-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OkHyH3Vm9EMGy7vdn/PiURcYl6plFn9mfjKNzTAo9+5rIms4gu3cjsa/Sz0cg4LP vZxbLgdP2XnsOLn6D1NgSA== 0000950137-01-502270.txt : 20010712 0000950137-01-502270.hdr.sgml : 20010712 ACCESSION NUMBER: 0000950137-01-502270 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010711 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMPERSAND MEDICAL CORP CENTRAL INDEX KEY: 0000075439 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 364296006 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 000-00935 FILM NUMBER: 1678581 BUSINESS ADDRESS: STREET 1: 900 NORTH FRANKLIN STREET STREET 2: SUITE 210 CITY: CHICAGO STATE: IL ZIP: 60610 BUSINESS PHONE: 4078490290 MAIL ADDRESS: STREET 1: 900 NORTH FRANKLIN STREET 1 STREET 2: SUITE 210 CITY: CHICAGO STATE: IL ZIP: 60610 FORMER COMPANY: FORMER CONFORMED NAME: BELL NATIONAL CORP DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: PACIFIC COAST HOLDINGS INC DATE OF NAME CHANGE: 19830303 10-Q/A 1 c63719a1e10-qa.txt AMENDMENT TO FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Amendment No. 1 to FORM 10-Q (MARK ONE) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended 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 0-935 ----- AMPERSAND MEDICAL CORPORATION (Exact name of registrant as specified in its charter) Delaware 36-4296006 - ---------------------------------- -------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 414 North Orleans Street, Suite 510 Chicago, IL 60610 ---------------------------------------- (Address of principal executive offices) (Zip Code) (312) 222-9550 ------------------------------- (Registrant's telephone number, including area code) ------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by the court. Yes No ---- ---- APPLICABLE ONLY TO CORPORATE ISSUERS Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. Common Stock, $0.001 par value per share----30,211,457 shares as of April 30, 2001. 1 2 INDEX AMPERSAND MEDICAL CORPORATION AND SUBSIDIARIES Part I. Financial Information Item 1. Financial Statements (Unaudited) Consolidated balance sheets -- March 31, 2001 and December 31, 2000 Consolidated statements of operations -- Three months ended March 31, 2001 and March 31, 2000 Consolidated statements of cash flows -- Three months ended March 31, 2001 and March 31, 2000 Notes to consolidated financial statements -- March 31, 2001 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosure of Market Risk Part II. Other Information Item 1. Legal Proceedings Item 2. Changes in Securities and Use of Proceeds Item 3. Defaults on Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K 2 3 PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS AMPERSAND MEDICAL CORPORATION AND SUBSIDIARIES (FORMERLY BELL NATIONAL CORPORATION) CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
BALANCE BALANCE MARCH 31, 2001 DECEMBER 31, 2000 -------------- ----------------- (UNAUDITED) ----------- ASSETS Current Assets: Cash and cash equivalents $ 931 $ 13 Notes receivable, 1,250 330 Accounts receivable, net of allowance for doubtful accounts of $4 344 465 Accrued interest receivable 101 73 Work in progress 212 248 Refundable taxes 115 119 Prepaid expenses 82 151 ----------- --------------- Total current assets 3,035 1,399 Fixed assets, net 519 385 Other assets: License, patents, and technology, net of amortization 1,620 1,637 Goodwill, net of amortization 104 148 Prepaid royalties 990 1,006 ----------- --------------- Total assets $ 6,268 $ 4,575 =========== =============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,548 $ 1,909 Deposits 24 547 Accrued payroll costs 90 231 Accrued expenses 516 586 Deferred revenue 67 195 Revolving line of credit 78 127 Current maturities of notes payable - related party 440 709 Current maturities of notes payable 427 396 ----------- --------------- Total current liabilities 3,190 4,700 Stockholders' equity (deficit) Preferred Stock; Authorized 5,000,000 shares Series B Convertible; issued and outstanding 1,333,856 shares 1 - Common stock, $0.001 par value; Authorized 50,000,000 shares; Issued and outstanding; 30,211,457 shares 30 30 Additional paid in capital 17,980 12,018 Note receivable from stockholder (450) (450) Accumulated deficit (14,399) (11,626) Accumulated comprehensive loss - Cumulative translation adjustment (84) (97) ----------- --------------- Total stockholders' deficit 3,078 (125) ----------- --------------- Total liabilities and stockholders' deficit $ 6,268 $ 4,575 =========== ===============
The accompanying notes are an integral part of these consolidated financial statements 3 4 AMPERSAND MEDICAL CORPORATION (FORMERLY BELL NATIONAL CORPORATION) CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) THREE MONTHS ENDED MARCH 31, -------- 2001 2000 ----------- ----------- Net Sales $ 409 $ 362 Cost and Expenses Cost of goods sold 278 190 Research and development 883 806 Selling, general, and administrative expenses 1,754 2,483 ----------- ----------- 2,915 3,479 ----------- ----------- Operating loss (2,506) (3,117) Other income (expense) Interest (expense) - related party (176) (1) Interest (expense) (51) (20) Interest income, related party 9 - Interest income 18 - Other, net 3 (1) ----------- ----------- (197) (22) ----------- ----------- Loss before income taxes (2,703) (3,139) Income taxes - - ----------- ----------- Net loss $ (2,703) $ (3,139) Preferred stock dividend $ (70) $ - ----------- ----------- Net loss available to common stockholders $ (2,773) $ (3,139) Basic and fully diluted net loss per common share $ (0.09) $ (0.15) =========== =========== Weighted average number of common shares outstanding 30,211,457 21,300,522 =========== =========== The accompanying notes are an integral part of these consolidated financial statements. 