AccuMed.
In February 1995, the Company and AccuMed entered into an agreement
with a consulting firm (Consulting Firm) to pay the Consulting Firm an aggregate
finders fee for assistance with the merger, of which $50,000 was paid with
proceeds from the Company's private offering in August 1995 and is
non-refundable. The remaining obligation was satisfied through the issuance of
444,444 shares of common stock on December 29, 1995 and the issuance of a
five-year warrant to purchase 750,000 shares of common stock at $1.25 per share.
The total finders fee of $790,000 has been included as direct costs of the
acquisition. The breakdown of the $790,000 is as follows: Cash $50,000, issuance
of common stock $500,000 (444,444 x $1.25) and issuance of warrants $240,000
(750,000 x $.32).
The Company entered into an agreement with Bridgemere Capital
(Bridgemere), which has been acting as special advisor to the Company, pursuant
to which the Company has paid to Bridgemere a fee of $50,000 and has agreed to
pay an additional $55,000 in cash and issued 56,000 shares of common stock on
December 29, 1995. The total finders fee of $168,000 has been included as direct
costs of the acquisition.
18. RELATED-PARTY TRANSACTIONS
In June 1996, 166,586 shares of common stock were issued to a related
party upon conversion of a note with outstanding principal and accrued and
unpaid interest totaling $75,000.
In April 1996, the Company entered into a settlement agreement with
several stockholders. Under the terms of this agreement, 31,812 shares of common
stock held by these stockholders with a fair value of $194,468 were returned to
the Company and are being held as treasury stock. An additional 6,144 shares of
common stock contingent and subject to forfeiture if specified performance goals
are not achieved in 1997 were also returned to the Company.
In March 1996, the Company granted to certain investors in a related
party warrants to purchase 687,500 shares of common stock at a price of $3.42 to
$3.87 per share. These warrants expire in March 1999. The fair market value of
these warrants of $852,390 has been recorded as issuance of common stock
warrants with an offsetting charge reflected as other expense in the
Consolidated Statement of Operations for the year ended December 31, 1996.
In January 1996, the Company received $250,000 cash in exchange for a
note payable bearing interest at 11% due in April 1996, and warrants to purchase
100,000 shares of common stock at $1.25 per share. The warrants have been
recorded at their estimated fair value of $352,000. This note payable was paid
in 1996, resulting in a charge of $352,000 reflected as interest expense in the
Consolidated Statement of Operations for the year ended December 31, 1996.
In January 1996, the Company granted to an individual in exchange for
consulting services rendered warrants to purchase 100,000 shares of common stock
at a price of $2.125 per share. These warrants expire in January 2001. The fair
market value of these warrants of $230,000 has been recorded as issuance of
common stock warrants with an offsetting charge reflected as administration
expense in the Consolidated Statement of Operations for the year ended December
31, 1996.
22
<PAGE> 40
ACCUMED INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In September 1995, the Company paid $12,500 to a director for
consulting services performed related to the private financings in May and
August 1995 and the proposed merger between the Company and AccuMed.
Additionally, in November 1995, the Company issued 20,000 shares of the
Company's common stock at a price of $.625 per share to the same director for
the consulting services described above.
In December 1994, the Company entered into a Consulting Services
Agreement, effective January 1, 1995, with a Placement Agent, also a stockholder
of the Company, pursuant to which the Placement Agent agreed to provide certain
financial consulting services to the Company for a period of 12 months with an
option to renew the agreement for an additional 12 months at the consent of both
the Placement Agent and the Company. In exchange for the consulting services,
the Company will pay the Placement Agent an aggregate sum of $58,500. At
September 30, 1995, the Company had paid the Placement Agent $42,500.
