0000950137-01-504111.txt : 20011030
0000950137-01-504111.hdr.sgml : 20011030
ACCESSION NUMBER: 0000950137-01-504111
CONFORMED SUBMISSION TYPE: 424B3
PUBLIC DOCUMENT COUNT: 1
FILED AS OF DATE: 20011025
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: MOLECULAR DIAGNOSTICS INC
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: 424B3
SEC ACT: 1933 Act
SEC FILE NUMBER: 333-65240
FILM NUMBER: 1766022
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: AMPERSAND MEDICAL CORP
DATE OF NAME CHANGE: 19990527
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
424B3
1
c63760b3e424b3.txt
PROSPECTUS
PROSPECTUS
34,969,124 Shares
MOLECULAR DIAGNOSTICS, INC.
(FORMERLY AMPERSAND MEDICAL CORPORATION)
COMMON STOCK
The selling stockholders listed in this prospectus are offering from time
to time:
- 23,620,632 shares of our common stock;
- 5,999,424 shares of our common stock that are issuable upon the
conversion of our Series B convertible preferred stock;
- 1,038,962 shares of our common stock that are issuable upon conversion of
our convertible promissory notes; and
- 4,310,106 shares of our common stock that are issuable upon exercise of
common stock purchase warrants.
We will not receive any of the proceeds from the sale of the common stock.
We will, however, receive the exercise price of the common stock purchase
warrants if and when they are exercised. We issued the common stock, Series B
convertible preferred stock, convertible promissory notes and common stock
purchase warrants to the selling stockholders in transactions exempt from
registration under the Securities Act.
The selling stockholders may offer and sell the common stock from time to
time in transactions in the over-the-counter market or in negotiated
transactions. The selling stockholders directly, or through agents or dealers
designated from time to time, may sell the common stock at fixed prices, which
may change, at prevailing market prices at the time of sale, at varying prices
determined at the time of sale or at negotiated prices.
Our common stock is traded on the Over-the-Counter Bulletin Board under the
symbol MCDG. On October 4, 2001, the last reported sale price of our common
stock on the Over-the-Counter Bulletin Board was $1.25 per share.
INVESTING IN OUR COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 1.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this prospectus is October 11, 2001.
TABLE OF CONTENTS
PAGE
----
About this Prospectus....................................... i
Risk Factors................................................ 1
Forward-Looking Statements.................................. 5
Molecular Diagnostics, Inc.................................. 6
Recent Developments......................................... 10
Selected Consolidated Financial Data of Molecular
Diagnostics, Inc.......................................... 12
Selected Consolidated Financial Data of AccuMed............. 13
Unaudited Pro-Forma Condensed Consolidated Financial
Information............................................... 14
Use of Proceeds............................................. 19
Selling Stockholders........................................ 20
Plan of Distribution........................................ 34
Description of Capital Stock................................ 35
Legal Matters............................................... 44
Independent Accountants..................................... 45
Where You Can Find More Information About Us................ 45
Documents Delivered with this Prospectus.................... 46
Commission Position on Indemnification for Securities Act
Liability................................................. 46
In this prospectus, "we," "us," "our" and "Molecular Diagnostics" refer to
Molecular Diagnostics, Inc.
---------------------
You should rely only on information contained in or incorporated by
reference in this prospectus. Neither we nor the selling stockholders have
authorized anyone to provide you with different information. The selling
stockholders are not offering these securities in any state where the offer is
not permitted. You should not assume that the information provided by this
prospectus is accurate as of any date other than the date on the front of this
prospectus.
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission (the "SEC") to register 34,969,124 shares of
our common stock which the selling stockholders named in this prospectus may
sell from time to time. Accordingly you should refer to the registration
statement and its exhibits for further information about us and our common
stock. Statements contained in this prospectus concerning documents we filed
with the SEC are not intended to be comprehensive, and in each instance we refer
you to the copy of the actual document filed as an exhibit to the registration
statement or otherwise filed with the SEC. You should read this prospectus
together with the additional information described under the heading "Where You
Can Find More Information About Us."
i
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks described below are not the only ones we are
facing. Additional risks not presently known to us or that we currently deem
immaterial may also impair our business operations.
Our business, financial condition or results of operations could be
materially adversely affected by any of these risks. The trading price of our
common stock could decline due to any of these risks, and you may lose all or
part of your investment.
WE EXPECT TO INCUR SIGNIFICANT COSTS ASSOCIATED WITH THE ACCUMED MERGER.
In September 2001, AccuMed International, Inc. ("AccuMed") merged into our
wholly-owned subsidiary and became a wholly-owned subsidiary of Molecular
Diagnostics. We estimate that we will incur direct transaction costs of
approximately $200,000 which we included as part of the total purchase cost of
AccuMed for accounting purposes. We believe the combined entity may incur
charges to operations, which are not currently reasonably estimable, in the
fiscal quarter ended September 30, 2001 or the following quarters, to reflect
costs associated with integrating the two companies. There can be no assurance
that the combined company will not incur additional material charges in
subsequent quarters to reflect additional costs associated with the merger.
OUR REVERSE STOCK SPLIT MAY NOT HAVE THE INTENDED EFFECT OF ENHANCING
STOCKHOLDER VALUE AND DELAY IN IMPLEMENTING THE REVERSE STOCK SPLIT MAY CREATE
MARKET UNCERTAINTY.
On May 24, 2001, our common stockholders approved a one-for-three reverse
stock split of our common stock. The timing of the reverse split will depend on
several factors, including the possible listing of our common stock on the
American Stock Exchange. Delay in implementing the split may create uncertainty
in the market and investors may be unwilling to buy our common stock until they
know when the split will be effective. In the split, each three shares of our
issued and outstanding common stock will be reclassified and converted into one
share of common stock. Our board of directors believes that the reverse stock
split is desirable for several reasons. It is intended to increase the
acceptance of our common stock by the financial community and the investing
public and could enhance stockholder value as well as increase our stock price
to meet the minimum price criteria of The American Stock Exchange. The price of
our common stock after the reverse stock split may not increase in an amount
proportionate to the decrease in the number of outstanding shares.
THERE IS A LIMITED MARKET FOR PENNY STOCKS SUCH AS OURS; WE MAY NOT BE ABLE TO
LIST ON THE AMERICAN STOCK EXCHANGE.
Our common stock is considered a "penny stock" because, among other things,
its price is below $5 per share, it trades on the Over-the-Counter Bulletin
Board and we have net tangible assets of less than $2,000,000. As a result,
there may be less coverage by security analysts, the trading price may be lower,
and it may be more difficult for our stockholders to dispose of, or to obtain
accurate quotations as to the market value of, their common stock. Being a penny
stock could limit the liquidity of our common stock.
Although our common stock is currently quoted on the Over-the-Counter
Bulletin Board, an increase in the per share market price may meet criteria to
allow our common stock to be listed on The American Stock Exchange. One of the
purposes of the reverse stock split is to reduce the number of shares
outstanding and, thus, increase our stock price to meet The American Stock
Exchange minimum price of $3.00 a share. We have filed an application for
listing on The American Stock Exchange. However, our management does not know if
listing will or can be effected. The American Stock Exchange Company Guide
states that meeting the Exchange's quantitative listing requirements does not
automatically guarantee that the stock of a company will be approved for
listing. The Company Guide also states that The American Stock Exchange has
discretion in allowing the listing of the stock of a company that does not meet
all of the criteria.
1
Our independent accountants have noted that there are substantial doubts as
to our ability to continue as a going concern. The listing criteria for The
American Stock Exchange do not discuss the effect of a going concern explanatory
paragraph. The listing analyst for our listing application has indicated that he
would recommend that the listing be denied based on the going concern
explanatory paragraph. We may appeal that decision to the Listing Committee of
The American Stock Exchange, which has latitude to overrule the listing
analyst's recommendation. The formal decision and recommendation of the listing
analyst will not be rendered until we address the issue of the trading price of
our common stock, which is currently below the quantitative requirement. We and
our representatives are in continuing discussions with The American Stock
Exchange over the listing application.
THE HISTORICALLY VOLATILE MARKET PRICE OF OUR COMMON STOCK MAY AFFECT THE VALUE
OF OUR STOCKHOLDERS' INVESTMENT.
The market price of our common stock, like that of many other medical
products and biotechnology companies, has in the past been highly volatile. This
volatility is likely to continue for the foreseeable future. Factors affecting
potential volatility include:
- general economic and other external market factors;
- announcements of mergers, acquisitions, licenses and strategic
agreements;
- announcements of private or public sales of securities;
- announcements of new products or technology by us or our competitors;
- fluctuations in operating results; and
- announcements of the Food and Drug Administration ("FDA") actions
relating to products.
OUR COMMON STOCK IS UNLIKELY TO PRODUCE DIVIDEND INCOME FOR THE FORESEEABLE
FUTURE.
We have never paid a cash dividend on our common stock and we do not
anticipate paying cash dividends for the foreseeable future. We intend to
reinvest any funds that might otherwise be available for the payment of
dividends in further development of our business.
OUR COMMON STOCK IS SUBJECT TO DILUTION, AND AN INVESTOR'S OWNERSHIP INTEREST
AND RELATED VALUE MAY DECLINE.
We are authorized to issue up to 5,000,000 shares of preferred stock. We
have approximately 572,485 shares of Series A convertible preferred stock
outstanding which convert into 250,073 shares of our common stock (83,357 shares
post-split) and 1,499,856 shares of Series B convertible preferred stock
outstanding which convert into 6,000,000 shares of common stock (2,000,000
shares post-split). We also have authorized 1,800,000 shares of Series C
convertible preferred stock of which none are issued and outstanding. Our
Certificate of Incorporation gives our board of directors authority to issue the
remaining 1,109,803 undesignated shares of preferred stock with such voting
rights, if any, designations, rights, preferences and limitations as they may
determine.
We have outstanding warrants to purchase 8,220,007 shares of our common
stock (2,740,002 shares post-split), outstanding options to purchase
approximately 3,507,395 shares of our common stock (1,169,131 shares
post-split), and $1,085,000 in principal amount of convertible promissory notes
outstanding which are convertible into 1,038,962 shares of common stock (346,320
shares post-split).
Exercise or conversion by the holders of these securities would result in
substantial dilution to our shareholders.