4 5 AMPERSAND MEDICAL CORPORATION (FORMERLY BELL NATIONAL CORPORATION) CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (DOLLARS IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, -------- 2001 2000 ------- ------- Operating Activities: Net loss $(2,703) $(3,139) Adjustments to reconcile net loss to net cash used in operating activities: Amortization of debt discount 180 - Depreciation and amortization 122 88 Stock, warrants, and options issued to non-employees for services 345 342 Compensation expense related to Stock Appreciation Rights 232 1,519 Expenses paid with common stock 22 - Changes in assets and liabilities: Receivables, net 93 73 Work in progress 36 (101) Refundable taxes 4 - Prepaid royalties 16 - Prepaids and other assets 69 (73) Accounts payable (361) (280) Deposits (23) 7 Deferred revenue (128) 22 Accrued royalties - 250 Accrued expenses (211) (189) ------- ------- Net cash used in operating activities (2,307) (1,481) Cash used in investing activities: Payments for acquisitions - - Expenditures for license, patents and technology (25) (12) Purchase of fixed assets (170) (65) Advances for notes receivable (920) - ------- ------- Net cash used in investing activities (1,115) (77) Cash flows from financing activities: Proceeds from issuance of notes payable, related party 495 - Payment of notes payable - - Payment of notes payable - related party (795) (26) Proceeds from revolving line of credit, net of payments (49) (86) Proceeds from issuance of preferred stock stock, net of costs incurred 5,176 - Proceeds from issuance of common stock, net of costs incurred - 1,855 Application of deposit received for purchase of preferred stock (500) ------- ------- Net cash provided by financing activities 4,327 1,743 ------- ------- Effect of exchange rate changes on cash 13 (10) ------- ------- Net increase (decrease) in cash and cash equivalents 918 175 Cash and cash equivalents at beginning of period 13 36 ------- ------- Cash and cash equivalents at end of period $ 931 $ 211 ======= ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 2 $ 2 Income taxes $ - Non-cash transaction during the period for: Deferred financing costs $ 118 $ -
The accompanying notes are an integral part of these consolidated financial statements. 5 6 AMPERSAND MEDICAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited March 31, 2001) NOTE A. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2001 are not necessarily indicative of the results that may be expected for the year ended December 31, 2001. The balance sheet at December 31, 2000 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Ampersand Medical Corporation and Subsidiaries' Annual Report on Form 10-K/A for the year ended December 31, 2000. NOTE B. OVERVIEW Ampersand Medical Corporation, which may also be referred to as ("Ampersand"), was incorporated in Delaware on December 15, 1998, as the successor to Bell National Corporation ("Bell National"). Bell National was incorporated in California in 1958. On December 4, 1998, Bell National (then a shell corporation without any business activity) acquired InPath, LLC, a development-stage company engaged in the design and development of medical instruments and related tests. In the acquisition, Bell National issued 4,288,790 shares of Common Stock and warrants to purchase 3,175,850 shares of Common Stock to the members of InPath in exchange for their units of membership interest in InPath and the senior executives of InPath assumed management control of the Company. Based upon the terms of the acquisition agreement, for financial reporting and accounting purposes the acquisition has been accounted for as a reverse acquisition whereby InPath is deemed to have acquired Bell National. However, Bell National was the continuing legal entity and registrant for both Securities and Exchange Commission filing purposes, and income tax filing purposes, until its merger into Ampersand in May 1999. Because Bell National was a non-operating public shell company with nominal assets and InPath was a private operating company, the acquisition has been recorded as the issuance of stock for the net monetary assets of Bell National, accompanied by a recapitalization and no goodwill or other intangible assets were recorded. The Company is focused on the design, development and marketing of the InPath System of products. These products are intended to detect cancer and cancer related diseases. These products may be used in a laboratory, clinic, or doctor's office. The Company has a wholly owned subsidiary, Samba Technologies, Sarl ("Samba"). The Company acquired all of the assets of Samba in January 1999 from Unilog Regions, SA, for approximately $500,000 in cash. Samba designs, develops, and markets web-enabled software based systems for image analysis, image capture, and image transmission and management for clinical and industrial applications. Samba is also developing software used in the Inpath System. All revenues since inception of the Company have been generated by Samba. 