<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the
--- Securities Exchange Act of 1934
For the quarterly period ended September 30, 2000.
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the
--- Securities Exchange Act of 1934
For the transition period from __________ to ________
Commission file number: 0-20652
ACCUMED INTERNATIONAL, INC.
--------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-4054899
------------------------------- ----------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
920 N. Franklin St., Suite 402, Chicago, IL 60610
(Address of principal executive offices)
(312) 642-9200
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The registrant had 5,712,292 shares of common stock outstanding as of November
7, 2000.
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ACCUMED INTERNATIONAL, INC. AND SUBSIDIARY
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets
as of September 30, 2000 and December 31, 1999...................... 1
Condensed Consolidated Statements of Operations for the
Three Months Ended September 30, 2000 and 1999 and
for the Nine Months Ended September 30, 2000 and 1999................ 2
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 2000 and 1999 ............... 3
Notes to Condensed Consolidated Financial Statements ..................... 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................................. 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk................ 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ......................................... 15
SIGNATURES ............................................................................. 16
</TABLE>
<PAGE> 3
1 PART I - FINANCIAL INFORMATION
ACCUMED INTERNATIONAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
UNAUDITED
----------------------------------------------
ASSETS September 30, 2000 December 31, 1999
------------------ -----------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 168,401 $ 196,303
Accounts receivable, net 8,000 --
Prepaid expenses and other current assets 94,533 7,944
Available-for-sale security 182,611 121,301
Notes receivable 100,000 400,000
Inventories 686,562 700,919
------------ ------------
TOTAL CURRENT ASSETS 1,240,107 1,426,467
------------ ------------
Fixed assets, net 473,024 705,273
Purchased technology, net 3,689,367 4,185,868
Patents, net 804,545 842,484
Note receivable, officer 31,449 62,237
------------ ------------
$ 6,238,492 $ 7,222,329
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Long term debt, current portion $ 462,550 $ 362,550
Accounts payable 200,078 223,822
Accrued interest 21,195 15,415
Income taxes -- 35,000
Deferred revenues 290,681 --
Other current liabilities 631,217 750,183
------------ ------------
TOTAL CURRENT LIABILITIES 1,605,721 1,386,970
------------ ------------
Long term debt 167,000 167,000
Deferred revenues 902,791 --
STOCKHOLDERS' EQUITY
Preferred stock, Series A convertible 2,762,107 4,249,735
Common stock, $0.01 par value 57,123 54,919
Additional paid-in capital 61,104,686 59,619,262
Accumulated other comprehensive income 47,903 (4,960)
Accumulated deficit (60,192,102) (58,033,860)
Treasury stock (216,737) (216,737)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 3,562,980 5,668,359
------------ ------------
$ 6,238,492 $ 7,222,329
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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ACCUMED INTERNATIONAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------- -------------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C>
Net sales $ 60,205 -- $ 228,668 $ 11,435
Licensing fees 44,817 -- 93,801 --
Royalties 11,916 -- 33,560 --
----------- ----------- ----------- -----------
Total net revenues 116,938 -- 356,029 11,435
----------- ----------- ----------- -----------
Operating expenses:
Cost of sales 30,745 -- 80,575 3,413
General and administrative 478,578 692,123 2,048,259 2,307,707
Research and development 262,684 469,721 845,564 1,438,865
Sales and marketing 21,115 54,232 109,259 199,380
----------- ----------- ----------- -----------
Total operating expenses 793,122 1,216,076 3,083,657 3,949,365
----------- ----------- ----------- -----------
Operating loss (676,184) (1,216,076) (2,727,628) (3,937,930)
----------- ----------- ----------- -----------
Other income (expense):
Interest expense (8,228) (8,172) (23,228) (485,867)
Realized gain on available-for-sale security 4,730 -- 331,574 --
Other income (expense), net 232,713 144,131 261,040 146,798
----------- ----------- ----------- -----------
Total other income (expense) 229,215 135,959 569,386 (339,069)
----------- ----------- ----------- -----------