The reverse stock split, when effected, will create almost 33,000,000
additional authorized but unissued shares of our common stock that could be sold
by our board of directors without stockholder approval, thus potentially
diluting the relative stock interests of our exiting stockholders at the time of
sale.
2
WE HAVE A LIMITED OPERATING HISTORY AND THERE ARE DOUBTS AS TO OUR BEING A GOING
CONCERN.
We have limited operating history. Our revenues, since our inception in
March 1998, have been derived entirely from sales by Samba Technologies, Sarl,
our wholly-owned subsidiary. We have not introduced or sold any of our InPath
System products to date.
We will continue to devote substantial resources to product development. We
anticipate that we will continue to incur significant losses until some or all
of our products have been successfully introduced, if ever, into the market
place.
We have incurred substantial losses and have limited financial resources.
Consequently our independent accountants have noted that these conditions raise
substantial doubt as to our ability to continue as a going concern. Our
financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that may result from the outcome of this
uncertainty. The going concern explanatory paragraph may prevent our common
stock from being listed on The American Stock Exchange and may make additional
financing more difficult or costly.
WE MAY NOT BE ABLE TO MEET OUR SHORT-TERM CAPITAL REQUIREMENTS.
We believe that our existing capital resources are not sufficient to meet
the short-term requirements of our company. Therefore, we need to raise
additional capital to support our operations. We do not have any current
commitments for additional funds, and our management cannot be certain that we
will be able to raise such funds.
It is unlikely that we will be able to meet our short-term funding
requirements through the issuance of notes or other debt instruments. We
anticipate that these short-term funding needs will require the sale of
additional shares of common stock or instruments convertible into common stock.
Such sales, if any, may have a dilutive effect on the share values of our
current stockholders. We cannot be certain what level of dilution, if any, may
occur or if we will be able to complete any such sales of common stock in the
future.
Our operating business plan for 2001 anticipated that we would need to
raise new equity during the early part of the year, which we did in the form of
a private offering of Series B convertible preferred stock completed in May
2001. Our plan also anticipated that we would need to raise additional equity in
the late third quarter and early fourth quarter of 2001. In October 2001, we
commenced an $8,100,000 offering of units consisting of newly created Series C
convertible preferred stock and warrants. The offering will terminate December
31, 2001, unless extended. The failure to raise sufficient funds in this
offering will adversely affect our ability to develop our products or to
continue as a going concern. We have retained Tucker Anthony Sutro Capital
Markets and National Securities, Inc. as our financial advisors to furnish
assistance in exploring financing alternatives, strategic alliances and
partnerships as well as merger and acquisition-related initiatives.
We are negotiating additional loans, which we anticipate would include
terms similar to those of the Cadmus Corporation, Azimuth Corporation, and
Northlea Partners, Ltd. notes. We and our investment bankers are also seeking
other sources of new debt or equity financing, including strategic alliances,
which may involve equity investments.
WE MAY NOT BE ABLE TO MEET OUR LONG-TERM CAPITAL REQUIREMENTS.
Even if we are able to raise the funds necessary to meet our short-term
operating requirements, we do not know if we will be able to sustain our
longer-term operations through future revenues. Whether we will need to raise
additional funds to support our long-term operations is influenced by many
factors, including the costs, timing and success of efforts to develop products
and market acceptance of our products.
3
OUR PRODUCTS ARE SUBJECT TO GOVERNMENT REGULATION AND THEY MAY NOT RECEIVE
NEEDED GOVERNMENT APPROVALS.
The sale and use of our products in the United States is regulated by the
FDA. We must meet significant FDA requirements before we receive clearance to
market our products. Included in these FDA requirements is the conduct of
lengthy and expensive clinical trials to prove the safety and efficacy of the
products. Until we complete such clinical trials our products may be used only
for research purposes or to provide supplemental diagnostic information in the
United States. We have started a clinical trial for one of our products and
intend to conduct other clinical trials of our products during 2001 and beyond.
We have not yet begun clinical trials of any of our AccuMed products. We cannot
be certain that our product development plans will allow these trials to
commence according to plan or that the results of these trials, or any future
trials, when submitted to the FDA along with other information, will result in
FDA clearance to market our products in the United States.
Sales of medical devices and diagnostic tests made outside the United
States are subject to foreign regulatory requirements that vary from country to
country. The time required to obtain regulatory clearance in a foreign country
may be longer or shorter than that required for FDA marketing clearance. Export
sales of certain devices that have not received FDA marketing clearance may be
subject to regulations and permits, which may restrict our ability to export the
products to foreign markets. If we are unable to obtain FDA clearance for our
products, we may need to seek foreign manufacturing agreements to be able to
produce and deliver our products to foreign markets. We cannot be certain that
we will be able to secure such foreign manufacturing agreements.
WE MAY NOT BE ABLE TO COMPETE WITH COMPANIES THAT ARE LARGER AND HAVE MORE
RESOURCES.
We compete in the medical device and diagnostics marketplace with companies
that are much larger and have greater financial resources than we do. We cannot
be certain that our products will be able to be successfully marketed in this
competitive environment.
WE MAY NOT BE ABLE TO MARKET OUR PRODUCTS.
We do not intend to maintain a direct sales force to market our products.
Therefore, in order to successfully market our products, we must be able to
negotiate profitable sales and marketing agreements with organizations that have
direct sales forces calling on domestic and foreign markets that may use the
products. If we are not able to successfully negotiate such agreements, we may
be forced to market our products through our own sales force. We cannot be
certain that we will be successful in developing and training such a sales
force, should one be required, or that we will have the financial resources to
carry out such development and training.
WE MAY NOT BE ABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY.
We hold a variety of patents and trademarks and have applied for a
significant number of additional patents and trademarks with the United States
Patent and Trademark Office and several foreign patent authorities. We intend to
file additional patent and trademark applications as dictated by our research
and development projects and business interests. We cannot be certain that any
of the currently pending patent or trademark applications, or any of those which
may be filed in the future, will be granted.
We protect much of our core technology as trade secrets because our
management believes that patent protection would not be possible or would be
less effective than maintaining secrecy. We cannot be certain that we will be
able to maintain secrecy or that a third-party will not be able to develop
technology independently.
The cost of litigation to uphold the validity of a patent or patent
application, prevent infringement or protect trade secrets can be substantial,
even if we are successful. Furthermore, we cannot be certain that others will
not develop similar technology independently or design around the patent aspects
of our products.
4
THE INTELLECTUAL PROPERTY THAT WE ACQUIRED IN THE ACCUMED MERGER MAY NOT HAVE
VALUE.
The AccuMed merger will result in the recording of license, patents and
technology of approximately $7,978,000. The value of the license, patents and
technology combined with the existing value of intangible assets of both
companies will represent approximately 84% of total post-merger assets of the
combined company. The amount allocated to license, patents and technology has an
indefinite useful life. It is possible that an individual component of AccuMed's
technology might be rendered less valuable because of the development of new or
replacement technology. If such an event occurs, we would determine the level of
impairment to the value and charge that impaired value to expense during that
period.
FORWARD-LOOKING STATEMENTS
This prospectus contains "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. These statements are
subject to risks and uncertainties and are based on the beliefs and assumptions
of our management, which, in turn, are based on information currently available
to our management. When we use words such as "believes," "expects,"
"anticipates," "intends," "plans," "estimates," "should," "likely" or similar
expressions, we are making forward-looking statements.
Forward-looking statements involve risks, uncertainties and assumptions.
Our future results and stockholder values may differ materially from those
expressed in the forward-looking statements. Many of the factors that will
determine these results and values are beyond our ability to control or predict.
You are cautioned not to put undue reliance on any forward-looking statements.
For a discussion of some of the factors that may cause actual results to
differ materially from those suggested by the forward-looking statements, please
read carefully the information under "Risk Factors" beginning on page 1. In
addition to the Risk Factors and other important factors discussed elsewhere in
this prospectus, and in our Annual Report on Form 10-K, as amended, which
accompanies this document, you should understand that other risks and
uncertainties and our public announcements and SEC filings could affect our
future results and could cause results to differ materially from those suggested
by the forward-looking statements.
Except for special circumstances in which a duty to update arises when
prior disclosure becomes materially misleading in light of subsequent events, we
do not intend to update any of these forward-looking statements to reflect
events or circumstances after the date of this prospectus or to reflect the
occurrence of unanticipated events.
5
MOLECULAR DIAGNOSTICS, INC.
GENERAL
We were incorporated in Delaware in December 1998 as the successor to Bell
National Corporation. Bell National was incorporated in California in 1958. In
December 1998, Bell National which was then a shell corporation without any
business activity, acquired InPath LLC, a development stage company engaged in
the design and development of products used in screening for cervical and other
types of cancer. For accounting purposes, this acquisition was treated as if
InPath LLC had acquired Bell National. However, Bell National continued as the
legal entity and the registrant for SEC filing purposes. Bell National merged
into Ampersand Medical Corporation, its wholly-owned subsidiary, in May 1999 in
order to change the state of incorporation of the company to Delaware. In
September 2001, we acquired AccuMed by means of a merger of AccuMed into a
wholly-owned subsidiary of Ampersand Medical. Shortly after the AccuMed merger,
Ampersand Medical changed its corporate name to Molecular Diagnostics, Inc. The
name change was effected by the merger of Ampersand Medical's wholly-owned
subsidiary, Molecular Diagnostics, Inc., with and into Ampersand Medical.
The science of medical diagnostics has advanced significantly during the
past decade. Much of this advance has come as a result of new knowledge of the
human genome and related proteins, which form the foundation of cell biology,
and the human body. Our goal is to utilize this research as a base to develop
screening and diagnostic testing products for cancer and related diseases. We
believe that the success of these products will improve patient care through
more accurate test performance, wider availability and cost effective service
delivery. We are developing an initial series of products to address these
criteria, including sample collection devices, chemical and biological tests,
and analysis instruments and related software.
Our strategy is to develop products through internal development processes,
strategic partnerships and licenses and acquisitions of companies or
technologies. This strategy has required and will require a substantial amount
of capital in the research and development process to complete the products. As
a result, we will incur substantial operating losses until we are able to
successfully market some, or all, of our products.