6 7 The Company has incurred a significant operating loss since its inception. The Company expects that significant on-going operating expenditures will be necessary to successfully implement its business plan and develop, manufacture and market its products. These circumstances raise substantial doubt about the Company's ability to continue as a going concern. Implementation of the Company's plans and its ability to continue as a going concern may depend upon it acquiring substantial additional financing. Management's plans include efforts to obtain additional capital. In February 2001, the Company raised approximately $5,176,000, including $500,000 received as a deposit in December 2000, from the private sale of 1,333,856 shares of its Series B Convertible Preferred Stock to finance its operations (See Note D). However, there can be no assurance that the Company will continue to be successful in raising capital should the need for such capital arise in the future. If the Company is unable to obtain additional capital, or generate profitable sales revenues, the Company may be required to curtail the its product development and other activities and may be forced to cease operations. NOTE C. NOTES RECEIVABLE On February 7, 2001, the Company and AccuMed signed a definitive agreement under which AccuMed would be merged into a wholly owned subsidiary of the company. Such agreement was amended on May 10, 2001 (See Note H). In connection with the merger agreement, Ampersand loaned AccuMed $800,000 (which includes $330,000 of prior loans) when the merger agreement was signed. Under terms of the merger agreement, Ampersand loaned AccuMed $225,000 on March 1, 2001 and March 30, 2001 and $150,000 on May 1, 2001. Ampersand will continue making monthly loans to AccuMed, beginning with a June 1, 2001 loan, in amounts of $100,000. AccuMed may request additional loan amounts each month, above the $100,000 level, to a maximum of $225,000, based on a written submission to Ampersand substantiating the business need for the additional loan amount. All such loans accrue interest at an annual rate equal to the Prime Rate announced by the LaSalle National Bank, plus 2.5%. All principal and interest due under all such loans shall be due and payable on the earlier of the termination of the merger agreement or July 31, 2001, unless such date is automatically extended to September 30, 2001, in accordance with the terms of the agreement. All such loans are secured by the grant of a security interest and lien against the collateral described in a security agreement between the parties. NOTE D. DEPOSITS On December 17, 2000, the Company received $500,000 from Monsun, AS, a potential investor in a private offering of equity securities of the Company. The funds were subject to return until such time as the final terms and conditions of the offering were finalized. In February 2001, Monsun, AS signed a subscription agreement to purchase 125,000 shares of the Company's Series B Convertible Preferred Stock. The deposit was applied to the purchase price of such stock (See Note F). NOTE E. NOTES PAYABLE RELATED PARTIES On February 1, 2001 and February 7, 2001, the Company issued Promissory Notes to Azimuth Corporation ("Azimuth"), a company controlled by Alexander M. Milley, a director and significant shareholder of the Company, in exchange for $25,000 and $470,000, respectively, in cash. Those notes bore interest at the rate of 15% per annum. Those notes were required to be repaid from the proceeds of any new offering of debt or equity undertaken by the Company subsequent to the dates of the Notes. As additional consideration for the Note issued on February 7, 2001, the Company granted Azimuth a warrant to purchase 1,000,000 shares of Common Stock of the Company at an exercise price of $0.25 per share, an approximate 83% discount from the $1.50 per share market price of the Common Stock on the date the warrant was issued. That warrant expires five years from the date of the grant. The Company determined the value of the warrant to be $118,000, using the difference between the fair market interest rate and the stated interest rate. The Company repaid both Notes and accrued interest on February 20, 2001. Since the February 7, 2001 note was repaid on February 20, 2001, the Company charged the entire value of the warrant, issued as additional consideration for the note, to interest expense during February 2001. The Company also repaid two additional promissory notes, issued in December 2000, and accrued interest on February 20, 2001. The proceeds of the February 2001 Notes were used to fund a portion of the loan to AccuMed upon the signing of the agreement on February 7, 2001, pursuant to which AccuMed will merge into a subsidiary of the Company. NOTE F. STOCKHOLDERS EQUITY SALE OF EQUITY In October 2000, the Board of Directors authorized the Company to raise additional new equity to support current and future operations. In February 2001, the Company completed the private offering of 1,333,856 shares of its Series B Convertible Preferred Stock. The Series B Convertible Preferred Stock has a par value of $0.001 per share, a stated value of $4.00 per share, a cumulative dividend rate of 10% per annum, and is convertible into Common Stock at a conversion price equal to $1.00 per share. The Company received net cash proceeds from the February 2001 offering of $5,176,000, including $500,000 received in December 2000, as further described in Note D. Several advisory groups contracted to assist the Company in finding 7 8 investors for the offering, were compensated through the payment of $159,000 in cash, the issuance of 374,000 shares of Common Stock, and the issuance of warrants to purchase 534,000 shares of common Stock at an exercise price of $1.20 per share. The Company determined a fair value of approximately $572,000 for shares of Common Stock issued to advisory groups. This fair value was based on the closing price of the Company's Common