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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 0R 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997.
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
- --- For the transition period from to .
----- -----
Commission file number 0-20652
ACCUMED INTERNATIONAL, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 36-4054899
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
900 N. Franklin St., Suite 401, Chicago, IL 60610
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(Address of principal executive offices)
(312) 642-9200
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(Issuer's telephone number including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 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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The number of shares of Common Stock outstanding as of May 6, 1997:
22,147,232 Transitional Small Business Disclosure Format (check one):
Yes No X
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ACCUMED INTERNATIONAL, INC.
INDEX
Page
Number
PART I Financial Information
1. Consolidated Financial Statements
Consolidated Balance Sheets -
March 31, 1997 and December 31, 1996 . . . . . . . . . . . . 1
Consolidated Statements of Operations-
Three Months Ended March 31, 1997 and 1996 . . . . . . . . 2
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1997 and 1996 . . . . . . . . 3
Notes to Consolidated Financial Statements. . . . . . . . . . . 4
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . 5
PART II. Other Information
6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 9
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
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ACCUMED INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
ASSETS 1997 1996
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Current Assets
Cash and cash equivalents $ 1,626,887 $ 2,801,359
Restricted cash 100,000 100,000
Accounts receivable 4,522,224 2,143,596
Prepaid expenses and deposits 327,369 217,198
Production inventory 3,229,249 1,772,127
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Total current assets 9,805,729 7,034,280
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Fixed assets, net 6,437,781 1,696,071
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Notes receivable 208,273 214,273
Deferred financing costs 1,310,540 -
Goodwill and intangible assets 5,160,036 5,340,411
Other assets 207,176 194,507
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$23,129,535 $14,479,542
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 2,864,851 $ 2,340,769
Other current liabilities 1,232,316 879,808
Deferred revenue 44,303 146,968
Notes payable 25,100 198,555
Capital lease obligation due within one year 75,435 89,810
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Total current liabilities 4,242,005 3,655,910
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Warranty reserves 1,500,000 -
Long term debt 8,715,793 230,795
Minority interest 419,118 456,841
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10,634,911 687,636
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Stockholders' equity
Common stock, $0.01 par value, 30,000,000 shares
authorized, 21,888,631 shares issued and outstanding
at March 31, 1997, 20,854,157 at December 31, 1996 218,886 208,542
Additional paid-in capital 48,736,351 44,424,646
Cumulative translation adjustment 13,436 32,586
Accumulated deficit (40,499,317) (34,335,313)
Less treasury stock, 37,956 shares at March 31, 1997,
and 31,812 shares at December 31, 1996, respectively (216,737) (194,465)
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Total stockholders' equity 8,252,619 10,135,996
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$23,129,535 $14,479,542
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See accompanying notes to the consolidated financial statements.
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ACCUMED INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Three Months
Ended Ended
March 31, March 31,
1997 1996
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Sales $3,049,414 $1,187,701
Less cost of sales (1,491,600) (595,210)
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Gross profit (loss) 1,557,814 592,491
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Operating expenses:
General and administrative 1,859,995 914,057
Acquired Research and development - 3,499,727
Research and development 1,153,784 575,059
Goodwill writeoff 3,582,068 -
Sales and marketing 975,217 393,177
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Total operating expenses 7,571,064 5,382,020
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Operating loss (6,013,250) (4,789,529)
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Other income (expense):
Interest income 11,598 5,837
Interest expense (199,898) (326,831)
Other income (expense) 430 2,462,252
Minority interest 37,723 -
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Total other income (expense) (150,147) 2,141,258
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Loss before income taxes (6,163,397) (2,648,271)
Income tax expense - 850
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Net loss ($6,163,397) ($2,649,121)
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Net loss per share ($0.29) ($0.17)
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Weighted average common shares outstanding 20,999,058 15,793,157
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See accompanying notes to the consolidated financial statements.