Loss from continuing operations (446,969) (1,080,117) (2,158,242) (4,276,999)
----------- ----------- ----------- -----------
Discontinued operations:
Loss from discontinued operations -- -- -- (158,250)
Gain on disposal -- -- -- 8,357,449
----------- ----------- ----------- -----------
Income from discontinued operations -- -- -- 8,199,199
----------- ----------- ----------- -----------
Net (loss) income $ (446,969) $(1,080,117) $(2,158,242) $ 3,922,200
=========== =========== =========== ===========
Basic and diluted loss per share from continuing operations $ (0.08) $ (0.20) $ (0.38) $ (0.78)
Income per share from discontinued operations -- -- -- 1.50
----------- ----------- ----------- -----------
Basic and diluted net (loss) income per share $ (0.08) $ (0.20) $ (0.38) $ 0.72
=========== =========== =========== ===========
Weighted average common shares outstanding 5,697,227 5,491,901 5,632,885 5,471,784
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
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ACCUMED INTERNATIONAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
UNAUDITED
--------------------------------------
2000 1999
-------------- ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net (loss) income $ (2,158,242) $ 3,922,200
Adjustments to reconcile net (loss) income to net cash
used in operating activities:
Income from discontinued operations -- (8,199,199)
Non-cash expenses of asset disposal -- 492,500
Depreciation and amortization 794,444 694,176
Increase in deferred revenues 1,093,472 --
Changes in other operating assets and liabilities (552,948) (978,855)
------------ ------------
CASH USED IN OPERATING ACTIVITIES (823,274) (4,069,178)
------------ ------------
INVESTING ACTIVITIES:
Proceeds from note receivable 400,000 --
Proceeds from sales of available-for-sale security 331,574 --
Capital expenditures (27,755) --
Proceeds from sale of Microbiology division -- 15,150,000
Expenses related to sale of Microbiology division -- (750,000)
------------ ------------
CASH PROVIDED BY INVESTING ACTIVITIES 703,819 14,400,000
------------ ------------
FINANCING ACTIVITIES:
Proceeds from notes payable 300,000 --
Payment of notes payable (200,000) (8,497,551)
------------ ------------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 100,000 (8,497,551)
------------ ------------
CASH TRANSFER TO DISCONTINUED OPERATIONS -- (197,406)
------------ ------------
EFFECT OF EXCHANGE RATES ON CASH (8,447) --
------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (27,902) 1,635,865
------------ ------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 196,303 213,386
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 168,401 $ 1,849,251
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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ACCUMED INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. PREPARATION OF INTERIM FINANCIAL STATEMENTS
In the opinion of the management of AccuMed International, Inc. and its
wholly-owned subsidiary, the accompanying unaudited condensed consolidated
financial statements include all normal adjustments considered necessary to
present fairly AccuMed's financial position as of September 30, 2000, and its
results of operations for the three-month and nine-month periods ended September
30, 2000 and 1999 and cash flows for the nine-month periods ended September 30,
2000 and 1999. Interim results are not necessarily indicative of results for a
full year.
The condensed consolidated financial statements and notes are presented as
permitted by Form 10-Q, and do not contain certain information included in
AccuMed's audited consolidated financial statements and notes there to for the
fiscal year ended December 31, 1999 as filed with the Securities and Exchange
Commission on Form 10-K.
2. BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of
AccuMed and its wholly-owned subsidiary. All significant intercompany balances,
transactions and stockholdings have been eliminated.
On December 22, 1998, (the measurement date), AccuMed received shareholder
approval to sell its microbiology division under a sales agreement negotiated by
management under the approval of the Board of Directors. On January 29, 1999,
AccuMed closed the sale of the microbiology division for proceeds of $15,150,000
in cash. AccuMed recognized a gain of $8,357,000, net of income taxes of
$140,000 and after working capital adjustments, on the disposal of the
microbiology division. Accordingly, the microbiology division is accounted for
as a discontinued operation in the accompanying condensed consolidated balance
sheets, statements of operations and statements of cash flows.