Stock on the date of the grant. A fair value of $817,000 was determined for the warrants issued to advisory groups. The fair value of the warrants was determined using the Black-Scholes valuation model. In applying the Black-Scholes valuation model the Company has used a risk free interest rate of 6%; a dividend yield of zero; a volatility factor of 216%; a fair value of the underlying common shares of closing market price on the date of the grant; and, an expected life of the warrants of 5 years. The average trading price of the Company's Common Stock at the time of the transaction was $1.50. The 1,333,856 shares of Series B Convertible Preferred Stock were recorded at the par value per share of $0.001, or $1,333. The balance of the purchase price, $5,333,667, was recorded as additional paid in capital. The 374,000 shares of Common Stock issued to advisors were recorded as Common Stock at the par value per share of $0.001, or $374. The balance of the value determined for the shares, $571,626, and the fair value of the warrants of $817,000 were recorded as additional paid in capital. The cash payment of $159,000 made to advisors and the fair value of the Common stock and warrants, $572,000 and $817,000 respectively, were recorded as a debit to additional paid in capital to reflect the cost of raising equity. ISSUANCE OF RESTRICTED SHARES FOR SERVICES Beginning in 1999, the Company has, at various times, awarded restricted shares of Common Stock to non-employee consultants for services. Some of the share awards were made for past services and their value was fixed. Other share awards were made as partial consideration for services to be performed under three-year consulting agreements and vest over the life of the agreements. The measurement date of these shares had not been determined as of March 31, 2001 and therefore the value of these shares will be based on the market value of the Common Stock at the end of each interim period until the measurement date is determined. A fair value of these shares of $233,000 was calculated at March 31, 2001 using the Black-Scholes valuation model and the Company recorded $38,000 as expense during the quarter. ISSUANCE OF STOCK OPTIONS TO NON-EMPLOYEES FOR SERVICES Beginning in 1999, the Company has, at various times, granted options to purchase shares of Common Stock to non-employee consultants. The options were issued as partial consideration for services to be performed under three-year consulting agreements and vest over the life of the agreements. The measurement date of these options has not been determined as of March 31, 2001. A fair value of $607,000 was calculated for these options at March 31, 2001, using the Black-Scholes valuation model. This value is charged to expense over the term of the consulting agreements. The amount of expense to be ultimately recognized will vary depending on the market value of the Common Stock at the end of each interim period. The Company recorded $106,000 as expense related to these options during the quarter. ISSUANCE OF WARRANTS FOR SERVICES In November 2000, the Company issued warrants to purchase 200,000 shares of Common Stock, at a price of $1.00 per share. In January 2001, the Company issued additional warrants to purchase 100,000 shares of Common Stock at $1.50 per share and 80,000 shares of Common Stock at $2.50 per share. All of these warrants were issued to non-employees as compensation for financial services to be provided under agreements covering a one-year period. The warrants vest in equal amounts each month over the period. The Company may terminate the agreements upon thirty days written notice, and any unvested warrants as of the date of termination would be cancelled. The measurement date for these warrants has not been determined as of March 31, 2001. A fair value of $459,000 was calculated for these warrants at March 31, 2001, using the Black-Scholes valuation model. The amount of expense to be ultimately recognized will vary depending on the market value of the Common Stock at the end of each period. The Company recorded $200,000 as expense related to these warrants during the quarter. In applying the Black-Scholes valuation model, the Company used an expected dividend yield of zero, a risk-free interest rate of 6%, a volatility factor of 216% and a fair value of the underlying common shares of $1.53 for options and restricted stock issued to consultants and the closing market price on the date of grant for warrants issued to consultants. The expected life equaled the term of the options, warrants, or restricted shares. At March 31, 2001 and December 31, 2000, the Company had 450,000 stock appreciation rights (SAR's) outstanding. These SAR's, issued in 1989, have an exercise price of $0.30 and can be exercised through November 20, 2001. In general, each SAR entitles the holder to receive upon exercise an amount equal to the excess, if any, of the market value per share of Common Stock at the date of exercise over the exercise price of the SAR, plus any dividends or distributions per share made by the Company prior to the exercise date. In lieu of making cash payments, the Company may, and intends to, elect to issue shares of Common Stock on a one share for one SAR basis. The Company has recorded a compensation expense in the amount of $232,000 for the three-months March 31, 2001 to reflect the difference between the respective closing market prices of the Company's Common Stock at March 31, 2001 and December 31, 2000 and the exercise price of the SAR's. NOTE H. SUBSEQUENT EVENTS On May 10, 2001, the Company and AccuMed signed Amendment No. 1 to the Agreement and Plan of Merger, which extended the termination date of the agreement until July 31, 2001, unless such date is automatically extended to September 30, 2001 in accordance with the terms of the amendment. The amendment also provides that Ampersand will continue to make loans to AccuMed in a minimum amount of $100,000 and at AccuMed's written request depending on the business use of funds over the minimum, a maximum amount of $225,000. 