PRODUCTS
We are currently designing and developing a family of products for use in
cancer screening and diagnosis. We call this family of products the InPath
System. The core of the InPath System is a combination of protein
anti-bodies -- the Cocktail -- that allows the InPath System to detect and
highlight abnormal cells in a rapid and objective fashion. We intend to use
different anti-body combinations for different types of cancer and other
diseases.
The initial application of the InPath System is designed to enhance the
current cervical cancer screening process performed in laboratories, commonly
referred to as the PAP test. Our ultimate goal is to perform this screening test
in a matter of minutes at the point of service, whether in a laboratory,
doctor's office, clinic or mobile medical vehicle. The InPath System includes
the following components:
- A unique sample collection device consisting of a small balloon, shaped
to fit the cervix, and a reusable handle. The device is intended to
replace the spatula and brush currently used to collect patient cell
samples.
- A chemical and biological combination process, which is applied to a
sample to identify potentially abnormal cells.
1. In the laboratory version of the InPath System, this process is applied
to sample cells released from the collector and deposited on a glass
slide.
2. In the point of service version of the InPath System, this process is
applied directly to the sample while still on the collector.
6
- An instrument, which performs an automated analysis of a sample via an
optical scan that looks for the presence of certain wavelengths of
fluorescent light. This light is produced by tags, which are attached to
certain components of the assay.
1. In the laboratory version of the InPath System, the instrument uses an
automated microscope and a camera to capture the various wavelengths of
light.
2. In the point of service version of the InPath System, the instrument
uses custom designed optical devices and lasers to capture the various
wavelengths of light.
- Custom designed software that controls the automated instruments and
processes the analysis of the captured light detected.
In June 2000, we obtained a license from Invirion and Dr. Bruce Patterson,
M.D., Ph.D., its principal, for a proprietary medical technology to detect the
presence of cancer-causing types of the Human Papilloma Virus (HPV), a sexually
transmitted disease. We will use this technology as an adjunct to the InPath
System. The combination of the two tests will give the healthcare provider a
better picture of the level of any disease present, which patients may be at an
increased risk to develop disease in the future, and based on these factors, a
course of treatment to follow.
MARKETS
There are approximately 160,000,000 PAP tests performed annually throughout
the world, including approximately 60,000,000 tests in the United States. The US
market for cervical screening today amounts to approximately $1,000,000,000,
based on current average existing costs to perform the test. Cost levels for the
PAP test outside of the United States, where 100,000,000 tests are performed,
vary widely from country to country. Healthcare in many of these countries is
managed by governmental agencies, often at the local level, making the precise
number of tests performed difficult to validate. We estimate the total of the
non-US market today at between $500,000,000 and $600,000,000. We intend to sell
our products into both markets. We also anticipate that because our products are
more cost-effective and designed to increase access to the test, the potential
combined market could be expanded to a level in excess of $3,000,000,000.
CLINICAL STUDIES AND REGULATORY STRATEGY
We conduct clinical studies and trials of our products during the course of
their development. These studies and trials vary in terms of number of patient
samples, individual product components, specific processes and conditions,
purpose, and other factors, which may affect the results.
We have publicly reported the results of some of these studies and trials
at various medical meetings, in publications and in general public
announcements. In January 2000, we began to report results from studies
employing the InPath System Cocktail. The first report was from a portion of a
study involving over 200 patient samples that demonstrated the system's
capability to detect cellular abnormality with a sensitivity of 95% and a
specificity of 77%. In March 2000, we announced the results of the analysis of
over 10,000 individual cell samples. The analysis showed a sensitivity of 92%
and a specificity of 82% in detecting cellular abnormalities. In April 2001, we
announced the results of a pilot study conducted on 208 patient samples
collected in China. The study, which was the precursor of a 9,000 patient trial,
showed that the system detected all levels of cervical abnormalities with 95%
sensitivity and a specificity of 75%. The results of the most recent study,
presented at a medical conference, on patient samples detected all levels of
abnormality with 84% sensitivity and 81% specificity.
The sensitivity factor, the test performance in detecting versus missing
actual disease, commonly called false negatives, is critical in terms of patient
health. The specificity factor, the test's performance in correctly identifying
patients with disease versus those without, commonly called false positives, is
related to overtreatment and health care economics.
In each of the studies presented above, the InPath System demonstrated 100%
accuracy in detecting high-grade cervical disease and cancer. In addition, the
results demonstrate that the InPath System test
7
produces more accurate overall results than the current PAP test. A study
conducted in 2000 which reviewed the results of 94 previous studies of the PAP
test showed an average sensitivity of 74% and an average specificity of 68% for
the PAP test.
Data from studies of other InPath System products has also been presented
at medical conferences. A study of our In-Cell HPV test showed the test
accurately detected 100% of patients with high-grade disease and 64% of patients
with low-grade disease. In a presentation of early results of the clinical trial
of the InPath System collector, data showed that the accuracy of cytology
reports on samples collected with the InPath System collector were better than
those collected with the conventional brush/spatula method. The InPath System
collector also proved to be more comfortable for the patient and provided an
easier and shorter examination for the physician.
We believe the results of these studies support the continued development
process of the InPath System products.
We will use the data from our completed clinical trials to begin selling
our InPath System products in countries, such as Mexico, Peru, Chile, Korea and
India, in which limited or no regulatory approvals are required. We also intend
to sell products in the United States and other countries as Analyte Specific
Reagents. These Analyte Specific Reagents tests make no medical claims but may
be used by laboratories and physicians to aid in their diagnosis. We anticipate
beginning this type of product sale in the fourth quarter of 2001.
We are pursuing regulatory approval for the InPath System and Cocktail-CVX
through a series of submissions, although from a single clinical study. This
tiered approach is designed to accelerate our revenue opportunity for the InPath
System in the short term and drive adoption of our innovative products over the
longer term, while at the same time minimizing the expense and time involved in
undertaking the appropriate study.
The first stage of the overall strategy involves submitting our collector
for approval as a substantially equivalent device to the brush-and-spatula
methods for gathering samples used in the familiar PAP screening tests.
The second stage of our overall regulatory strategy involves a continuing
study of the InPath System and Cocktail-CVX. Multiple submissions will be made
for this ongoing study, the first being as an adjunct to the traditional PAP
test. Upon approval of our system as an adjunct to the PAP test, we will have
interim revenue opportunities and, more importantly, will have an opportunity to
work within a laboratory's operational system to collect additional product
performance data. As an adjunct to the PAP test, the InPath System may be used
as a quality-control measure within laboratories.
The next submission from the same study will cover the InPath System as a
fully automated replacement for the PAP test. The clinical trial data submitted
for use of the InPath System as an adjunct to the PAP test will be eligible for
this follow on process. We anticipate completion of the clinical data that
supports the InPath System as a replacement for the PAP test before the end of
2003. Simultaneously, we will be collecting and submitting data for the InPath
POS(TM) test.
We concluded clinical trials of the collector during the third quarter of
2001 and filed a 510K Application with the FDA on September 28, 2001; on the
Slide Based test, as an adjunctive application, during the fourth quarter of
2001; on the Slide Based test, as a replacement for the PAP test, during the
second quarter of 2002 on the POS(TM) test during 2002; and, on the In-Cell HPV
test during the first quarter of 2002. Once the clinical trials of each
component are completed, we will submit the appropriate data to the FDA for
clearance consideration. If we get FDA approval, we will be able to sell the
cleared product in the United States. We will also submit the data to other
regulatory agencies that may have jurisdiction over specific products.
8
PRODUCT INTRODUCTION TIMELINE
PRODUCT PROCESS TIMELINE
------- ------- --------
collector Clinical Trials Complete
FDA Submission & Review Filed September 28, 2001
FDA Clearance Mid 4th Quarter 2001
U.S. Sales Mid 4th Quarter 2001
International Sales Mid 4th Quarter 2001
Slide Based Test - Clinical Trials Current through Late 4th Quarter
Adjunctive 2001
FDA Submission & Review Late 4th Quarter 2001
International Sales Early 1st Quarter 2002
Slide Based Test - Clinical Trials 2nd Quarter 2002
PAP test replacement FDA Submission & Review 2nd Quarter 2003
International Sales 1st Quarter 2002
POS(TM) Test Development Current through End 2001
Clinical Trials Beginning of 2002
International Sales Late 1st Quarter 2002
In-Cell HPV Test Development Complete
Clinical Trials 4th Quarter 2001 through
Mid 1st Quarter 2002
FDA Submission & Review Late 1st Quarter 2002
International Sales Beginning 1st Quarter 2002
SAMBA
We have a wholly-owned subsidiary, Samba Technologies, Sarl, based in
France. 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 also is developing the software used
in the InPath System. All of our reported revenue to date has been from the sale
of Samba products and services.
Samba software suites, a group of programs which may be used singly or
together in a particular application, allow the user to capture and share
digital images and related data. Examples of applications are radiology,
pathology and real-time coordination between pathologist and physician during
ongoing surgical procedures. Samba software can create a single data folder,
where patient information, physician case notes and diagnostic images from
various sources are maintained or annotated. The software can be employed in
local or wide area networks, or through an Internet browser using
security-encrypted files. All of Samba's software can be used on a wide variety
of image capture instruments or devices and can employ static, historical, or
dynamic live images. Samba also provides software customization, installation,
interface, network and Internet consulting services to the users of its
products.
9
RECENT DEVELOPMENTS
MERGER WITH ACCUMED INTERNATIONAL, INC.
In September 2001, AccuMed merged into our wholly-owned subsidiary and
became a wholly-owned subsidiary of Molecular Diagnostics. We purchased AccuMed
in exchange for approximately 3,750,000 shares of our common stock
(approximately 1,250,000 shares after the reverse stock split referred to below)
and 572,485 shares of our Series A convertible preferred stock. The 572,485
shares of our Series A convertible preferred stock are convertible into 250,073
shares of our common stock (approximately 83,357 shares after the reverse stock
split).
AccuMed is a biomedical company. It designs, builds and supplies
computer-aided microscopes and quantitative microscopy systems. AccuMed
generated limited revenues from the sale of its products to its original target
market, which are commercial clinical laboratories that screen or diagnose
medical specimens, including PAP smears. AccuMed has redefined its technology
and marketing approach to focus on early cancer detection and other clinical
needs for its instruments and systems, as opposed to AccuMed's prior focus on
cervical cancer screening. In this new approach, AccuMed has attempted to
establish alliances with other technology and product distribution companies in
these newly targeted markets.