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3. OTHER COMPREHENSIVE INCOME (LOSS)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- -----------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net (loss) income $ (446,969) $(1,080,117) $(2,158,242) $ 3,922,200
Other comprehensive income (loss)
Reclassification of realized gain
included in net income (4,730) -- (331,574) --
Change fair value of available-for-sale
security (50,071) -- 392,884 --
Foreign currency translation adjustments
(12,478) 7,956 (8,448) (66,792)
----------- ----------- ----------- -----------
Comprehensive (loss) income $ (514,248) $(1,072,161) $(2,105,380) $ 3,855,408
=========== =========== =========== ===========
</TABLE>
4. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
----- ----
<S> <C> <C>
Raw material and packaging $596,137 $529,919
Work in process -- --
Finished goods 90,425 171,000
-------- --------
Total inventories $686,562 $700,919
======== ========
</TABLE>
5. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
2000 1999
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Interest paid $ 17,448 $ 485,867
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Preferred stock converted to common stock $ 1,487,628 $ 79,731
</TABLE>
6. SALE OF AVAILABLE-FOR-SALE SECURITY
In February 2000, AccuMed sold 85,776 of shares it held in Ampersand
Medical Corporation (Ampersand) on the open market for proceeds of $326,844. In
August 2000, AccuMed sold an additional 1,976 shares of Ampersand stock for
proceeds of $4,730. A realized gain on the sale of these shares of $331,574 has
been recorded for the nine months ended September 30, 2000.
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<PAGE> 8
7. NOTES RECEIVABLE
On March 31, 2000, AccuMed received $417,747, including interest, in full
satisfaction of amounts advanced to Microsulis Corporation (Microsulis) under a
line of credit. AccuMed has no obligation to make further advances to
Microsulis.
Under an amendment to AccuMed's patent and technology license agreement
with Ampersand, AccuMed received a $100,000 convertible promissory note from
Ampersand. The note is due on March 29, 2001 and earns interest at a rate of
11.0% per annum. Until the note has been repaid, AccuMed may at anytime convert
all or a portion of the principal amount of the note into shares of common stock
of Ampersand at a price of $3.50 per share.
8. PROPOSED MERGER
On September 22, 2000, AccuMed signed a letter of intent to merge with
Ampersand. AccuMed would issue new shares of AccuMed common stock to the
Ampersand shareholders in exchange for their Ampersand common stock. As a
result, the Ampersand shareholders would acquire significant majority control of
AccuMed. The combined company will operate under Ampersand management and the
Ampersand corporate name. Completing the merger is subject to the completion of
a definitive merger agreement, and approval by regulatory agencies and the
shareholders of both companies.
Upon signing of the letter of intent, AccuMed received $300,000 from
Ampersand in the form of a note payable. The note bears interest at a rate of
prime, plus 2.5%, per annum. The note is payable upon the earlier of (1) the
signing of a definitive merger agreement, (2) the termination of the
contemplated merger transaction, or (3) December 31, 2000. Upon the signing of a
definitive merger agreement, the note will be replaced by a new $2.0 million
note, with essentially the same terms, that would be due upon termination of the
merger agreement or cancelled upon consummation of the merger and require a
first priority lien on all of the assets of AccuMed.
9. LICENSE AGREEMENTS
On March 24, 2000, AccuMed entered into a license and development agreement
with Ventana Medical Systems, Inc. (Ventana), whereby AccuMed agreed to license
its patents and proprietary information and rights to Ventana for certain
medical applications. Under the terms of the agreement, AccuMed has received and
deferred an up-front licensing fee, advance royalty payment, and development
funds. Additional development funds will be received over the next six months
for contract research. The agreement also provides for the sale of AcCell(TM)
Systems to Ventana and royalties to be received in the future on the sale of
covered products by Ventana. The deferred up-front licensing fee is being
recognized as revenue systematically over the 36-month term of the agreement.