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ACCUMED INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Three Months
Ended Ended
March 31, March 31,
1997 1996
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Cash flows from operating activities:
Net loss $ (6,163,397) $ (2,649,121)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 181,724 133,344
Write-off of in-process research and development - 3,499,727
Write-off of impaired goodwill 3,582,068 -
Minority interest (7,839) -
Expenses paid with issuance of warrants - 1,350,390
Shares received for litigation settlement 22,272 -
Changes in assets and liabilities:
Decrease (Increase) in restricted cash - 53,000
Decrease (Increase) in accounts receivable 335,113 5,355
Decrease (Increase) in prepaid expenses and deposits (110,171) 11,383
Decrease (Increase) in production inventory (456,346) (205,558)
(Increase) in other assets and intangible assets 20,040 (6,508)
Increase in accounts payable 21,322 475,631
(Increase) in deferred financing costs and intangibl (650,920) -
Increase in other current liabilities and reserves 39,545 (115,595)
Increase in notes payable - 314,446
Increase (Decrease) in deferred revenue (102,665) (1,454,450)
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Net cash used in operating activities (3,211,255) 1,412,044
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Cash used in investing activities:
Purchase of fixed assets (275,153) (200,685)
Acquisition of business, net (6,000,000) -
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Net cash used in investment activities (6,275,153) (200,685)
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Cash flows from financing activities:
Proceeds from issuances of common stock net 38,097 16,924
Notes receivable (issued) collected (13,150) -
Payment of capital lease obligation (24,557) (26,663)
Proceeds from issuance of notes payable 8,500,000 -
Proceeds from bridge loan 6,000,000 -
Payment of notes payable and bridge loan (6,188,455) -
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Net cash provided by financing activities 8,311,935 (9,739)
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Net increase (decrease) in cash and cash equivalents (1,174,473) 1,201,620
Cash and cash equivalents at beginning of period 2,801,359 180,508
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Cash and cash equivalents at end of period $ 1,626,887 $ 1,382,128
============ ============
See accompanying notes to consolidated financial statements.
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
ACCUMED INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Preparation of Interim Financial Statements: The accompanying consolidated
financial statements have been prepared in accordance with the instructions
to Form 10-QSB and, therefore, do not include all information and footnotes
necessary for a presentation of financial position, results of operations
and cash flows in conformity with generally accepted accounting principles.
In the opinion of management, such consolidated financial statements
reflect all normal and recurring adjustments necessary for a fair
presentation of the results of operations and financial position for the
interim periods presented. Operating results for the three month period
ended March 31, 1997 are not necessarily indicative of the results that may
be expected for the fiscal year ending December 31, 1997.
2. Basis of Presentation: The condensed consolidated financial statements
include the accounts of the Company and its wholly-owned and majority-owned
subsidiaries. All significant intercompany balances, transactions and
stockholdings have been eliminated.
3. Merger Transaction: On December 29, 1995, the Company acquired all of the
common stock of AccuMed, Inc. and its wholly-owned subsidiary. Pursuant to
the terms of the merger agreement, 1,881,910 shares of Common Stock and
126,945 warrants were issued to AccuMed, Inc. stockholders and
warrantholders, respectively, which were contingent and subject to
forfeiture if specified performance goals were not achieved by the merged
entity. The contingency associated with 940,955 shares of Common Stock and
63,473 warrants was resolved (performance goal achieved) in March 1996
resulting in contingent consideration of $5,430,326. Such amount has been
allocated to identifiable intangibles of acquired proprietary technology
($1,930,599) and in-process research and development ($3,499,727). The
acquired proprietary technology is being amortized over the expected period
to be benefited of ten years, with the in-process research and development
charged to operations during the three months ended March 31, 1996.
The contingency associated with the remaining 940,955 shares of Common
Stock and 63,472 warrants was resolved (performance goal achieved) in March
1997 resulting in contingent consideration of $3,582,068. Such amount has
been recorded as goodwill associated with the merger and charged off in its
entirety to operations during the three months ended March 31, 1997 as an
impaired asset.