AccuMed's AcCell is a computer-aided microscope designed to help medical
experts examine and diagnose specimens of human cells. Currently, AccuMed does
not actively market the AcCell as a stand-alone product. AccuMed does sell
AcCells under some existing contracts and will accept new orders.
AccuMed also produces the AcCell-Savant. The AcCell-Savant includes an
AcCell as well as an electronic imaging system and image analysis software.
Since AccuMed began marketing the AcCell-Savant research system in 1999, it has
sold modest numbers of the AcCell-Savant to academic and research laboratories.
In the United States, AccuMed currently is permitted to sell the AcCell-Savant
for research and clinical use with restrictions. To sell the AcCell-Savant in
the United States for other purposes, AccuMed will need to obtain FDA clearance.
During 2000, AccuMed entered into agreements with Monogen and Ventena
Medical Systems, Inc. through which AccuMed receives fees for licensing its
intellectual property and technology in particular medical fields, and
contracted to sell AcCell instruments and provided contract development
services. Under another contract, Dianon Systems, Inc. pays AccuMed a fee per
patient whose medical sample is reviewed and analyzed through AccuMed's
AcCell-Savant instruments installed at their facility.
AccuMed is developing the prototype of the AcCell-Savant for clinical,
commercial laboratories that review and analyze human patient medical specimens.
AccuMed continues to explore additional arrangements with potential business
partners to combine AcCell-Savant and/or AcCell technology with the partner's
intellectual property. These potential arrangements include supplies such as
cancer-specific probes that "stain" cancer cells differently than cells that are
within normal limits. In these arrangements, AccuMed would sell its instruments
and systems for use in combination with the partner's intellectual property and
products. AccuMed is also exploring arrangements with other potential business
partners that may further speed the commercialization of its early lung cancer
screening test by making available to AccuMed additional technology, prospective
customers, distribution channels and programmatic funding.
AccuMed also designs, builds and supplies computer-aided microscopes and
quantitative microscopy systems. The computer-aided microscopes that AccuMed
builds include:
- robotic slide-feeding systems to load and unload slides from the
microscope;
- bar-code readers to ensure proper identification of samples being
analyzed;
- electro-mechanical scanning stages to facilitate accurate slide screening
and analyses;
10
- automatic physical dotters to mark the locations of cells of interest;
and
- data management system software to enable human medical experts to review
the relevant medical histories and report the results of their screening
or diagnosis into a medical record-keeping system.
AccuMed builds some of its products by modifying and installing
commercially available microscopes. AccuMed also builds products with its own
microscope.
AccuMed's quantitative microscopy systems also have electronic imaging
systems that are used with its software to detect and measure medical specimens
automatically or interactively to help medical experts diagnose the specimens.
REVERSE STOCK SPLIT
On May 24, 2001, our stockholders approved a one-for-three reverse split of
our common stock. In the reverse split, each three shares of our issued and
outstanding common stock will be reclassified and converted into one share of
common stock. Fractional shares will not be issued. Instead, our stockholders
will be entitled to receive a cash distribution, without interest, in lieu of
any fractional shares. The reverse stock split will not change the number of
shares of common stock we are authorized to issue.
The timing of the reverse split will depend on several factors, such as the
timing of the possible listing of our common stock on The American Stock
Exchange, the results of the negotiations by our investment bankers in regard to
future financings and business alliances and the expense and effort required to
be expended in completing the reverse split.
One of the principal reasons for seeking stockholder approval to effect a
one-for-three reverse stock split was to increase the per share price of the our
common stock. Although our directors never expected the resulting price of a
post-split share to be exactly three times the price of a pre-split share, they
nevertheless hoped it would be enough to meet or exceed the minimum price
required for listing on The American Stock Exchange. More importantly, the
directors also anticipated that in order for us to successfully apply for
listing on The American Stock Exchange, we would have to successfully conclude
the merger with AccuMed. Moreover, our management recognized that it might be
necessary to delay the reverse split until such time as we had positive news to
report, thus making it more likely that the reverse split would have the desired
effect in the marketplace.
When soliciting the proxies of our stockholders in connection with the vote
to approve the reverse stock split, we stated that we would implement the split,
if approved, as soon as practicable. However for all of the reasons stated
above, our directors do not believe it is yet practicable to give effect to the
reverse stock split. Furthermore, because the proposal approved by our
stockholders did not impose a deadline with respect to effecting the reverse
split, the directors do not believe that the delay in implementing the reverse
split is inconsistent with the approval itself or with the stockholders'
expectations in regard to such implementation. The resolution approving the
amendment to our Certificate of Incorporation to effect the proposed
one-for-three reverse stock split provides that the filing of the amendment with
the Secretary of State of Delaware shall be made at such time as our board of
directors shall determine is advisable. Accordingly, there has been no time
limit placed on the implementation of the reverse split and the directors
believe they are able to effect such split at a time that is appropriate and
practicable in the exercise of their best business judgment, which judgment the
directors of a Delaware corporation are required to exercise in order to
properly discharge their fiduciary duties to the stockholders of the
corporation. Furthermore, the directors are unaware of any statutory or case law
requirement fixing a specific time period within which an amendment to the
certificate of incorporation of a Delaware corporation must be filed once it has
been approved by the stockholders of the corporation. However, in the event that
the reverse split has not been implemented by the time notice of our 2002 annual
meeting of stockholders is required to be given, the directors intend to place
on the ballot for such meeting either a proposal to reconfirm or a proposal to
abandon the reverse stock split.
11
SELECTED CONSOLIDATED FINANCIAL DATA
OF MOLECULAR DIAGNOSTICS, INC.
We are providing the following financial information to aid you in your
analysis of Molecular Diagnostics. We derived this information from our audited
financial statements for the year ended December 31, 2000 and unaudited
financial statements for the six months ended June 30, 2001 and 2000. The
information is only a summary and you should read it in conjunction with our
historical financial statements (and related notes) contained in our Annual
Report on Form 10-K, as amended, for the year ended December 31, 2000 and our
Quarterly Report on Form 10-Q for the quarter ended June 30, 2001, as amended,
which accompany this prospectus and which are incorporated in this prospectus by
reference. We were incorporated in Delaware in December 1998 as the successor to
Bell National Corporation. Bell National was incorporated in California in 1958.
In December 1998, Bell National which was then a shell corporation without any
business activity, acquired InPath LLC, a development stage company engaged in
the design and development of products used in screening for cervical and other
types of cancer, which was formed on March 16, 1998. For accounting purposes,
this acquisition was treated as if InPath LLC had acquired Bell National,
although Bell National continued as the legal entity and the registrant for both
SEC filing purposes and income tax filing purposes. Bell National merged into
Ampersand Medical Corporation, its wholly-owned subsidiary, in May 1999 in order
to change the state of incorporation to Delaware. In September 2001, Ampersand
Medical acquired AccuMed and shortly thereafter Ampersand Medical changed its
corporate name to Molecular Diagnostics, Inc. Accordingly, our financial
information is that which begins on the formation of InPath LLC.
SIX SIX
MONTHS MONTHS
ENDED ENDED YEAR ENDED DECEMBER 31
JUNE 30, JUNE 30, ---------------------------------------
2001 2000 2000 1999 1998(1)
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net sales.................... $ 697 $ 541 $ 1,094 $ 1,040 $ 0
Operating loss............... $ (4,441) $ 3,781 $ (6,688) $ (4,117) $ (783)
Net loss available to common
stockholders............... $ (6,857) $ (3,785) $ (6,611) $ (4,226) $ (789)
PER SHARE DATA:
Net loss..................... $ (0.23) $ (0.15) $ (0.24) $ (0.29) $ (0.07)
Weighted average shares
outstanding................ 30,437,000 25,583,000 27,869,000 14,337,000 12,000,000
BALANCE SHEET DATA:
Working capital (deficit).... $ (1,699) $ (948) $ (3,301) $ (3,204) $ (80)
Total assets................. $ 6,139 $ 4,951 $ 4,575 $ 1,871 $ 1,699
Notes payable: current....... $ 1,385 $ 175 $ 1,105 $ 1,095 $ 75
Notes payable: long-term..... $ 0 $ -- $ 0 $ 26 $ 156
Stockholders' equity
(deficit).................. $ 1,920 $ 3,152 $ (125) $ (2,040) $ 728
---------------
(1) From March 16, 1998, the date of inception of InPath, LLC. As discussed
under Molecular Diagnostics, Inc. on page 6, although our predecessor
acquired InPath LLC in December 1998, for accounting purposes the
transaction was treated as an acquisition by InPath LLC.
12
SELECTED CONSOLIDATED FINANCIAL DATA OF ACCUMED
As discussed under Recent Developments on page 10, we acquired AccuMed in
exchange for approximately 3,750,000 shares of our common stock and 572,485
shares of our preferred stock. In addition, AccuMed options and warrants were
converted into our options and warrants to purchase approximately 1,678,467
shares of our common stock. We derived the following information from AccuMed's
audited financial statements for the five years ended December 31, 2000 and
unaudited interim financial statements for the six months ended June 30, 2001
and 2000. The information is only a summary and you should read it in
conjunction with AccuMed's financial statements (and related notes) contained in
AccuMed's Annual Report on Form 10-K, as amended, for the year ended December
31, 2000 and Quarterly Report on Form 10-Q for the quarter ended June 30, 2001
which accompany this prospectus.