The advance royalty payment will be recognized as revenue during the period that
the royalties are earned on the sale of covered products. AccuMed is required
under the agreement to complete certain development obligations. Qualifying
development costs incurred during the development process will be charged
against the deferred
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<PAGE> 9
development funds received. The excess amount of development funds, if any, over
the amount of qualifying costs incurred will be recognized in income upon the
completion of the development process. AccuMed does not anticipate that any
excess development funds will be material.
On March 29, 2000, the Company entered into a patent and technology license
agreement with BCAM International, Inc., renamed CellMetrix, Inc. (CellMetrix),
whereby AccuMed agreed to license its patents and proprietary information and
rights to CellMetrix for certain medical applications. Under the terms of the
agreement, AccuMed received a guaranteed license fee upon signing of the
agreement. The amount of the guaranteed license fee received was deferred and
being amortized over the 60-month term of the agreement. Effective September 1,
2000, AccuMed and CellMetrix mutually agreed to terminate the license agreement.
As a result of the termination, the remaining portion of the deferred licensing
fees of $229,000 was recorded as other income during the three months ended
September 30, 2000. AccuMed is not required to refund any portion of the
guaranteed license fee it received.
On March 29, 2000, AccuMed entered into a letter agreement to reinstate and
amend its September 4, 1998 patent and technology license agreement with
Ampersand. Upon signing of the letter agreement, AccuMed received an up-front
license fee. On June 9, 2000, AccuMed signed a formal amendment to the agreement
and received an advance royalty in the form of cash. AccuMed also received a
$100,000 convertible note and 128,571 shares of Ampersand common stock as an
additional advance royalty. AccuMed has deferred the amount of the up-front
license fee it received. This fee is being recognized as revenue systematically
over the remaining 41-month term of the agreement. The advance royalties are
being recognized as revenue during the period that the royalties are earned on
the sale of covered products.
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<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
AccuMed is engaged in marketing and developing cost effective screening
instruments and systems for clinical diagnostic laboratories, hospitals and
others. AccuMed's integrated systems use reliable, accurate and innovative
products and methods to provide laboratories with comprehensive solutions that
are intended to improve efficiency and reduce costs while achieving significant
improvements in disease detection. AccuMed currently is developing cytology
computer-aided image cytometry instruments and systems that support early
detection and diagnosis programs for screening high-risk individuals for
cellular diseases, such as lung cancer.
During 1998, AccuMed received shareholder approval to sell its microbiology
business. Accordingly, the results of the microbiology business are reported as
a discontinued operation in the accompanying condensed consolidated financial
statements. On January 29, 1999, AccuMed closed the sale of the microbiology
business for net proceeds of $14,400,000.
The following management discussion and analysis of financial condition and
results of operations relate only to the cytopathology business, AccuMed's only
business line. Also, AccuMed is committed to its research and development
program. Accordingly, AccuMed expects to incur additional operating losses over
at least the next twelve months due to continued spending for product
development, prototype construction and testing.
OVERVIEW
On September 22, 2000, AccuMed signed a letter of intent to merge with
Ampersand Medical Corporation (Ampersand). As a result of the merger, the
Ampersand shareholders would acquire significant majority control of AccuMed.
Completion of the merger is subject to the completion of a definitive merger
agreement, and approval by regulatory agencies and the shareholders of both
companies.
On March 24, 2000, AccuMed entered into a license and development agreement
with Ventana Medical Systems, Inc. (Ventana), whereby AccuMed agreed to license
its patents and proprietary information and rights to Ventana for certain
medical applications. Under the terms of the agreement, AccuMed received an
up-front licensing fee, advance royalty payment, and development funds.
Additional funds will be received over the next six months for contract
research. The agreement also provides for the sale of AcCell(TM) Systems to
Ventana and royalties to be received in the future on the sale of covered
products by Ventana.
On March 29, 2000, the Company entered into a patent and technology license
agreement with BCAM International, Inc., renamed CellMetrix, Inc. (CellMetrix),
whereby AccuMed agreed to license its patents and proprietary information and
rights to CellMetrix for certain medical applications. Under the terms of the
agreement, AccuMed received a guaranteed license fee upon
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<PAGE> 11
signing of the agreement. Effective September 1, 2000, AccuMed and CellMetrix
mutually agreed to terminate the license agreement. AccuMed is not required to
refund any portion of the guaranteed license fee it received.