4. Notes Payable: On March 14, 1997, the Company received $8,500,000 in cash
in exchange for convertible notes bearing interest at 12% due in March
2000. Investors also received 850,000 warrants to purchase shares of the
Company's Common Stock with an expiration period dependent on conversion of
the notes. The placement agent, a shareholder of the
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Company, received out of pocket expenses of $56,500, a placement fee equal
to 7% of the proceeds of the offering and five year warrants to purchase
200,000 shares of the Company's Common Stock. Of the loan proceeds,
$6,130,000 (including $130,000 of interest) was used to repay a $6,000,000
bridge loan used for the ESP Culture System II product line acquisition on
March 3, 1997 (see note 5), $651,500 was used for issuance costs, and the
remaining $1,718,500 was retained to cover transition costs of the acquired
business. The costs associated with the issuance of these notes of
$1,321,000 will be amortized over the three year term of the notes.
5. Acquisitions: On March 3, 1997, the Company acquired certain assets and
liabilities of Difco Microbiology Systems, Inc ("Difco") for a total
purchase price of $6,000,000 in cash. The acquisition was accounted for
using the purchase method of accounting with the purchase price allocated to
the net assets acquired based on their estimated fair values. This
treatment resulted in no excess purchase price over fair value of tangible
assets acquired. The operations of Difco have been included in the
consolidated statement of operations since the date of acquisition.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Effective March 3, 1997, the Company acquired certain assets and
liabilities of Difco Microbiology Systems, Inc. relating to the ESP Culture
System II product line (the "ESP Product Line"). The results of operations
reflected in the Company's consolidated statement of operations for the quarter
ended March 31, 1997 include the results of operations of the ESP Product Line
from the date of the acquisition, whereas results of operations from prior
periods reflect the operations of the Company's microbiology and cytopathology
product lines only. The historical results of operations of the Company
presented herein are not necessarily indicative of future results of operations
of the Company.
Revenues from sales for the quarter ended March 31, 1997 increased to
$3,049,000 compared to $1,188,000 for the quarter ended March 31, 1996, due
primarily to the increase in sales in the microbiology and cytopathology
product lines.
Cost of sales increased from $595,000 in the first quarter of 1996 to
$1,492,000 in the first quarter of 1997, reflecting the increased sales volume
in the microbiology product line and increased cytopathology instrument sales.
General and administrative expenses increased from $914,000 in the first
quarter of 1996 to $1,860,000 in the comparable 1997 quarter primarily due to
increases in staffing, office, professional fees, and investor relations
efforts.
Interest expense of $200,000 in the first quarter of 1997 reflected
amounts accrued on the bridge loan and three year notes issued. The interest
expense for the first quarter of 1996 of $327,000 reflected non-cash interest
incurred for issuance of warrants connected with notes payable repaid in that
year.
Research and development expenses increased from $575,000 in the first
quarter of 1996 to $1,154,000 in the first quarter of 1997 due primarily to
increased spending in the cytopathology area.
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The $3,500,000 charge off of acquired research and development expenses
in the first quarter of 1996 was in connection with the merger with AccuMed,
Inc. on December 29, 1995. No additional amounts were expensed in the first
quarter of 1997 in this regard.
The $3,582,000 goodwill write-off in the first quarter of 1997 is due to
contingent consideration associated with the AccuMed, Inc. merger.
Sales and marketing expenses increased from $393,000 in the first quarter
of 1996 to $486,000 in the first quarter of 1997 due to increased marketing
efforts for the cytopathology product line.
For the three month period ended March 31, 1997, other income was
negligable as compared to $2,462,000 for the first three months of 1996
principally due to $3,500,000 of income pursuant to a license agreement offset
by $954,000 of expenses primarily associated with warrants issued in connection
with RADCO Ventures, Inc. (initially a joint venture formed by the Company and
certain investors which was subsequently acquired by the Company and has been
merged with and into the Company).
Net loss increased from $2,649,000 for the first quarter of 1996 to
$6,163,000 for the first quarter of 1997, due to increased sales volume
and related gross margins offset by increased operating expenses, including
non-cash expenses of $3,582,000 relating to the write off of impaired goodwill,
and the reduction of other income. Net loss per share for the quarter ending
March 31, 1997 was $0.29 compared to $0.17 for the quarter ended March 31,
1996. Weighted average shares outstanding for the periods 1997 and 1996 were
20,999,000 and 15,797,000, respectively.