SIX SIX
MONTHS MONTHS
ENDED ENDED YEAR ENDED DECEMBER 31
JUNE 30, JUNE 30, --------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- -------- ------- ------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:
Net revenues.................. $ 759 $ 239 $ 477 $ 136 $ 327 $ 1,001 $ 1,412
Cost of revenues.............. 47 50 122 1,146 856 1,557 1,394
Operating loss................ (1,078) (2,051) (3,654) (6,446) (9,796) (15,800) (13,387)
Interest expense.............. 61 15 39 501 1,411 3,569 458
Loss from continuing
operations before income
taxes....................... (1,073) (1,711) (3,098) (6,803) (10,360) (18,858) (10,904)
Income taxes.................. -- -- -- -- -- -- --
Loss from continuing
operations.................. (1,073) (1,711) (3,098) (6,803) (10,360) (18,858) (10,904)
Income (loss) from
discontinued operations..... -- -- -- 8,199 3,351 1,939 (670)
Extraordinary loss............ -- -- -- -- -- -- --
Net (loss) income............. (1,073) (1,711) (3,098) 1,396 (8,176) (16,919) (11,574)
PER SHARE DATA:
Basic and diluted loss from
continuing operations....... $ (0.19) $ (0.31) $ (0.55) $ (1.24) $ (2.04) $ (5.13) $ (3.85)
Income (loss) from
discontinued operations..... -- -- -- 1.49 0.66 0.53 (0.24)
Extraordinary loss............ -- -- -- -- (0.23) -- --
Basic and diluted net (loss)
income...................... $ (0.19) $ (0.31) $ (0.55) $ 0.25 $ (1.61) $ (4.60) $ (4.09)
Weighted average shares
outstanding (000's)......... 5,738 5,600 5,653 5,491 5,080 3,675 2,829
BALANCE SHEET DATA:
Working capital (deficit)..... $(1,815) $ 11 $ (812) $ 39 $ (1,393) $ (1,600) $ 2,150
Total assets.................. 5,210 6,899 6,051 7,222 13,448 16,085 13,444
Long-term debt................ -- 167 -- 167 5,782 11,455 231
Stockholders' equity.......... 1,349 4,077 2,384 5,668 4,223 733 10,136
13
UNAUDITED PRO-FORMA
CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro-forma condensed consolidated financial
information gives effect to the AccuMed merger using the purchase method of
accounting for business combinations.
The unaudited pro-forma condensed consolidated balance sheet as of June 30,
2001 is presented as if the merger had occurred on June 30, 2001. The unaudited
pro-forma condensed consolidated statements of operations are provided for the
year ended December 31, 2000 and the period ended June 30, 2001, giving effect
to the merger as though it had occurred on January 1, 2000.
The unaudited pro-forma condensed consolidated financial information is
presented for illustrative purposes only and is not necessarily indicative of
the financial position or operating results that would have been achieved if the
merger had been completed as of the beginning of the periods presented, nor is
it necessarily indicative of our future financial position or operating results.
The unaudited pro-forma condensed consolidated financial information does not
give effect to any cost savings or restructuring and integration costs that may
result from the integration of AccuMed's operations. The costs related to
restructuring and integration have not yet been determined, and we expect to
charge these costs to operations during the quarter incurred.
The unaudited pro-forma condensed consolidated financial information should
be read in conjunction with our and AccuMed's audited and unaudited financial
statements and accompanying notes incorporated by reference in this prospectus.
14
MOLECULAR DIAGNOSTICS, INC.
UNAUDITED PRO-FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 2001
MOLECULAR PRO-FORMA
DIAGNOSTICS ACCUMED ADJUSTMENTS AS ADJUSTED
(Amounts in thousands, except per share data) ----------- ------- ----------- -----------
ASSETS
Cash and cash equivalents............................. $ 10 $ 166 $ (450) $ (274)
Available-for-sale securities......................... 234 (234)(e) --
Notes receivable...................................... 1,500 (1,500)(b) --
Accounts receivable, net.............................. 554 43 -- 597
Accrued interest receivable........................... 144 (63)(c) 81
Inventories........................................... 45 598 -- 643
Refundable taxes...................................... 108 -- 108
Prepaid expenses...................................... 159 17 -- 176
-------- -------- -------- ---------
2,520 1,058 (2,247) 1,331
Fixed Assets, net..................................... 631 217 848
Other Assets:
License, patents and technology....................... 1,623 3,935 (534)(d) 13,002
7,978
Goodwill, net......................................... 67 67
Prepaid royalties..................................... 1,298 (979)(d) 319
-------- -------- -------- ---------
TOTAL ASSETS.......................................... $ 6,139 $ 5,210 $ 4,218 $ 15,567
======== ======== ======== =========
LIABILITIES AND EQUITY
Accounts payable...................................... $ 1,921 $ 188 $ -- $ 2,109
Taxes payable......................................... -- --
Customer and other deposits........................... -- --
Accrued payroll costs................................. 98 -- 98
Accrued expenses...................................... 660 597 (54)(d) 1,190
50(a)
(63)(c)
Deferred revenue...................................... 58 315 (315)(d) 58
Revolving line of credit.............................. 97 -- 97
Current maturities notes payable -- related party..... 471 -- 471
Current maturities notes payable...................... 914 (1,500)(b) (586)
Current portion of long term debt..................... -- 1,772 -- 1,772
Other current liabilities............................. -- -- --
-------- -------- -------- ---------
TOTAL CURRENT LIABILITIES............................. 4,219 2,872 (1,882) 5,209
DEFERRED REVENUE...................................... -- 989 (535)(D) --
(454)(A)
Preferred stock, series A convertible ($.001 par)..... -- 2,576 (2,576)(a) 1
1(a)
Preferred stock, series B convertible ($.001 par)..... 1 -- 1
Common stock ($.001 par).............................. 31 57 (57)(a) 35
4(a)
--
Additional paid-in capital............................ 18,563 61,291 (61,291)(a) 27,840
6,653(a)
2,624(a)
Note receivable from stockholder...................... (250) -- (250)
Other comprehensive loss.............................. (154) 154(a) --
Accumulated deficit................................... (16,335) (62,205) 62,205(a) (16,335)
(609)(d) (609)
Deferred stock compensation........................... (1)(a) (1)
Cumulative translation adjustment..................... (90) -- (90)
Treasury stock........................................ (216) 216(a) (234)
(234)(e)
-------- -------- -------- ---------
TOTAL STOCKHOLDERS' EQUITY............................ 1,920 1,349 7,089 10,358
-------- -------- -------- ---------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY.............. $ 6,139 $ 5,210 $ 4,218 $ 15,567
======== ======== ======== =========
15
MOLECULAR DIAGNOSTICS, INC.
UNAUDITED PRO-FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2001
HISTORICAL
MOLECULAR HISTORICAL PRO-FORMA
DIAGNOSTICS ACCUMED ADJUSTMENTS AS ADJUSTED
----------- ---------- ----------- -----------
REVENUE
Net sales....................................... $ 697 $ 43 $ -- $ 740
Licensing fees and royalties.................... -- 716 (42)(g) 674
------- ------- ---- -------
Total revenue.............................. 697 759 (42) 1,414
OPERATING EXPENSES
Cost of goods sold.............................. 487 47 -- 534
Research and development........................ 1,938 354 -- 2,292
Amortization.................................... 84 -- 84
Selling, general, and administrative expenses... 2,629 1,436 (66)(i) 3,999
------- ------- ---- -------
Total operating expenses................... 5,138 1,837 66 6,909
------- ------- ---- -------
OPERATING LOSS.................................... (4,441) (1,078) 24 (5,495)
------- ------- ---- -------
OTHER INCOME (EXPENSE)
Interest expense -- related party............... (226) -- -- (226)
Interest expense................................ (119) (61) 50(j) (130)
Interest income -- related party................ 18 -- -- 18
Interest income................................. 53 (50)(j) 3
Other income, net............................... 3 66 -- 69
------- ------- ---- -------
Total other income (expense)............... (271) 5 -- (266)
------- ------- ---- -------
LOSS BEFORE INCOME TAXES.......................... (4,712) (1,073) 24 (5,761)
Income taxes...................................... -- -- -- --
------- ------- ---- -------
Net loss.......................................... (4,712) (1,073) 24 (5,761)
Dividends on convertible preferred stock.......... (212) -- -- (212)
Deemed dividend upon issuance of convertible
preferred stock................................. (1,933) -- (1,933)
------- ------- ---- -------
NET LOSS AVAILABLE TO COMMON STOCKHOLDERS......... $(6,857) $(1,073) $ 24 $(7,906)
======= ======= ==== =======
BASIC AND DILUTED NET LOSS PER SHARE.............. $ (0.23) $ (0.19) $ (0.23)
======= ======= =======
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING........ 30,437 5,738 34,048
======= ======= =======
16
MOLECULAR DIAGNOSTICS, INC.
UNAUDITED PRO-FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2000
HISTORICAL
MOLECULAR HISTORICAL PRO-FORMA
DIAGNOSTICS ACCUMED ADJUSTMENTS AS ADJUSTED
----------- ---------- ----------- -----------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
REVENUE
Net sales..................................... $ 1,094 $ 303 $ (121)(f) $ 1,276
Licensing fees and royalties.................. -- 174 (66)(g) 108
------- ------- ------- --------
Total revenue............................ 1,094 477 (187) 1,384
OPERATING EXPENSES
Cost of revenues.............................. 637 122 (58)(h) 701
Research and development...................... 3,426 1,143 -- 4,569
Amortization.................................. 169 -- -- 169
Selling, general, and administrative
expenses................................... 3,550 2,866 (118)(i) 6,298
------- ------- ------- --------
Total operating expenses................. 7,782 4,131 (176) 11,737
------- ------- ------- --------
OPERATING LOSS.................................. (6,688) (3,654) (11) (10,353)
------- ------- ------- --------
OTHER INCOME (EXPENSE)
Interest expense -- related party............. (155) -- -- (155)
Interest expense.............................. (80) (38) 16(j) (102)
Interest income -- related party.............. 63 -- -- 63
Interest income............................... 10 16 (16)(j) 10
Realized gain on available for sale
security................................... -- 331 (331)(k) --
Other income, net............................. 239 247 -- 486
------- ------- ------- --------
Total other income (expense)............. 77 556 (331) 302
------- ------- ------- --------
LOSS BEFORE INCOME TAXES........................ (6,611) (3,098) (342) (10,051)
INCOME TAXES.................................... -- -- -- --
------- ------- ------- --------
NET LOSS........................................ $(6,611) $(3,098) $ (342) $(10,051)
======= ======= ======= ========
BASIC AND DILUTED NET LOSS PER SHARE............ $ (0.24) $ (0.55) $ (0.33)
======= ======= ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING...... 27,869 5,653 30,069
======= ======= ========
17
NOTES TO THE UNAUDITED PRO-FORMA CONDENSED CONSOLIDATED BALANCE SHEET
The following represents the components of the purchase price of AccuMed
for financial accounting purposes (in thousands):
Fair value of 3,760,742 shares of Molecular Diagnostics
common stock exchanged for outstanding AccuMed common
stock................................................. $6,243
Fair value of 572,485 shares of Molecular Diagnostics
Series A Convertible Preferred Stock exchanged for
outstanding AccuMed Series A Convertible Preferred
Stock................................................. 415
Fair value of stock options exchanged:
Vested options....................................... 884
Unvested options..................................... 1
Fair value of warrants exchanged....................... 1,739
Estimated direct acquisition costs to be incurred by
Molecular Diagnostics................................. 450
------
Total purchase price................................. $9,732
======
The fair value of the common stock issued in the merger of $1.66 per share
was based on the average market value of our common stock during the period
commencing three days before and ending three days after the announcement date
of the acquisition. The fair value of stock options exchanged was determined on
a grant-by-grant basis using the Black-Scholes model and the following
assumptions:
- stock price of $1.66;
- volatility of 216%;
- dividend rate of zero;
- risk-free rate of return ranging from 5.0% to 6.0% depending on the date
of the grant; and
- expected life ranging from .08 to 8.83 years depending on the vesting
status.