All non-employee directors have received an option to purchase 750
common shares and option to purchase 250 additional shares annually. In 1993 and
1994, all non-employee directors received an option to purchase 1,000 shares and
5,000 shares of the Company's common stock, respectively. In 1995, all
non-employee directors received options to purchase 5,000 to 9,215 shares of the
Company's common stock, contingent upon their length of service. These directors
will receive options for 5,000 additional shares annually. All such awards are
made pursuant to the 1992 Plan.
19. WARRANTY RESERVE
The company provides a warranty reserve for costs associated
with repair or replacement parts of cytopathology and microbiology products
sold. The reserve at December 31, 1996 was $30,000. No reserve was
recorded at December 31, 1995, or September 30, 1995 due to limited product
sales for these periods.
20. ACQUISITIONS
On October 15, 1996, the Company acquired a two-thirds interest in
Oncometrics for a total purchase price of $4.0 million which includes $2.0
million to be used solely as working capital for Oncometrics. The purchase price
was paid from the net proceeds of a public offering and has been reflected in
the Consolidated Balance sheet as of December 31, 1996. The acquisition has been
accounted for using the purchase method of accounting, and accordingly the
purchase price has been allocated to assets purchased and liabilities assumed
based on fair values at the date of acquisition. The excess purchase price
consists of $1,645,200 million of acquired in process research and development
and $1,096,000 million of purchased technology and reflects the 33% minority
interest holding. The Consolidated Balance sheet reflects the $1,096,000 million
of purchased technology as intangible assets. The $1,645,200 million in-process
research and development was reported as acquired research and development in
the Consolidated Statement of Operations during 1996. The financial results of
Oncometrics have been translated from Canadian dollars to U.S. dollars using an
exchange rate of 0.75 for the period October 15, 1996 through December 31, 1996
and 0.75 as of December 31, 1996. The Company's share of operations of
Oncometrics from purchase date through December 31, 1996 have been recorded in
the Consolidated Statement of Operations.
The proforma consolidated results of operations giving effect to the
acquisition of Oncometrics as if it had occured as of October 1, 1994 follows:
<TABLE>
<CAPTION>
Three Months
Year ended Ended Year Ended
December 31, 1996 December 31, 1995 September 30, 1995
----------------- ----------------- ------------------
<S> <C> <C> <C>
Sales 6,235,892 247,089 679,328
Net loss (12,066,170) (5,876,285) (5,461,065)
Net loss per share (0.71) (0.50) (0.86)
</TABLE>
23
<PAGE> 41
ACCUMED INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On October 10, 1996, the Company acquired the remaining 90% interest in
Radco Ventures, Inc. ("Radco"), for $1.4 million in cash. Radco was formed to
develop diagnostic microbiology test panels and automated reading instruments.
The acquisition has been accounted for using the purchase method of accounting,
and, accordingly the purchase price has been allocated to the assets purchased
and liabilities assumed based on fair values at the date of acquisition. The
excess purchase price over fair value of approximately $795,000 over tangible
assets has been allocated to in-process research and development and recorded as
acquired research and development in the Consolidated Statement of Operations.
In August 1996, the Company acquired assets from Technostics Corp. in
consideration for the issuance of 69,308 shares of common stock, which shares
are being held in escrow pending resolution of a contingency regarding any
challenge or claim filed in the succeeding twelve months calling into question
the ownership rights to such patents. The assets to be acquired consist largely
of U.S. and foreign patents in the areas of image analysis and automated
cytology. The Company did not assume any liabilities of Technostics. The
contingent consideration relating to the issuance of these shares will be
recorded when the contingency is resolved and will be computed based upon the
stock price on such date.
