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 March 31, 2001.
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 5,739,838 shares of common stock outstanding as of May 10,
2001.
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ACCUMED INTERNATIONAL, INC. AND SUBSIDIARY
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets
as of March 31, 2001 (unaudited) and December 31, 2000 ..................... 1
Condensed Consolidated Statements of Operations
for the Three Months Ended March 31, 2001 and 2000 (unaudited) ............. 2
Condensed Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 2001 and 2000 (unaudited) ............. 3
Notes to Condensed Consolidated Financial Statements (unaudited) .............. 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ...................................... 6
Item 3. Quantitative and Qualitative Disclosures About Market Risk .................... 9
PART II.OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................................... 10
SIGNATURES .............................................................................. 11
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PART I - FINANCIAL INFORMATION
ACCUMED INTERNATIONAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED AUDITED
-----------------------------------
ASSETS March 31, 2001 December 31, 2000
-------------- -----------------
CURRENT ASSETS
Cash and cash equivalents $ 633,724 $ 462
Accounts receivable 38,170 19,600
Prepaid expenses and other current assets 10,000 18,984
Available-for-sale security 294,125 195,085
Notes receivable -- 492,772
Inventories 632,220 639,220
------------ ------------
TOTAL CURRENT ASSETS 1,608,239 1,366,123
------------ ------------
Property and equipment, net 289,675 385,372
Purchased technology, net 3,358,365 3,523,866
Patents, net 756,408 775,416
------------ ------------
$ 6,012,688 $ 6,050,777
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of debt $ 1,557,241 $ 668,288
Accounts payable 256,490 330,168
Accrued interest 29,088 13,161
Deferred revenues, current portion 322,435 419,739
Other current liabilities 851,481 747,020
------------ ------------
TOTAL CURRENT LIABILITIES 3,016,734 2,178,376
------------ ------------
Deferred revenues 1,036,152 1,487,973
STOCKHOLDERS' EQUITY
Preferred stock, Series A convertible 2,576,185 2,655,893
Common stock, $0.01 par value 57,398 57,280
Additional paid-in capital 61,290,333 61,210,743
Accumulated other comprehensive income (loss) (95,425) (190,939)
Accumulated deficit (61,651,953) (61,131,812)
Treasury stock (216,737) (216,737)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 1,959,801 2,384,428
------------ ------------
$ 6,012,688 $ 6,050,777
============ ============
See accompanying notes to condensed consolidated financial statements.
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ACCUMED INTERNATIONAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31,
UNAUDITED
-----------------------------
2001 2000
------------ ----------
Net sales $ -- $ 154,963
Licensing fees and royalties 583,535 --
----------- -----------
Total net revenues 583,535 154,963
----------- -----------
Operating expenses:
Cost of sales -- 43,681
Cost of revenues 12,712 --
General and administrative 880,100 788,168
Research and development 182,142 352,368
Sales and marketing 37,667 72,589
----------- -----------
Total operating expenses 1,112,621 1,256,806
----------- -----------
Operating loss (529,086) (1,101,843)
----------- -----------
Other income (expense):
Interest expense (23,380) (7,500)
Realized gain on available-for-sale security -- 326,844
Other income (expense), net 32,324 15,335
----------- -----------
Total other income (expense) 8,944 334,679
----------- -----------
Loss before income taxes (520,141) (767,164)
Income tax expense -- --
----------- -----------
Net loss (520,141) (767,164)
=========== ===========
Basic and diluted net loss per share $ (0.09) $ (0.14)
=========== ===========
Weighted average common shares outstanding 5,736,689 5,535,507
=========== ===========
See accompanying notes to condensed consolidated financial statements
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ACCUMED INTERNATIONAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
UNAUDITED
-----------------------------
2001 2000
----------- -----------
OPERATING ACTIVITIES:
Net loss $ (520,141) $ (767,164)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization 257,567 263,725
Gain on sale of property and equipment (22,586) --
(Decrease) increase in deferred revenues (549,125) 1,339,967
Changes in other operating assets and liabilities 536,895 (439,843)
----------- -----------
CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (297,390) 396,685
----------- -----------
INVESTING ACTIVITIES:
Proceeds from repayment of note receivable -- 400,000
Proceeds from sale of available-for-sale security -- 326,844
Proceeds from sale of property and equipment 45,225 --
----------- -----------
CASH PROVIDED BY INVESTING ACTIVITIES 45,225 726,844
----------- -----------
FINANCING ACTIVITIES:
Proceeds from notes payable 920,000 --
Repayment of notes payable (31,047) (25,000)
----------- -----------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 888,953 (25,000)
----------- -----------
----------- -----------
EFFECT OF EXCHANGE RATES ON CASH (3,526) (708)
----------- -----------
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 633,262 1,097,821
----------- -----------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 462 196,303
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 633,724 $ 1,294,124
=========== ===========
See accompanying notes to condensed 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 our opinion, the accompanying unaudited condensed consolidated financial
statements include all normal adjustments considered necessary to present fairly
our financial position as of March 31, 2001, and our results of operations and
cash flows for the three-month period ended March 31, 2001 and 2000. Our interim
results are not necessarily indicative of the results we expect for the 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 our
audited consolidated financial statements and notes thereto for the fiscal year
ended December 31, 2000 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.