8 9 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS OVERVIEW See Note B to the Consolidated Financial Statements for background and historical information on the Company. The Company is primarily engaged in the design and development of new products to serve the market for cancer screening. With the exception of the software products and services marketed by the Company's wholly owned subsidiary, Samba Technologies, Sarl, all other products have not as yet been introduced to the market for sale. REVENUES The Company's revenue for the three-months ended March 31, 2001 amounting to $409,000 was derived entirely from the sale of Samba products and services, and represents an increase of $47,000, or 13%, over revenues of $362,000 for the three-months ended March 31, 2000. The majority of Samba revenue is derived from the performance of individual contracts. The individual components, the complexity, and the required length of time to complete each contract may cause revenues to vary from period to period. The increase in revenue for the first three months of 2001 over the similar period of the year, represents the completion of a greater volume of contracts during the period. The average exchange rate between the U.S. Dollar and the Euro (the currency to which Samba's operating currency, the French Franc, is fixed) reflects a decline in the value of the Euro to the U.S. Dollar of approximately 7% from the three-months ending March 31, 2000 to the three-months ending March 31, 2001. This decline in currency value reduced the translated value of Samba revenue by approximately $28,000 and therefore reduced the percentage increase in revenue for the quarter by approximately 50%. COST AND EXPENSES COST OF GOODS SOLD Cost of goods sold for the three-months ended March 31, 2001 amounted to $278,000 an increase of 46% over the $190,000 reported for the quarter ended March 31, 2000. The costs for both periods were entirely related to Samba products and services. The reduction in gross profit on a quarter-to-quarter comparison reflects a change in the hardware and software/service product mix. The hardware component of individual contracts generates a much higher level of cost to revenue, and a related lower gross margin, than do the software, installation, or customization components. The complexity of the hardware component can range from individual PC's to sophisticated microscopes and image-capture equipment. For example, Samba may supply necessary hardware, the customers sometimes supplies the hardware directly, or hardware already installed at the customer location is used. RESEARCH AND DEVELOPMENT EXPENSES Research and development expenses were $883,000 for the three-months ended March 31, 2001. These costs represent contracted development and consulting services, manufacturing design services, contract research, and in-house development personnel, laboratory expense, clinical trial and other clinical study costs, and research administration. Research and Development costs for the three-months ended March 31, 2000 were $806,000. The increase of $77,000, or 10%, of costs in the 2001 quarter over costs in the 2000 quarter is attributable to increased laboratory and research personnel and costs related to clinical trials and other clinical studies offset by a reduction in instrument development costs and costs related to amortization of option and stock award valuations. Included in the Research and Development costs are non-cash expenses of $160,000 and $319,000 for the 2001 and 2000 quarters, respectively, to reflect the current market value of option grants and restricted stock awards to non-employee consultants. The options and stock awards are related to services to be performed over a three-year period and the charge for the respective quarters reflects the adjusted amortization of their current value over the term of the contract. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses were $1,754,000 for the three-months ended March 31, 2001, a decrease of $729,000, or 29%, over the $2,483,000 reported for the three-months ended March 31, 2000. During the first quarter of 2000, the Company recorded non-cash expenses of $23,000 related to the amortization of option and warrant valuations and $1,519,000 related to SARs compared with expenses 9 10 of $207,000 and $232,000, respectively, recorded during the first quarter of 2001, or a combined reduction in expenses related to these items of $1,103,000 on a quarter to quarter basis. Royalty expense for the 2001 quarter was also reduced by $234,000 as a result of the renegotiation of the AccuMed License completed during the second quarter of 2000. These expense reductions were offset by increased sales and marketing costs of $117,000, increased legal and accounting fees of $355,000 related to litigation, acquisitions, and the preparation of SEC filings, and other general operating expenses. OTHER INCOME AND EXPENSE The Company incurred approximately $227,000 in interest expense during the three-month period ended March 31, 2001, an increase of $206,000 over the $21,000 reported for the three-months ended March 31, 