The total number of shares pertaining to stock options assumed to be
exchanged was 550,269, of which 441,178 were vested and 109,091 were unvested.
The intrinsic value of the unvested employee stock options is recorded in the
purchase accounting as deferred compensation to be amortized over the remaining
vesting period. The fair value of warrants exchanged pertaining to 1,128,197
shares was determined using the Black-Scholes model and the following
assumptions:
- stock price of $1.66;
- volatility of 216%;
- dividend rate of zero;
- risk-free rate of return ranging from 5.0% to 6.0% depending on the date
of the grant; and
- expected life equal to the remaining contractual term of each warrant.
The following represents the preliminary allocation of the total purchase
price to the estimated fair values of acquired assets and liabilities of AccuMed
at June 30, 2001 and is for illustrative purposes only. For purposes of this
pro-forma presentation the excess of the purchase price over the historical book
value of net assets acquired has been allocated to license, patents and
technology. Upon consummation of the merger, the fair value of the acquired
licenses, patents and technology will be determined for purposes of the actual
allocation. Assuming the transaction occurred on June 30, 2001, the purchase
accounting allocation would have been as follows (in thousands):
Historical book value of net assets acquired................ $1,349
Historical deferred revenue of AccuMed included in the net
assets acquired above, excluded from purchase price....... 454
------
1,803
License, patents and technology............................. 7,978
Liability for acquisition costs incurred by AccuMed......... (50)
Deferred compensation....................................... 1
------
Total purchase price.............................. $9,732
======
18
The purchase accounting allocation summarized above is reflected in the
following pro forma adjustments to the unaudited pro forma condensed
consolidated balance sheet at June 30, 2001:
a. To record our investment in AccuMed equal to the total purchase price
summarized above (including the $450 of direct acquisition costs
incurred by us) and to record as license, patents and technology the
excess of the total purchase price over the fair value of the net assets
acquired resulting from the purchase accounting for AccuMed. The amount
allocated to license, patents and technology has an indefinite useful
life. In accordance with the Financial Accounting Standards Board's
Statements of Financial Accounting Standards No. 141, Business
Combinations, and No. 142, Goodwill and Other Intangible Assets, the
amount allocated to license, patents and technology will not be
amortized but reviewed annually, or more frequently if impairment
factors arise, for impairment.
b. To eliminate the note payable of AccuMed to Molecular Diagnostics.
c. To eliminate the accrued interest on the note payable of AccuMed to
Molecular Diagnostics.
d. To remove license fees and royalties paid to AccuMed by Molecular
Diagnostics recorded by Molecular Diagnostics and related deferred
revenue as recorded by AccuMed.
e. To remove AccuMed's investment in Molecular Diagnostics common stock.
NOTES TO UNAUDITED PRO-FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
f. To eliminate AccuMed sales to Molecular Diagnostics.
g. To eliminate license fees and royalties recognized by AccuMed from a
license agreement between AccuMed and Molecular Diagnostics.
h. To eliminate AccuMed's cost of goods sold related to sales between the
companies.
i. To eliminate license fees and royalties as recorded by Molecular
Diagnostics from a license agreement between AccuMed and Molecular
Diagnostics.
j. To eliminate interest income and interest expense on notes payable by
AccuMed to Molecular Diagnostics.
k. To eliminate AccuMed's realized gain on available for sale security from
the sale of Molecular Diagnostics common stock.
USE OF PROCEEDS
All of the shares of common stock offered pursuant to this prospectus are
being offered by the stockholders listed under Selling Stockholders. We will not
receive any of the proceeds from the sales of the shares of common stock. We
will receive the exercise price of the common stock purchase warrants if and
when they are exercised up to an aggregate of approximately $11,078,551 if all
common stock purchase warrants are exercised. We intend to use any proceeds from
the exercise of the common stock purchase warrants for working capital and
general corporate purposes.
19
SELLING STOCKHOLDERS
The following table sets forth with respect to the selling stockholders (i)
the number and percentage of shares of common stock beneficially owned as of
September 28, 2001, (ii) the maximum number of shares of common stock which may
be sold pursuant to this prospectus and (iii) the number and percentage of
shares of common stock which will be beneficially owned after sales pursuant to
this prospectus, assuming the sale of all shares of common stock set forth in
(ii) above:
NUMBER OF PERCENT OF
SHARES OF SHARES OF
NUMBER OF PERCENT OF COMMON COMMON
SHARES OF SHARES OF NUMBER OF STOCK STOCK
COMMON COMMON SHARES OF BENEFICIALLY BENEFICIALLY
STOCK STOCK COMMON OWNED OWNED
BENEFICIALLY BENEFICIALLY STOCK AFTER THE AFTER THE
NAME OF SELLING STOCKHOLDER OWNED OWNED OFFERED OFFERING+ OFFERING+
--------------------------- ------------ ------------ ---------- ------------ ------------
Peter P. Gombrich, Chairman of the Board, Chief
Executive Officer, and director(1)................ 5,726,173 16.5% 3,303,925 144,333 *
414 N. Orleans #510
Chicago, IL 60610
Seaside Partners(2)................................. 3,735,000 10.8% 3,735,000 0 *
623 Ocean Ave.
Sea Girt, NJ 08750
Alexander M. Milley, director(3).................... 6,254,391 15.5% 406,486 70,000 *
414 N. Orleans #510
Chicago, IL 60610
Cadmus Corporation(4)............................... 1,744,667 5.0% 1,666,786 77,881 *
Milley Management(5)................................ 503,333 1.5% 503,333 0 *
Azimuth Corporation(6).............................. 3,381,250 9.0% 506,250 0 *
3600 Rio Vista Avenue
Orlando, FL 32805
Leonard R. Prange, President, COO/CFO, and
Secretary(7)...................................... 1,133,355 3.2% 696,688 436,667 1.42%
414 N. Orleans #510
Chicago, IL 60610
Robert C. Shaw, director(8)......................... 570,417 1.6% 500,417 70,000 *
414 N. Orleans #510
Chicago, IL 60610
John Abeles, M.D., director(9)...................... 324,116 * 2,491 70,050 *
414 N. Orleans #510
Chicago, IL 60610
William J. Ritger(11)............................... 1,965,474 5.6% 1,883,674 11,800 *
623 Ocean Avenue
Sea Girt, NJ 08750
Suzanne Musikantow Gombrich(12)..................... 2,277,915 6.6% 838,434 0 *
414 N. Orleans, #510
Chicago, IL 60610
Suzanne Musikantow Gombrich, as Trustee of The EAG
Trust dated 10/23/98(13).......................... 479,827 1.4% 479,827 0 *
414 N. Orleans, #510
Chicago, IL 60610
Suzanne Musikantow Gombrich, as Trustee of The CMC
Trust dated 10/23/98(13).......................... 479,827 1.4% 479,827 0 *
414 N. Orleans, #510
Chicago, IL 60610
Suzanne Musikantow Gombrich, as Trustee of The MGD
Trust dated 10/23/98(13).......................... 479,827 1.4% 479,827 0 *
414 N. Orleans, #510
Chicago, IL 60610
Theodore L. Koenig, as Trustee of The MSD Trust
dated 12/19/94(13)................................ 410,555 1.2% 410,555 0 *
One Northbrook Place
5 Revere Drive, Suite 206
Northbrook, IL 60062
20
NUMBER OF PERCENT OF
SHARES OF SHARES OF
NUMBER OF PERCENT OF COMMON COMMON
SHARES OF SHARES OF NUMBER OF STOCK STOCK
COMMON COMMON SHARES OF BENEFICIALLY BENEFICIALLY
STOCK STOCK COMMON OWNED OWNED
BENEFICIALLY BENEFICIALLY STOCK AFTER THE AFTER THE
NAME OF SELLING STOCKHOLDER OWNED OWNED OFFERED OFFERING+ OFFERING+
--------------------------- ------------ ------------ ---------- ------------ ------------