On March 29, 2000, AccuMed entered into a letter agreement to reinstate and
amend its September 4, 1998 patent and technology license agreement with
Ampersand Medical Corporation (Ampersand). AccuMed received an up-front license
fee upon signing the letter agreement. On June 9, 2000, AccuMed signed a formal
amendment to the agreement and received an advance royalty in the form of cash.
AccuMed also received a convertible note and will receive shares of Ampersand
common stock as an additional advance royalty.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999
REVENUES AND COST OF SALES
AccuMed's net revenues were $117,000 for the three months ended September
30, 2000 compared to zero for the three months ended September 30, 1999. Net
revenues for the 2000 period reflect the sale of five AcCell(TM) units and
licensing fees and royalties earned on our license agreements with Ampersand,
CellMetrix, and Ventana. There were no units of product sold or any licensing
fees or royalties earned during the 1999 period. Cost of sales represents the
cost of products sold. We anticipate our future product sales will be made on a
build to order or contract manufacturing basis.
OPERATING EXPENSES
General and administrative expenses decreased by $214,000, or 30.9%, from
$692,000 in the 1999 period to $479,000 in the 2000 period. The decrease in
expense is a result of reduced corporate level activities, including a decline
in employees, travel, and insurance related costs. The 2000 period also reflects
the application of qualifying costs to development funds received under our
development obligation with Ventana.
Research and development expenses decreased by $207,000, or 44.1%, from
$470,000 in 1999 to $263,000 in 2000. The decrease in these expenses is a result
of the application of qualifying costs to development funds received under our
development obligation with Ventana. Current research and development expenses
represent ongoing efforts to develop the Savant(TM) medical technologies' next
generation products.
Sales and marketing expenses decreased to $21,000 for the three months
ended September 30, 2000 compared to $54,000 for the 1999 period. The decrease
is a result of the application of qualifying costs to development funds received
under our development obligation with Ventana. AccuMed continues to market its
products on a limited basis in certain laboratory market
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<PAGE> 12
segments. AccuMed anticipates that its third party licensees will assume a large
portion of the marketing effort.
OTHER INCOME, NET
Other income for the three months ended September 30, 2000 substantially
represents $229,000 of income recorded upon the termination of our patent and
technology license agreement with CellMetrix. The amount recognized as income is
the remaining balance of deferred licensing fees at the date of termination.
Other income for the three months ended September 30, 1999, primarily represents
interest income and non-refundable licensing fees of $100,000 recognized as
income upon the termination of a patent and technology license agreement.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999
REVENUES AND COST OF SALES
AccuMed's net revenues were $356,000 for the nine months ended September
30, 2000 compared to $11,000 for the nine months ended September 30, 1999. Net
revenues for the 2000 period reflect the sale of AcCell(TM) and
AcCell-Savant(TM) units and licensing fees and royalties earned on our license
agreements with Ampersand, CellMetrix, and Ventana, which were signed in 2000.
Net revenues for the 1999 period represent sales of consumables and computer
support equipment. Cost of sales represents the cost of products sold.
OPERATING EXPENSES
General and administrative expenses decreased by $259,000, or 11.2%, from
$2,308,000 in the 1999 period to $2,048,000 in the 2000 period. The decrease in
these expenses is a result of reduced corporate level activity due to the sale
of the microbiology business, less administrative cost following our 1999
consolidation of AccuMed's operations, and to a lesser extent, the application
of qualifying costs to development funds received under our development
obligation with Ventana.
Research and development expenses decreased by $593,000, or 41.2%, from
$1,439,000 in 1999 to $845,000 in 2000. The decrease in these expenses is a
result of the application of qualifying costs to development funds received
under our development obligation with Ventana, and benefits achieved from the
consolidation of our research and development activities along with the 1999
consolidation of our operations.