3. COMPREHENSIVE LOSS
Three Months Ended
March 31,
-------------------------
2001 2000
---------- ---------
Net loss $(520,141) $(767,164)
Other comprehensive income (loss)
Reclassification of realized gain included in net loss -- (326,844)
Change in fair value of available-for-sale security 99,040 471,520
Foreign currency translation adjustments (3,526) (708)
--------- ---------
Comprehensive loss $(424,627) $(623,196)
========= =========
4. INVENTORIES
Inventories are summarized as follows:
March 31, December 31,
2001 2000
--------- -----------
Raw material $539,944 $539,944
Work in process -- --
Finished goods 92,276 99,276
-------- --------
Total inventories $632,220 $639,220
======== ========
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5. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Three Months Ended March 31,
----------------------------
2001 2000
---------- ----------
OPERATING ACTIVITIES:
Interest paid $ 7,453 $ 2,345
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Preferred stock converted to common stock $ 79,708 $1,115,537
6. MONOGEN LICENSE AGREEMENTS
On December 29, 2000, we entered into license agreements with Monogen, Inc.
and received $500,000 of notes receivable as consideration for the license fees
due under the agreements. In the first quarter of 2001, we collected the balance
due under these notes in full. We also recognized as revenue in 2001 the total
amount of the license fees received of $491,012, net of interest imputed on the
notes, since we completed all of our remaining obligations under the agreements.
7. PENDING MERGER
On February 7, 2001, we signed an agreement to merge with Ampersand Medical
Corporation. Under the terms of the agreement, holders of our common stock will
receive 0.6552 of a share (subject to adjustment) of Ampersand common stock for
each share of AccuMed common stock held. Each share of our Series A convertible
preferred stock will be exchanged for one share of Ampersand's preferred stock
that will be convertible into Ampersand's common stock. Consummation of the
merger is subject to customary closing conditions, including the approval of
AccuMed's stockholders, and the registration of the Ampersand common shares with
the Securities and Exchange Commission. On May 10, 2001, we amended the merger
agreement to extend the termination date to July 31, 2001. The termination date
will be automatically extended to September 30, 2001 if the proxy
statement-prospectus for the merger is not declared effective by the Securities
and Exchange Commission by June 17, 2001. Closing of the merger is expected to
occur in the third quarter of 2001.
In conjunction with the signing of the merger agreement, we received a
$470,000 advance from Ampersand. We issued an $800,000 note to Ampersand, which
includes $330,000 of funds previously advanced by Ampersand. On each of March 1
and March 30, 2001, we received additional advances of $225,000 each from
Ampersand. On May 1, 2001, we received an additional advance of $150,000. The
notes for these advances bear interest at prime, plus 2.5%, and are secured by
our inventory and certain customer contracts. These notes will be dissolved upon
consummation of the merger or will be due and payable upon the termination of
the merger agreement. The due date of the notes may be extended upon mutual
agreement of the parties.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
AccuMed markets and develops cost effective screening instruments and
systems for clinical diagnostic laboratories, hospitals and others. Our
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 significantly improving disease detection. We
are currently 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. We expect to
incur additional operating losses over at least the next 12 months primarily as
a result of expenditures for corporate overhead and development.
OVERVIEW
On February 7, 2001, we signed an agreement to merge with Ampersand Medical
Corporation. Under the terms of the agreement, holders of our common stock will
receive 0.6552 of a share (subject to adjustment) of Ampersand common stock for
each share of AccuMed common stock held. Each share of our Series A convertible
preferred stock will be exchanged for one share of Ampersand's preferred stock
that will be convertible into Ampersand's common stock. Consummation of the
merger is subject to customary closing conditions, including the approval of
AccuMed's stockholders, and the registration of the Ampersand common shares with
the Securities and Exchange Commission. On May 10, 2001, we amended the merger
agreement to extend the termination date to July 31, 2001. The termination date
will be automatically extended to September 30, 2001 if the proxy
statement-prospectus for the merger is not declared effective by the Securities
and Exchange Commission by June 17, 2001. Closing of the merger is expected to
occur in the third quarter of 2001.