The Company's increase in net current assets of $2,186,000 as of March 31,
1997 as compared to December 31, 1996 is due primarily to the Company's
acquistion at March 3, 1997 relating to the ESP Product Line.
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 public offerings of
securities to fund its cash requirements. From the initial public offering in
October 1992 through March 31, 1997, the Company has raised approximately
$43,000,000 in aggregate net proceeds from public offerings and private
placements of securities. The Company's most recent private placement was
closed
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in March 1997, resulting in the issuance of $8,500,000 in three year
convertible notes bearing interest at a rate of 12% per annum. During the
first quarter of 1997, the Company received an aggregate of $38,000 upon the
exercise of certain stock options and warrants.
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 "Redeemable Warrants"). If the closing
price per share of Common Stock exceeds $7.50 (subject to adjustment) per share
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
with the underwriters of the public offering consummated in October 1996 not to
redeem the Redeemable Warrants, without the underwriters' consent, prior to
October 3, 1997.
The Company intends to expend substantial funds for research and product
development, possible acquisitions, scale-up of manufacturing capacity,
reduction of accounts payable and other working capital and general corporate
purposes. Although the Company believes that existing cash balances and
internally generated funds will be sufficient to finance the Company's
projected operations through at least the next 12 months, there can be no
assurance to that effect. 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 acceptance of
the Company's products, 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, and other factors.
If additional financing is needed, the Company may seek to raise additional
funds through public or private financings, collaborative relationships or
other arrangements.
The Company currently has no commitments with respect to sources of
additional financing, and there can be no assurance that any such financing
sources, if needed, would be available to the Company or that adequate funds
for the Company's operations, whether from the Company's revenues, financial
markets, collaborative or other arrangements with corporate partners or from
other sources, will be available when needed or on terms satisfactory to the
Company. The failure of the Company to obtain adequate additional financing
may require the Company to delay, curtail or scale back some or all of its
studies and regulatory activities and, potentially, to cease its operations.
Any additional equity financing may involve substantial dilution to the
Company's then-existing stockholders.
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IMPACT OF ACQUISITION OF ESP PRODUCT LINE
On March 3, 1997, the Company acquired certain assets and liabilities
relating to the ESP Product Line for aggregate cash consideration of
$6,000,000. The transaction was accounted for under the purchase method of
accounting, resulting in accounts receivable, inventory, and equipment of
approximately $2,211,000, $914,000, and $4,685,000, respectively being recorded
in the Company's financial statements, along with net liabilities of $1,810,000
at the acquistion date.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company expects that its operating results will fluctuate
significantly from quarter to quarter and will depend on various factors, many
of which are outside the Company's control. These factors include the success
of the marketing efforts for the Company's products, obtaining necessary
regulatory clearances or approvals for the Company's products, the timing and
level of expenditures associated with expansion of sales and marketing
activities and overall operations, the Company's ability to cost effectively
expand manufacturing capacity and maintain consistently acceptable yields, the
timing of establishment of strategic distribution arrangements and the success
of the activities conducted under such changes in government regulation and
other factors, the timing of significant orders from and shipments to
customers, and general economic conditions. These or other factors could have
a material adverse effect Company's business, financial condition and results
of operations.
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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) Reports on Form 8-K. The following Current Report on Form 8-K was
filed by the Company with the Securities and Exchange Commission during the
quarter ended March 31, 1997 1. On March 18, 1997, a Current Report on Form
8-K dated March 3, 1997: Item 2 - Acquisition or Disposal of Assets -
reporting the acquisition of the ESP Culture System II product line, and Item 7
- - Financial Statements and Exhibits.
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SIGNATURES
In accordance with the requirements of the Securities and Exchange Act of
1934, the Registrant has caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACCUMED INTERNATIONAL, INC.
/s/ Leonard R. Prange
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Leonard R. Prange
Chief Financial Officer and
Chief Operating Officer
Date: May 15, 1997
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