Sales and marketing expenses were $109,000 for the nine months ended
September 30, 2000 compared to $199,000 for the 1999 period. The decrease in
these expenses is primarily a result of personnel reductions, reduced spending
on consultants, and the application of qualifying costs to development funds
received under our development obligation with Ventana.
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<PAGE> 13
INTEREST EXPENSE
Interest expense for the period ended September 30, 2000 was $23,000
compared to $486,000 for the 1999 period. The decline in interest expense is a
result of the repayment in January 1999 of AccuMed's 14.5% secured note payable
and 12.0% unsecured convertible notes with proceeds from our sale of the
microbiology division. Interest expense for the 1999 period also includes
$370,000 from a non-cash write-off of deferred financing costs and debt
discounts related to the repayment of these notes.
OTHER INCOME, NET
Other income for the nine months ended September 30, 2000 substantially
represents interest income and $229,000 of income recorded upon the termination
of our patent and technology license agreement with CellMetrix. The amount
recognized as income is the remaining balance of deferred licensing fees at the
date of termination. Other income for the three months ended September 30, 1999,
primarily represents interest income and non-refundable licensing fees of
$100,000 recognized as income upon the termination of a patent and technology
license agreement.
DISCONTINUED OPERATIONS
AccuMed's loss of $158,000 in 1999 from discontinued operations reflects
the results of operations of AccuMed's microbiology business before its sale in
January 1999. In 1999, we recorded a gain of $8,357,000, net of income taxes of
$140,000, on the disposal of the microbiology business.
LIQUIDITY AND CAPITAL RESOURCES
AccuMed's primary cash requirements are for research and development and
general corporate and marketing expenses, including salaries, materials and
consulting support, to develop and market AccuMed's cytopathology products and
technology. We anticipate that the receipt of funds under our agreement with
Ventana, our available cash and marketable securities on hand, and our receipt
of an additional $1.7 million upon the signing of a definitive merger agreement
with Ampersand will provide the necessary liquidity to finance AccuMed's
projected operations and financing obligations through the closing of our
potential merger with Ampersand. We expect our merger with Ampersand will be
consummated by the end of the 2001 first quarter.
At September 30, 2000, AccuMed has long-term debt, including the current
portion, of $630,000. The long-term debt consists of a Canadian dollar note
($143,000 U.S. dollars), a non-interest bearing repayable contribution of
$187,000, and a $300,000 note payable to Ampersand. The Canadian dollar note is
due on demand, or in the event not called, principal payments are required at a
rate of $25,000 U.S. dollars per month, plus interest at a rate of 6.0% over the
Canadian prime rate. The Canadian note is convertible into shares of AccuMed's
common stock at a price of $1.43 per share. The repayable contribution was
received under a Canadian government
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program and calls for semi-annual installments based on future sales of product
and available funds, as defined.
Upon signing of the letter of intent to merge with Ampersand, AccuMed
received $300,000 from Ampersand in the form of a note payable. The note bears
interest at a rate of prime, plus 2.5%, per annum and is payable upon the
earlier of (1) the signing of a definitive merger agreement, (2) the termination
of the contemplated merger transaction, or (3) December 31, 2000. Upon the
signing of a definitive merger agreement, the note will be replaced by a new
$2.0 million note, with essentially the same terms, that would be due upon
termination of the merger agreement or cancelled upon consummation of the merger
and require a first priority lien on all of the assets of AccuMed.
OPERATING ACTIVITIES
For the nine months ended September 30, 2000 and 1999, AccuMed used
$823,000 and $4,069,000, respectively, of cash in operations. The decrease in
the use of cash in operations in 2000 compared to 1999 is primarily a result of
a decrease in operating expenses of $970,000, the receipt of $1,850,000 under
AccuMed's agreements with Ventana, CellMetrix, and Ampersand, and other working
capital changes.