In conjunction with the signing of the merger agreement, we received a
$470,000 advance from Ampersand. We issued an $800,000 note to Ampersand, which
includes $330,000 of funds previously advanced by Ampersand. On each of March 1
and March 30, 2001, we received additional advances of $225,000 each from
Ampersand. On May 1, 2001, we received an additional advance of $150,000. The
notes for these advances bear interest at prime, plus 2.5%, and are secured by
our inventory and certain customer contracts. These notes will be dissolved upon
consummation of the merger or will be due and payable upon the termination of
the merger agreement. The due date of the notes may be extended upon mutual
agreement of the parties.
RESULTS OF OPERATIONS
YEAR ENDED MARCH 31, 2001 COMPARED WITH YEAR ENDED MARCH 31, 2000
REVENUES AND COST OF SALES
Our net revenues were $584,000 for the three months ended March 31, 2001
compared to $155,000 for the three months ended March 31, 2000. Net revenues for
2001 include one-time licensing fees of $491,000 recognized under agreements
with Monogen, Inc. that we signed late in the fourth quarter of 2000. The 2001
period also includes licensing fees, royalties, and fees under a per-use
contract that we earned on agreements signed in 2000 that are not reflected in
the prior year revenues. Net revenues for the 2000 period represent the sale of
one AcCell-Savant and four AcCell units. There were no units sold in the 2001
period. Cost of revenues in 2001 represents the cost of one unit installed under
our per-use contract.
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OPERATING EXPENSES
General and administrative expenses increased by $92,000, or 11.7% from
$788,000 in the 2000 period to $880,000 in the 2001 period. The increase in
these expenses is a result of a one-time charge of $227,000 related to the
termination of our professional services agreement with our chief executive
officer, Paul Lavallee, as required under our merger agreement with Ampersand.
Mr. Lavallee will continue to serve as our chief executive officer through the
closing of the merger. This one-time charge was offset by our efforts to reduce
corporate expenditures, in particular legal and consulting fees, travel, and
rent.
Research and development expenses decreased by $170,000, or 48.3%, from
$352,000 in 2000 to $182,000 in 2001. The decrease in these expenses is
substantially a result of reducing personnel and scaling back our research and
development efforts.
Sales and marketing expenses were $38,000 for the three months ended March
31, 2001 compared to $73,000 for the 2001 period. Our expenses decreased
primarily as result of personnel reductions and reduced discretionary spending.
OTHER INCOME AND EXPENSE
Interest expense for the three months ended March 31, 2001 was $23,000
compared to $8,000 for the 2000 period. The increase in interest expense is a
result of receiving a total of $1,250,000 of advances from Ampersand pending the
completion of our merger with Ampersand.
In the 2000 period, we sold a total of 85,776 of our Ampersand common
shares on the open market for proceeds of $326,844. A realized gain on the sale
of these shares of $326,844 was recorded.
Other income for the 2001 period includes interest income of $8,000 and a
gain on the sale of property and equipment of $23,000. Other income in 2000
includes interest income of $10,000.
LIQUIDITY AND CAPITAL RESOURCES
AccuMed has incurred, and continues to incur, losses from operations and
has a working capital deficiency. For the years ended December 31, 2000 and
1999, AccuMed incurred net losses from continuing operations of $3,098,000 and
$6,803,000, respectively. For the three months ended March 31, 2001, our net
loss was $520,000. At March 31, 2001, we have a working capital deficiency of
$1,408,000, and our available resources are not presently sufficient to fund our
expected cash requirements through the end of 2001. These conditions raise
substantial doubt about AccuMed's ability to continue as a going concern.
In 2000 and the first quarter of 2001, we implemented strategies to reduce
losses from operations and cash used in operating activities. These strategies
include reducing personnel, curtailing certain research and development efforts,
and cutting discretionary expenditures. As a result of our signing of the merger
agreement with Ampersand, we have received in 2001 an aggregate of $1,070,000 in
advances from Ampersand to be used for working capital purposes. The merger
agreement requires further monthly advances from Ampersand through September
2001 of $100,000 automatically or up to $225,000 as requested by AccuMed. The
Ampersand advances will be dissolved upon consummation of the merger or will be
due and payable upon the termination of the merger agreement. The due date for
repayment of these advances may be extended upon mutual agreement of AccuMed and
Ampersand. Through March 31, 2001, we collected the full $500,000 of notes due
from MonoGen. Development milestone payments in the aggregate amount of
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$400,000 are scheduled for receipt in 2001 from Ventana Medical Systems, Inc.
under our license and development agreement with Ventana. In addition, we expect
to begin shipping licensed product to Ventana beginning in the fourth quarter of
2001.