Monroe Investments, Inc.(13)........................ 298,586 * 298,586 0 *
One Northbrook Place
5 Revere Drive, Suite 206
Northbrook, IL 60062
Robert M. Adrian(16)................................ 75,758 * 75,758 0 *
6211 Highland Drive
Chevy Chase, MD 20815
Kimberly Allen(16).................................. 10,727 * 10,727 0 *
546 N. Elmwood Avenue
Oak Park, IL 60302
Banca Del Gottardo(17).............................. 422,333 1.2% 422,333 0 *
Viale Stefano Franscini 8
6901 Luga
SWITZERLAND
Ralph M. Baruch and Jean V. Baruch Trustees U/A
Dated 1/26/96 Ralph & Jean Baruch Revocable
Trust(16)......................................... 303,030 * 303,030 0 *
784 Park Avenue
New York, NY 10021
Bathgate McColley Capital Group, LLC(18)............ 295,750 * 295,750 0 *
5350 South Roslyn St., #380
Englewood, CO 80111
Mary Lou Berry(16).................................. 203,030 * 203,030 0 *
301 E. North Ave.
Northlake, IL 60164
Bentell AS(17)...................................... 50,000 * 50,000 0 *
Askervelen 61
N-1373 Asker
NORWAY
Frank Blatz(17)..................................... 25,000 * 25,000 0 *
970 Nepawin Lane
Scotch Plains, NJ 07076
Gregory A. Booth(19)................................ 158,125 * 158,125 0 *
5 Corcoran Drive
Tyngsboro, MA 01879
Kevin G. Boyle(20).................................. 100,000 * 100,000 0 *
127 Hawksbill Way
Jupiter, FL 33458
Kevin G. Boyle Securities, Inc...................... 100,000 * 50,000 50,000 *
365 Stewart Ave., Apt B10
Garden City, NY 11530
Brady Retirement Fund, L.P.(20)..................... 130,000 * 130,000 0 *
44 Montgomery St., #2110
San Francisco, CA 94104
James F. Brennan(16)................................ 551,515 1.6% 551,515 0 *
141 W. Jackson Blvd., #3720
Chicago, IL 60604
Joseph Brennan(16).................................. 107,515 * 107,515 0 *
141 W. Jackson Blvd., #3720
Chicago, IL 60604
John H. Burlingame(17).............................. 15,000 * 15,000 0 *
P.O. Box 948
South Orleans, MA 02662
David Cathcart(17).................................. 15,000 * 15,000 0 *
207 Fox Horn Lane
Charlottesville, VA 22902
21
NUMBER OF PERCENT OF
SHARES OF SHARES OF
NUMBER OF PERCENT OF COMMON COMMON
SHARES OF SHARES OF NUMBER OF STOCK STOCK
COMMON COMMON SHARES OF BENEFICIALLY BENEFICIALLY
STOCK STOCK COMMON OWNED OWNED
BENEFICIALLY BENEFICIALLY STOCK AFTER THE AFTER THE
NAME OF SELLING STOCKHOLDER OWNED OWNED OFFERED OFFERING+ OFFERING+
--------------------------- ------------ ------------ ---------- ------------ ------------
Cat Invest I, AS(20)................................ 206,500 * 206,500 0 *
v/Adv. Oystein Eskeland
Postboks 1484 Vika
0116 Oslo
NORWAY
Robert L. Cerasia(20)............................... 50,000 * 50,000 0 *
c/o Solomon Smith Barney
325 Columbia Turnpike, 1st Fl
Florham Pk, NJ 07932
CHAOS AS(20)........................................ 170,000 * 170,000 0 *
Postboks 110, Sentrum
0102 Oslo
NORWAY
Commonwealth Associates & Designees(15)............. 1,045,143 2.9% 1,045,143 0 *
830 Third Ave., 4th Floor
New York, NY 10022
Torrey L. Conrad(16)................................ 30,303 * 30,303 0 *
29W244 Oak Knoll
West Chicago, IL 60185
Thomas F. Currin(17)................................ 35,000 * 35,000 0 *
40 Ocean Avenue
Larchmont, NY 10538
David G. Daleiden(16)............................... 200,000 * 200,000 0 *
600 N. McClurg, #601-A
Chicago, IL 60611
James Daubach Trustee for The Andrew Daubach
Trust(16)......................................... 375,000 1.1% 375,000 0 *
415 N. LaSalle, #500
Chicago, IL 60610
Bruce De Schryver(17)............................... 20,000 * 20,000 0 *
10 Woodbury Way
Fairport, NY 14450
Edwin J. Dettling(16)............................... 203,030 * 203,030 0 *
1136 W. Altgeld
Chicago, IL 60614
Richard D. Doermer(21).............................. 662,019 1.9% 662,019 0 *
415 N. LaSalle, #500
Chicago, IL 60610
Gary C. Evans(22)................................... 209,091 * 209,091 0 *
13215 Glad Acres
Farmers Branch, TX 75234
Bruce J. Fogel(20).................................. 100,000 * 100,000 0 *
359 Eagle Drive
Jupiter, FL 33477
Mark J. Gallagher & Paula J. Gallagher(16).......... 151,515 * 151,515 0 *
4 Mayflower Road
Winchester, MA 01890
Charles B. Ganz..................................... 100,000 * 50,000 50,000 *
c/o Mellon Private Asset Management
1801 N. Military Trail
Boca Raton, FL 33431
Geary Partner, L.P.(20)............................. 660,000 1.9% 660,000 0 *
44 Montgomery St., #2110
San Francisco, CA 94101
Drew S. Giles & Laurette K. Giles................... 15,000 * 7,500 7,500 *
S. Pine Hill Trail West
Tequerta, FL 33469
22
NUMBER OF PERCENT OF
SHARES OF SHARES OF
NUMBER OF PERCENT OF COMMON COMMON
SHARES OF SHARES OF NUMBER OF STOCK STOCK
COMMON COMMON SHARES OF BENEFICIALLY BENEFICIALLY
STOCK STOCK COMMON OWNED OWNED
BENEFICIALLY BENEFICIALLY STOCK AFTER THE AFTER THE
NAME OF SELLING STOCKHOLDER OWNED OWNED OFFERED OFFERING+ OFFERING+
--------------------------- ------------ ------------ ---------- ------------ ------------
Jacqueline Gombrich(13)............................. 125,000 * 125,000 0 *
2548 Printon Road
Cleveland Heights, OH 44118
George I. Gorodeski & Shafrira S. Gorodeski(23)..... 91,000 * 91,000 0 *
25154 Bridgeton
Beachwood, OH 44122
Kurt Kregus(16)..................................... 151,515 * 151,515 0 *
622 Windridge Ct
Naperville, IL 60540
Dennis A. Gross trustee U/A Dated 12/22/95 Griffin-
Daleiden Irrevocable Trust(16).................... 50,000 * 50,000 0 *
666 Dundee Rd., Suite 1201
Northbrook, IL 60062
Howard A. Hackett(19)............................... 227,493 * 227,493 0 *
1 Corcoran Drive
Tyngsboro, MA 01879
John P. Harkrader(17)............................... 15,000 * 15,000 0 *
P.O. Box 465
Farmingdale, NJ 07727
Arthur F. Hebard(17)................................ 30,000 * 30,000 0 *
6408 N W 45th Place
Gainesville, FL 32653
Hess Investments(17)................................ 33,333 * 33,333 0 *
4311 Down Point Ln
Windermere, FL 34786
Mark Hess(17)....................................... 33,333 * 33,333 0 *
4311 Down Point Ln.
Windermere, FL 34786
Holleb and Coff(24)................................. 250,000 * 250,000 0 *
55 East Monroe
Suite 4100
Chicago, IL 60603
Fred R. Huettig(17)................................. 20,000 * 20,000 0 *
28 Corey Lane
Mendham, NJ 07945
John P. Ike(17)..................................... 35,000 * 35,000 0 *
Box 31
Pottersville, NJ 07979
John C. Iverson Family Limited Partnership(20)...... 250,000 * 250,000 0 *
476 Mariner Dr.
Jupiter, FL 33477
David Kenkel & Stefanie Kenkel(17).................. 33,333 * 33,333 0 *
JTTEN
1845 4 Wheel Drive
Whitefish, MT 59937
Thad T. Konopnicki & Audrey E. Vaughn(16)........... 45,000 * 45,000 0 *
3512 N. Dinwiddle
Arlington, VA 22207
Jon B. Kruljac & Teri E. Kruljac(25)................ 311,313 * 131,313 0 *
JTWROS
2070 Grape St.
Denver, CO 80207
John A. Lamb(26).................................... 58,333 * 16,667 0 *
206 Shady Hills Court
Simi Valley, CA 93065
23
NUMBER OF PERCENT OF
SHARES OF SHARES OF
NUMBER OF PERCENT OF COMMON COMMON
SHARES OF SHARES OF NUMBER OF STOCK STOCK
COMMON COMMON SHARES OF BENEFICIALLY BENEFICIALLY
STOCK STOCK COMMON OWNED OWNED
BENEFICIALLY BENEFICIALLY STOCK AFTER THE AFTER THE
NAME OF SELLING STOCKHOLDER OWNED OWNED OFFERED OFFERING+ OFFERING+
--------------------------- ------------ ------------ ---------- ------------ ------------
John A. Lamb -- IRA(27)............................. 41,666 * 41,666 0 *
7010 North 13th Place
Phoenix, AZ 85020
William A. Lamb -- IRA(28).......................... 83,333 * 83,333 0 *
7010 North 13th Place
Phoenix, AZ 85020
Norbert Langley(17)................................. 33,333 * 33,333 0 *
320 Southeast Creek Road
Church Hill, MD 21623
The League Corporation(16).......................... 75,758 * 75,758 0 *
141 W. Jackson Blvd., #1910-A
Chicago, IL 60611
Liska & Associates.................................. 20,000 * 20,000 0 *
23rd Floor
515 N. State St.
Chicago, IL 60610-4322
Lucas Capital Management(17)........................ 20,000 * 20,000 0 *
328 Newman Springs Rd
Red Bank, NJ 07701
Kevin F. Flynn Non Exempt Trust dated June
1992(17).......................................... 166,667 * 166,667 0 *
120 N. LaSalle St., #3300
Chicago, IL 60602
Wayne Maggio & Maria Maggio(16)..................... 75,758 * 75,758 0 *
JT TEN
22 A Grove Street
Winchester, MA 01890
James J. Maguire(17)................................ 20,000 * 20,000 0 *
P.O. Box 180
Pottersville, NJ 07979
Robert L. Malatesta(17)............................. 15,000 * 15,000 0 *
52 Mitchel Place
Little Silver, NJ 07739
Thomas J. McCabe(17)................................ 16,667 * 16,667 0 *
P.O. Box 3480
Warrenton, VA 20188
Thomas J. McCabe(20)................................ 80,000 * 80,000 0 *
P.O. Box 3480
Warrenton, VA 20188
Robert McCullough, Jr.(20).......................... 50,000 * 50,000 0 *
P.O. Box 151
Kentfield, CA 94914
Jennifer Meltzer(16)................................ 151,515 * 151,515 0 *
2101 N. Magnolia
Chicago, IL 60614
Mark K. Menzel(16).................................. 60,606 * 60,606 0 *
15305 Parev Terrace
Darnestown, MD 20874
Monarch Consulting(29).............................. 180,000 * 180,000 0 *
8873 E. Bayou Gulch Road
Parker, CO 80134
W. Douglas Morland.................................. 300,000 * 200,000 100,000 *
1655 E. Layton Drive
Englewood, CO 80110
Monsun AS(30)....................................... 1,000,000 2.8% 1,000,000 0 *
Torvejen 12 C
1383 Aske
NORWAY
24
NUMBER OF PERCENT OF
SHARES OF SHARES OF
NUMBER OF PERCENT OF COMMON COMMON
SHARES OF SHARES OF NUMBER OF STOCK STOCK
COMMON COMMON SHARES OF BENEFICIALLY BENEFICIALLY
STOCK STOCK COMMON OWNED OWNED
BENEFICIALLY BENEFICIALLY STOCK AFTER THE AFTER THE
NAME OF SELLING STOCKHOLDER OWNED OWNED OFFERED OFFERING+ OFFERING+
--------------------------- ------------ ------------ ---------- ------------ ------------