INVESTING ACTIVITIES
Investing activities generated $704,000 in cash for the nine months ended
September 30, 2000 compared to $14,400,000 provided by investing activities for
the 1999 period. In 2000, AccuMed received $332,000 from the sale of shares it
held in Ampersand and collected $400,000 from the repayment by Microsulis of
loans made by AccuMed under outstanding notes receivable. In 1999, AccuMed
received $14,400,000 in proceeds, net of expenses incurred, from the sale of
AccuMed's microbiology business. To date in 2000, we have spent $28,000 on
capital expenditures. We do not anticipate material capital expenditures during
the remainder of 2000.
FINANCING ACTIVITIES
AccuMed generated $100,000 of cash from financing activities during the
nine months ended September 30, 2000 compared to the use of $8,498,000 in cash
during the 1999 period. In 2000, we received $300,000 from the issuance of a
note payable by Ampersand upon signing the letter of intent to merge with
Ampersand. We used $200,000 in 2000 for the repayment of AccuMed's Canadian
dollar note payable. In 1999, we repaid all of our outstanding 14.5% secured
notes and 12% unsecured convertible notes with proceeds from the sale of
AccuMed's microbiology division.
AccuMed currently has no commitments with respect to sources of additional
financing other than with respect to funds to be received under our agreements
with Ventana and Ampersand.
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<PAGE> 15
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
AccuMed holds shares of common stock of Ampersand Medical Corporation, a
publicly traded company. As a result, our financial results could be
significantly affected by changes in the traded market price of this security.
AccuMed has debt instruments that are denominated in Canadian dollars. The
interest rate for one of the Canadian dollar denominated debt instruments is
variable based on changes in the Canadian prime rate of interest. AccuMed also
has a note payable with an interest rate that varies based on the U.S. prime
rate of interest. As a result, our financial results could be significantly
affected by changes in the exchange rate for Canadian dollars and to changes in
the U.S. and Canadian prime rates of interest. Management does not actively
employ strategies to minimize AccuMed's risks to these exposures.
The following table presents information about the shares we hold in
Ampersand as of September 30, 2000.
<TABLE>
<CAPTION>
SHARES FAIR
HELD VALUE
---- -----
<S> <C> <C>
Ampersand Medical Corporation 63,517 $182,611
</TABLE>
The following tables present information about AccuMed's debt instruments
that are subject to foreign currency and interest rate risk. The table presents
principal cash flows, related weighted-average interest rate by expected
maturity, and the applicable average Canadian to U.S. dollar exchange rate.
<TABLE>
<CAPTION>
FAIR
2000 2001 TOTAL VALUE
---- ---- ----- -----
<S> <C> <C> <C> <C>
Foreign currency risk:
Principal $162,550 $167,000 $329,550 $329,550
Average interest rate 11.8% 0%
Exchange rate 1.5069 1.5069
<CAPTION>
FAIR
2000 2001 TOTAL VALUE
---- ---- ----- -----
<S> <C> <C> <C> <C>
Interest rate risk:
Principal $442,550 $ - $442,550 $442,550
Average interest rate 12.5%
</TABLE>
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<PAGE> 16
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that are based on our
current expectations, assumptions, estimates and projections about us and our
industry. When used in this Report, the words "may," "will," "expects,"
"anticipates," "believe," "estimates," "intends" and similar expressions are
intended to identify forward-looking statements. These statements describe our
beliefs concerning the future based on currently available information. Our
actual results could differ materially from those contained in the
forward-looking statements due to a number of risks and uncertainties. We assume
no obligation to publicly update or revise these forward-looking statements for
any reason, or to update the reasons actual results could differ materially from
those anticipated in these forward-looking statements, even if new information
becomes available in the future.
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<PAGE> 17
PART II.
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits. The following exhibits are filed herewith:
27.1 Financial Data Schedule
(b) No reports on Form 8-K were filed during the three-month period ended
September 30, 2000.
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<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACCUMED INTERNATIONAL, INC.
/s/ PAUL F. LAVALLEE
--------------------------------------
Paul F. Lavallee
Chairman of the Board and
Chief Executive Officer
(Principal Accounting Officer)
Date: November 14, 2000
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<PAGE> 19
Index to Exhibits
Exhibit No. Description of Exhibit
----------- ----------------------
27.1 Financial Data Schedule
-17-