2000. The increase reflects the amortization $180,000 including $118,000 in non-cash debt discount related to the valuation of a warrant issued as additional consideration for a note payable and $62,000 related to the amortization of the valuation of the beneficial conversion features of two convertible notes issued in 2000. NET LOSS The net loss for the three-months ended March 31, 2001 was $2,703,000, or $0.09 per share on 30,211,457 weighted average shares outstanding. The net loss for the three-months ended March 31, 2000 was $3,139,000, or $0.15 per share on 21,300,522 shares outstanding. The increase in weighted average shares outstanding primarily reflects the completion of a private equity offering in April 2000 and the related automatic conversion of outstanding 6% Convertible Subordinated Notes and accrued interest into Common Stock. LIQUIDITY AND CAPITAL RESOURCES The Company's primary cash uses continue to be research, development and design expenses of the InPath System and related products. The conversion of those designs through the process of prototypes, manufactured products, clinical trials, and market introduction requires in-house and contract design work; medical consultants and advisors; laboratory and research personnel and facilities, sales and marketing personnel; and administrative and executive personnel. Operating funds for the business since its inception have been provided through private offerings of debt and equity in the Company to limited numbers of U.S. and foreign accredited investors. We may be required to make additional such offerings in the future in order to continue to support the operations of the business until some or all of our products are introduced into the market. At March 31, 2001 the Company had cash on hand of $931,000, an increase of $918,000 over cash on hand at the previous year-end In February 2001, the Company completed the private offering of 1,333,856 shares of its Series B Convertible Preferred Stock. The Company received net cash proceeds from the February 2001 offering of $5,176,000, including $500,000 received as a deposit in December 2000. On February 1, 2001 and February 7, 2001, the Company received a combined $495,000 in cash from Azimuth in exchange for two Promissory notes bearing interest at 15% per year. On February 20, 2001, the Company repaid $795,000 to Azimuth covering the principal amounts of the two February notes plus the principal amounts of two notes issued in December 2000. At the same time, the Company also paid Azimuth approximately $14, 000 in accrued interest due on the four notes. On February 7, 2001, the Company and AccuMed signed a definitive agreement under which AccuMed would be merged into a wholly owned subsidiary of the company. Such agreement was amended on May 10, 2001 (See Note H). In connection with the merger agreement, Ampersand loaned AccuMed $800,000 (which includes $330,000 of prior loans) when the merger agreement was signed. Under terms of the merger agreement, Ampersand loaned AccuMed $225,000 on March 1, 2001 and March 30, 2001 and $150,000 on May 1, 2001. Ampersand will continue making monthly loans to AccuMed, beginning with a June 1, 2001 loan, in amounts of $100,000. AccuMed may request additional loan amounts each month, above the $100,000 level, to a maximum of $225,000, based on a written submission to Ampersand substantiating the business need for the additional loan amount. All such loans accrue interest at an annual rate equal to the Prime Rate announced by the LaSalle National Bank, plus 2.5%. All principal and interest due under all such loans shall be due and payable on the earlier of the termination of the merger agreement or July 31, 2001, unless such date is automatically extended to September 30, 2001, in accordance with the terms of the agreement. All such loans are secured by the grant of a security interest and lien against the collateral described in a security agreement between the parties. 10 11 The Company used a portion of the proceeds from the sale of its Series B Convertible Preferred Stock in February 2001 to purchase equipment for use in clinical trials, make required license payments, reduces past due balance with vendors and service suppliers, and for general operating purposes. During the three months ended March 31, 2001 the Company's wholly owned subsidiary, Samba Technologies, Sarl, reduced borrowings under its revolving credit line by $49,000. The Company has incurred significant net losses since its inception. The Company expects that significant on-going operating expenditures will be necessary to successfully implement its business plan and develop, manufacture and market its products. These circumstances raise substantial doubt about the Company's ability to continue as a going concern. Implementation of the Company's plans and its ability to continue as a going concern may depend upon its acquiring additional financing. Management's plans include efforts to obtain additional capital. The Company has been successful in raising new equity and reducing debt through the conversion of notes and accrued interest into Common Stock. However, there can be no assurance that the Company will continue to be successful in raising additional capital should the need for such capital arise in the future. If the Company is unable to obtain additional capital, or generate profitable sales revenues, the Company may be required to curtail the its product development and other activities and may be forced to cease operations. CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. Certain statements