21. OPERATIONS BY GEOGRAPHIC AREA
The following represents the Company's operations in different
geographical areas for the year ended December 31, 1996:
United United
Total States Kingdom
----- ------ -------
Sales to unaffiliated customers $ 6,222,449 $ 4,550,671 $1,671,778
Total operating expenses 16,460,678 15,189,507 1,271,171
Operating loss 14,229,659 13,874,448 355,211
Identifiable assets 14,479,542 13,154,937 1,324,605
22. SUBSEQUENT EVENTS
On March 3, 1997, the Company acquired certain assets and liabilities
of Difco Microbiology Systems, Inc. (Difco) related to the manufacture and
distribution of blood culture instruments. The acquisition will be recorded
under the purchase method of accounting. As the fair value of the assets
acquired and liabilities assumed exceeds the purchase price paid, the excess
fair value will be allocated to reduce proportionately the values assigned to
noncurrent assets with any remainder recorded as a deferred credit. The
acquisition will be recorded by the Company during the first quarter of 1997.
The Company funded the acquisition through a private placement to
investors consisting of $8,500,000 of 12% convertible notes (notes) with a three
year term. Investors also received warrants to purchase shares of the Company's
common stock equal to 10% of the note with an expiration period dependent on
conversion of the notes. The placement agent, a shareholder of the Company,
received out of pocket expenses of $56,500, a placement fee equal to 7% of the
proceeds of the offering, and warrants to purchase 200,000 shares of the
Company's common stock.
As the private placement did not close until March 14, 1997, the
Company obtained a bridge loan to finance the acquisition during the interim
period between acquisition of Difco and private placement. The two individual
lenders, who are also shareholders of the Company, agreed to loan the Company
$6,000,000 at an interest rate of 12% per annum. The Company repaid the bridge
loan on the date on which proceeds of the notes were received in escrow. The
Company incurred approximately $140,000 of origination fees and interest expense
as a result of the bridge loan, and this amount will be expensed in the first
quarter of 1997.
24
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
AccuMed International, Inc.
We consent to incorporation by reference in the registration statements (No.
333-04715, 033-98902, and 333-07681) on Form S-3 and (No. 333-04320 and
333-11219) on Form S-8 of AccuMed International, Inc. of our report dated March
28, 1997, relating to the consolidated balance sheets of AccuMed International,
Inc. as of December 31, 1996 and 1995 and the related consolidated statements of
operations, stockholders' equity, and cash flows for the year ended December 31,
1996 and the three months ended December 31, 1995, which report appears in the
December 31, 1996 annual report on Form 10-KSB of AccuMed International, Inc.
/s/ KPMG Peat Marwick LLP
Chicago, Illinois
August 14, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
(No. 333-04715, 033-98902, 333-07681 and 333-28125) on Form S-3 and
(No. 333-04320 and 333-11219) on Form S-8 of AccuMed International, Inc. of
our report, which includes an explanatory paragraph related to substantial
doubt about the ability of Alamar Biosciences, Inc. to continue as a going
concern, dated November 19, 1995, on our audits of the financial statements
of Alamar Biosciences, Inc. as of September 30, 1995 and 1994, and for the
years ended September 30, 1995, 1994 and 1993, which report is included in
the Annual Report on Form 10-KSB for the year ended September 30, 1995.
/s/ Coopers & Lybrand L.L.P.
Sacramento, CA
August 14, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,901,359
<SECURITIES> 0
<RECEIVABLES> 2,269,688
<ALLOWANCES> 126,092
<INVENTORY> 1,772,127
<CURRENT-ASSETS> 7,034,280
<PP&E> 2,596,026
<DEPRECIATION> 899,955
<TOTAL-ASSETS> 14,479,542
<CURRENT-LIABILITIES> 3,655,910
<BONDS> 230,795
0
0
<COMMON> 208,542
<OTHER-SE> 9,927,454
<TOTAL-LIABILITY-AND-EQUITY> 14,479,542
<SALES> 6,222,449
<TOTAL-REVENUES> 6,222,449
<CGS> 3,991,430
<TOTAL-COSTS> 3,991,430
<OTHER-EXPENSES> 16,460,678
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 458,214
<INCOME-PRETAX> (11,573,813)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,573,813)
<EPS-PRIMARY> 0
<EPS-DILUTED> (.68)
</TABLE>