We expect our merger agreement with Ampersand to be consummated in the
third quarter of 2001. If we are not able to consummate the merger agreement, or
if Ventana does not meet its payment obligation, or the development timetable
with Ventana is not met or is substantially delayed, we would be required to
pursue other strategies to maintain our liquidity. Our strategies would include
substantially curtailing our development and marketing efforts, liquidating our
inventories and technology portfolio or ceasing operations. This would
materially and adversely affect AccuMed's business, financial condition, results
of operations, and cash flows.
At March 31, 2001, AccuMed has current debt of $1,557,000. Our debt
consists of a Canadian dollar note of $120,000 ($190,000 in Canadian dollars), a
non-interest bearing repayable contribution of $187,000, and $1,250,000 of notes
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 dollar 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 program and calls for semi-annual installments based on
future sales of product and available funds, as defined. AccuMed is currently
past due in making certain of its payment obligations under this program. As a
result, AccuMed's repayment obligation is callable. The Ampersand notes bear
interest at prime, plus 2.5%, are secured by our inventory and certain customer
contracts, and are due upon the earliest of July 31, 2001 or termination of the
merger agreement. The due date of the notes may be extended upon mutual
agreement of the parties.
OPERATING ACTIVITIES
For the three months ended March 31, 2001, we used $297,000 of cash for
operating activities compared to the generation of $397,000 of cash from
operations in 2000. The change in cash from operations reflects the receipt in
2001 of $500,000 in licensing fees compared to 2000 when we received $1,339,000
of licensing fees and advance royalties. The effect of this change is offset by
our efforts to reduce expenditures.
INVESTING ACTIVITIES
For the three months ended March 31, 2001, we sold certain property and
equipment for proceeds of $45,000. In 2000, we collected $400,000 from the
repayment of a note receivable with Microsulis Corp. as a result our failed
merger with Microsulis and received $327,000 of proceeds from the sale of our
shares of Ampersand common stock. We do not anticipate material capital
expenditures during 2001.
FINANCING ACTIVITIES
We received $920,000 in working capital advances from Ampersand during the
three months ended March 31, 2001. In 2001 and 2000, we repaid $31,000 and
$25,000, respectively, of our notes payable.
We currently have no commitments with respect to sources of additional
financing other than with respect to funds to be received under our agreements
with Ampersand and Ventana.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
We hold 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. We have 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. Our notes payable with Ampersand have a
variable interest rate based on the U.S. prime rate. 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. We do not actively employ strategies to minimize our risks to these
exposures.
The following table presents information about the shares we hold in
Ampersand as of March 31, 2001.
SHARES FAIR
HELD VALUE
---- -----
Ampersand Medical Corporation 192,088 $294,125
The following tables present information about our 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.
FAIR
2001 2002 TOTAL VALUE
---- ---- ----- -----
Foreign currency risk:
Principal $307,241 $ - $307,241 $307,241
Average interest rate 5.0% -
Exchange rate 1.5783 -
FAIR
2001 2002 TOTAL VALUE
---- ---- ----- -----
Interest rate risk:
Principal $1,557,241 $ - $1,557,241 $1,557,241
Average interest rate 9.4% -
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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PART II.
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibits are filed herewith:
Exhibit
Number Description of Exhibit
------ ----------------------
10.1 Secured Promissory Note made March 30, 2001 by AccuMed in
favor of Ampersand Medical Corporation in the original
principal amount of $225,000.
10.2 Secured Promissory Note made May 1, 2001 by AccuMed in favor
of Ampersand Medical Corporation in the original principal
amount of $150,000.
10.3 Amendment No. 1 dated May 10, 2001 to the Agreement and Plan
of Merger among AccuMed, AccuMed Acquisition Corp. and
Ampersand Medical Corporation dated February 7, 2001.
(b) No reports on Form 8-K were filed during the three-month period ended
March 31, 2001.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACCUMED INTERNATIONAL, INC.
/s/ PAUL F. LAVALLEE
----------------------------------
Paul F.Lavallee
Chairman of the Board and
Chief Executive Officer
(Principal Accounting Officer)
Date: May 15, 2001
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Index to Exhibits
Exhibit
Number Description of Exhibit
------ ----------------------
10.1 Secured Promissory Note made March 30, 2001 by AccuMed in favor
of Ampersand Medical Corporation in the original principal amount
of $225,000.
10.2 Secured Promissory Note made May 1, 2001 by AccuMed in favor of
Ampersand Medical Corporation in the original principal amount of
$150,000.
10.3 Amendment No. 1 dated May 10, 2001 to the Agreement and Plan of
Merger among AccuMed, AccuMed Acquisition Corp. and Ampersand
Medical Corporation dated February 7, 2001.
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