throughout this report are forward looking. These statements are based on the Company's current expectations and involve many risks and uncertainties. Some of these risks and uncertainties are factors that affect all international businesses, while others are specific to the Company and the areas of the medical products industry in which it operates. The factors below in some cases have affected and could affect the Company's actual results, causing results to differ, possibly materially, from those expressed in this report's forward-looking statements. These factors include: economic conditions; technological advances in the medical field; demand and market acceptance risks for new and existing products, technologies, and healthcare services; the impact of competitive products and pricing; manufacturing capacity; new plant start-ups; U.S. and international regulatory, trade, and tax policies; product development risks, including technological difficulties; ability to enforce patents; and unforeseen foreign regulatory and commercialization factors. Currency fluctuations are also a significant variable for global companies, especially fluctuations in local currencies where hedging opportunities are unreasonably expensive or unavailable. If the value of the U.S. dollar strengthens relative to the currencies of the countries in which the Company markets or intends to market its products, the Company's ability to achieve projected sales and net earnings in such countries could be adversely affected. The Company believes that its expectations with regard to forward-looking statements are based upon reasonable assumptions within the bounds of its knowledge of its business and operations, but there can be no assurance that the actual results or performance of the Company will conform to any future results or performance expressed or implied by such forward-looking statements. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The market risk inherent in the Company's financial statements is the potential loss in fair value arising from adverse changes in interest rates. The Company does not engage in any hedge transactions or use derivative financial instruments to reduce its exposure to interest rate changes since all of the Company's indebtedness is financed at fixed rates. At March 31, 2001, the carrying amount of the Company's debt instruments approximated their fair value. In addition, as of March 31, 2001, the Company was not exposed to any material foreign-currency, commodity-price, equity-price or other type of market or price 11 12 risk. The Company's wholly owned subsidiary, Samba, conducts the majority of its operations in Europe using EURO and local European currencies. At March 31, 2001 the Company has recorded a negative cumulative translation adjustment of ($84,000) reflecting the current valuation of the Company's investment in and current account with Samba. Part II. Other Information Item 1 Legal Proceedings None Item 2 Changes in Securities In February 2001, the Company sold 1,333,856 shares of its Series B Convertible Preferred Stock in a private offering to several U.S. and foreign accredited investors for a total cash sales price of $5,335,424. Several advisory groups contracted to assist the Company in finding investors for the offering were compensated through the payment of $159,000 in cash, the issuance of 374,000 shares of Common Stock, and the issuance of warrants to purchase 534,000 shares of Common Stock at an exercise price of $1.20 per share. Series B Convertible Preferred Stock was not registered under the Securities Act of 1933, as amended, in reliance upon the exemption contained in Section 4(2) of the Act. Item 3 Defaults on Senior Securities None Item 4 Submission of Matters to Vote of Security Holders None Item 5 Other Information None Item 6 Exhibits and Reports on Form 8-K Exhibits The following exhibits are filed herewith: Exhibit Number Description 3 Amendment No 1, dated as of May 10, 2001 to the Agreement and Plan of Merger by and among AccuMed International, Inc., AccuMed Acquisition Corp. and Ampersand Medical Corporation dated as of February 7, 2001. Reports on Form 8-K The Company filed Current Report on Form 8-K dated February 7, 2001 reporting, under Item 5, the execution of the Agreement and Plan of Merger by and among AccuMed International, Inc., AccuMed Acquisition Corporation, and the Company, dated as of February 7, 2001. 12 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Ampersand Medical Corporation /s/ Leonard R. Prange --------------------- Leonard R. Prange ----------------- President, Chief Operating Officer, Chief Financial Officer and Secretary Principal Accounting Officer Date: July 10, 2001 13 EX-3 2 c63719a1ex3.txt AMENDMENT TO THE AGREEMENT AND PLAN OF MERGER 1 EXHIBIT 3 AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER BY AND AMONG ACCUMED INTERNATIONAL, INC., ACCUMED ACQUISITION CORP. AND AMPERSAND MEDICAL CORPORATION THIS AMENDMENT NO. 1 is made and entered into as of the 10th day of May, 2001, by and among AccuMed International, Inc., a Delaware corporation ("AccuMed"), AccuMed Acquisition Corp., a Delaware corporation ("Acquisition Sub"), and Ampersand Medical Corporation ("Ampersand"). WITNESSETH: WHEREAS, the parties hereto have heretofore entered into that certain Agreement and Plan of Merger dated as of February 7, 2001 (the "Merger Agreement"), pursuant to which AccuMed will be merged with and into Acquisition Sub and thereby become a wholly-owned subsidiary of Ampersand; and WHEREAS, the parties hereto have determined that it would be in their respective best interests to modify and amend certain terms and provisions of the Merger Agreement, and the directors of each of the parties hereto have unanimously approved such modifications and amendments and directed the respective officers of the parties to give effect to such changes; NOW, THEREFORE, in consideration of the mutual promises and agreements herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledge, the parties hereto hereby agree as follows: 1. Closing Date; Termination Date. (a) The last sentence of Section 1.11 of the Merger Agreement is hereby amended to change the date set forth therein from "May 31, 2001" to "July 31, 2001." (b) The tenth and thirteenth lines of Section 4.4 (a)(iii), the eighth, ninth, eighteenth and nineteenth lines of Section 4.4(a)(iv), the second line of Section 4.4(a)(v), and the fourth line of Section 5.5, of the Merger Agreement are each hereby amended to change the dates set forth therein from "May 31, 2001" to "July 31, 2001." (c) In the event that the Registration Statement has not become effective on or prior to June 17, 2001, then all references in the Merger Agreement to "July 31, 2001" shall 2 automatically, without further action by the parties hereto, be amended to "September 30, 2001," such amendment to become effective as of June 17, 2001. 2. Ampersand Loan Obligations. The first sentence of ss.1.12(b) of the Merger Agreement is hereby deleted in its entirety and replaced by the following: "Ampersand and AccuMed also hereby agree that if by February 28, 2001 the Merger and the transactions contemplated hereby have not been consummated, then Ampersand shall loan additional monies (the "Additional Loans") to AccuMed as and when needed by AccuMed for use in its ordinary and usual business operations on the same terms and conditions as the Full Loan, except that: (i) simultaneously with the making of each Additional Loan, the collateral securing the Full Loan under the Security Agreement shall be increased in accordance with the terms of the Security Agreement in order to secure such Additional Loan as well, and AccuMed shall issue and deliver to Ampersand a new promissory note, substantially in the form of the Replacement Note, evidencing such Additional Loan; (ii) such Additional Loans shall be made on the first day of each month through and including the month in which the Merger and the transactions contemplated hereby are consummated or the month in which this Agreement is terminated in accordance with the provisions hereof, whichever comes first; (iii) the Additional Loans to be made on March 1, 2001 and April 1, 2001 shall be made automatically, without any request therefor being necessary, and each shall be in the amount of Two Hundred Twenty-Five Thousand Dollars ($225,000); (iv) the Additional Loan to be made on May 1, 2001 shall be made automatically, without any request therefor being necessary, and shall be in the amount of One Hundred Fifty Thousand Dollars ($150,000); (v) the Additional Loans to be made on June 1, 2001 and the first day of each month thereafter until the Merger closes or the Merger Agreement is terminated, shall be made automatically, without any request therefor being necessary, in the amount of One Hundred Thousand Dollars ($100,000); provided, however, that upon the written request of AccuMed, delivered to Ampersand in accordance with the provisions hereof no less than two (2) business days prior to the last day of the month immediately preceding the scheduled payment date of the Additional Loan, each such Additional Loan shall have added to it such amount as AccuMed shall request in the aforesaid notice, so long as: (1) the total amount of the Additional Loan made on the relevant date does not exceed Two Hundred Twenty-Five Thousand Dollars ($225,000), and (2) said notice sets forth the specific business uses to which such added amount shall be put, which uses shall be 2 3 reasonably satisfactory to Ampersand in order to obligate Ampersand to loan such added amount to AccuMed hereunder; and (vi) prior to the making of each Additional Loan, AccuMed and Ampersand shall identify on a schedule or schedules to be attached to the Security Agreement sufficient additional collateral to secure such Additional Loans in accordance with the terms and conditions of the Security Agreement." 3. Defined Terms. All capitalized terms not defined herein shall have the meanings ascribed to them in the Merger Agreement. 4. Continuing Effect of Original Agreement; Effective Date of Changes. Except for the modifications and amendments specifically set forth herein, the Merger Agreement shall continue in full force and effect as originally written. Subject to the provisions of Section 1(c) of this Amendment, the modifications and amendments set forth herein shall become immediately effective as of the date first hereinabove set forth. 5. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of Illinois, without taking into account any provisions regarding choice of law. IN WITNESS WHEREOF, each party has hereto caused this Agreement to be executed on its behalf by its duly authorized officer as of the date first hereinabove set forth. ACCUMED INTERNATIONAL, INC AMPERSAND MEDICAL CORPORATION By: /s/ Paul F. Lavallee By: /s/ Peter P. Gombrich -------------------- --------------------- Paul F. Lavallee, Peter P. Gombrich, Chairman of the Board and Chairman of the Board and Chief Executive Officer Chief Executive Officer ACCUMED ACQUISITION CORP. By: /s/ Peter P. Gombrich --------------------- Peter P. Gombrich, President 3 -----END PRIVACY-ENHANCED MESSAGE-----