Steven J. Morris(20)................................ 100,000 * 100,000 0 *
66 Navesink Ave.
Rumson, NJ 07760
Michael A. Mulshine(31)............................. 58,333 * 58,333 0 *
868 Riverview Drive
Brielle, NJ 08730
Gerald Mustapick.................................... 100,000 * 50,000 50,000 *
14041 U.S. Highway One, Suite A
Juno Beach, FL 33408
Scott J. Mustapick.................................. 10,000 * 5,000 5,000 *
Robin R. Mustapick, JTWROS
14041 U.S. Highway One, Suite A
Juno Beach, FL 33408
Christopher Neary(17)............................... 33,333 * 33,333 0 *
11768 Willard Avenue
Tustin, CA 92782
NeoMed Innovation III, L.P.(10)..................... 2,164,000 6.6% 2,164,000 0 *
8 Queensway House
Queen Street, St. Helier
JE24WD JERSEY
Northlea Partners(9)................................ 254,116 * 246,625 5,000 *
2365 N.W. 41st Street
Boca Raton, FL 33432
Paul Papi(32)....................................... 93,939 * 93,939 0 *
22 Rolling Lane
Dover, MA 02030
Bruce K. Patterson(33).............................. 300,000 * 300,000 0 *
2300 Childrens Plaza, No 51
Chicago, IL 60614
Fred H. Pearson(34)................................. 221,616 * 221,616 0 *
10 S. LaSalle Street
Chicago, IL 60603
B. Michael Pisani(16)............................... 130,000 * 130,000 0 *
44 Lake Road
Short Hills, NJ 07078
P.L. Thomas Group(41)............................... 39,834 * 39,834 0 *
300 W. Washington St.
Chicago, IL 60606
Presidio Partners, L.P.(20)......................... 1,210,000 3.4% 1,210,000 0 *
44 Montgomery St., #2110
San Francisco, CA 94104
Robert L. Priddy(14)................................ 412,724 1.2% 16,381 396,343 *
3435 Kingsborough
Atlanta, GA 30326
Prospektiva SA(35).................................. 780,550 2.2% 780,550 0 *
via Funicolare 2
6900 Lugano
SWITZERLAND
Jeff Purcell(16).................................... 151,515 * 151,515 0 *
5 Oakbrook Ct.
Oak Brook, IL 60521
Jonathan D. Rahn(17)................................ 15,000 * 15,000 0 *
413 Gatewood Road
Cherry Hill, NJ 08003
The Research Works, Inc.(36)........................ 70,000 * 70,000 0 *
623 Ocean Avenue
Sea Girt, NJ 08750
25
NUMBER OF PERCENT OF
SHARES OF SHARES OF
NUMBER OF PERCENT OF COMMON COMMON
SHARES OF SHARES OF NUMBER OF STOCK STOCK
COMMON COMMON SHARES OF BENEFICIALLY BENEFICIALLY
STOCK STOCK COMMON OWNED OWNED
BENEFICIALLY BENEFICIALLY STOCK AFTER THE AFTER THE
NAME OF SELLING STOCKHOLDER OWNED OWNED OFFERED OFFERING+ OFFERING+
--------------------------- ------------ ------------ ---------- ------------ ------------
George Resta(17).................................... 33,333 * 33,333 0 *
854 St. Edmonds Pl.
Annapolis, MD 21401
Jay Michael Rosenberg(16)........................... 10,007 * 10,007 0 *
414 Sandy Lane
Wilmette, IL 60091
Bernard B. Rinella(16).............................. 250,000 * 250,000 0 *
One N. LaSalle, #3400
Chicago, IL 60610
John Rutzel(17)..................................... 15,000 * 15,000 0 *
14 Hathaway Drive
Princeton Junction, NJ
Louis Scher(17)..................................... 15,000 * 15,000 0 *
9 Parkside Avenue
Asheville, NC 28804
Virginia Schmidt(17)................................ 30,000 * 30,000 0 *
55 Linden Avenue
Verona, NJ 07044
Margret Selig(17)................................... 20,000 * 20,000 0 *
Amsandberg 34
60599 Frankfurt
GERMANY
Arthur A. Sharples(17).............................. 100,000 * 100,000 0 *
P.O. Box 570
New Vernon, NJ 07976
Janis Smythe(17).................................... 15,000 * 15,000 0 *
P.O. Box 206
Hillsdale, NY 12529
Michael Song(16).................................... 50,000 * 50,000 0 *
333 E. Ontario, #608B
Chicago, IL 60611
Dennis J. Stack(20)................................. 25,000 * 25,000 0 *
256 Cardinal Lane
Jupiter, FL 33458
Georgie W. Stanley(17).............................. 50,000 * 50,000 0 *
P.O. Box 180
Pottersville, NJ 07979
Michael C. Stanley(37).............................. 170,000 * 50,000 0 *
13 Robin Road
Warren, NJ 07059
Michael C. Stanley Trustee for the Georgie Stanley
II Trust(17)...................................... 40,000 * 40,000 0 *
P.O. Box 180
Pottersville, NJ 07979
Michael C. Stanley Trustee for the Benjamin A.
Stanley Trust(17)................................. 40,000 * 40,000 0 *
P.O. Box 180
Pottersville, NJ 07979
Michael C. Stanley Trustee for the Michael Bredt
Stanley Trust(17)................................. 40,000 * 40,000 0 *
P.O. Box 180
Pottersville, NJ 07979
Michael Studer(20).................................. 50,000 * 50,000 0 *
1110 Cottonwoodlane, #210
Irving, TX 75038
26
NUMBER OF PERCENT OF
SHARES OF SHARES OF
NUMBER OF PERCENT OF COMMON COMMON
SHARES OF SHARES OF NUMBER OF STOCK STOCK
COMMON COMMON SHARES OF BENEFICIALLY BENEFICIALLY
STOCK STOCK COMMON OWNED OWNED
BENEFICIALLY BENEFICIALLY STOCK AFTER THE AFTER THE
NAME OF SELLING STOCKHOLDER OWNED OWNED OFFERED OFFERING+ OFFERING+
--------------------------- ------------ ------------ ---------- ------------ ------------
Jeremy Taylor(17)................................... 35,000 * 35,000 0 *
P.O. Box 147
Metamora, IN 47030
James R. Tobin(17).................................. 15,000 * 15,000 0 *
50 Bridge Avenue
Bay Head, NJ 08742
Transamerica Business Credit Corp.(40).............. 26,840 * 26,840 0 *
790 E. Colorado Blvd.
Pasadena, CA 91101
Trinity Capital, AS(20)............................. 114,944 * 114,944 0 *
P.O. Box 1767 Vika
0122 Oslo
NORWAY
Frank Gerardi Trustee, Univest Management E P S
P(38)............................................. 527,815 1.5% 527,815 0 *
149 W. Village Way
Jupiter, FL 33458
James A. Urner(17).................................. 15,000 * 15,000 0 *
42 Mount St.
Bay Head, NJ 08742
Violina AS(20)...................................... 206,500 * 206,500 0 *
Postboks 1484 Vika
0116 Oslo Norway
Anita Von Dreusche(17).............................. 30,000 * 30,000 0 *
110 Norman Drive
Ramsey, NJ 07446
Karen A. Von Dreusche & Richard J. Berr(17)......... 30,000 * 30,000 0 *
JTTEN
52 Sunrise Court
Medford, NJ 08055
Trond E. Wennberg(20)............................... 57,480 * 57,480 0 *
Jonsok Veien 7
1182 Oslo
NORWAY
James R. Willing(16)................................ 151,515 * 151,515 0 *
6 Clearwater Road
Winchester, MA 01890
Winchester National, Inc.(39)....................... 148,655 * 148,655 0 *
3600 Rio Vista Avenue
Orlando, FL 32805
David Craig Wright(19).............................. 263,667 * 263,667 0 *
14740 Maine Cove Terrace
Gaithersburg, MD 20878
Xillix Technologies Corp............................ 38,962 * 38,962 0 *
300-13775 Commerce Parkway
Richmond, BC V6V 2V4
Canada
Richard Yetman(17).................................. 20,000 * 20,000 0 *
6 Ocean Blvd.
Island Heights, NJ 08732
Peter J. Zeganelli & Carol A. Zeganelli............. 20,000 * 10,000 10,000 *
11 Rafenberg Rd.
Sleepy Hollow, NY 10591
Robert Zelinka(20).................................. 25,000 * 25,000 0 *
15919 Laurel Creek Drive
Delray Beach, FL 33446
27
NUMBER OF PERCENT OF
SHARES OF SHARES OF
NUMBER OF PERCENT OF COMMON COMMON
SHARES OF SHARES OF NUMBER OF STOCK STOCK
COMMON COMMON SHARES OF BENEFICIALLY BENEFICIALLY
STOCK STOCK COMMON OWNED OWNED
BENEFICIALLY BENEFICIALLY STOCK AFTER THE AFTER THE
NAME OF SELLING STOCKHOLDER OWNED OWNED OFFERED OFFERING+ OFFERING+
--------------------------- ------------ ------------ ---------- ------------ ------------
Rona Zelinka(20).................................... 25,000 * 25,000 0 *
15919 Laurel Creek Drive
Delray Beach, FL 33446
---------------
+ With respect to shares and percent of shares beneficially owned after the
offering, we assumed that the selling stockholders will sell all of the
shares of common stock offered by the prospectus. We cannot assure you that
the selling stockholders will sell all or any of their shares.
* Represents less than 1% of the outstanding shares of Common Stock.
(1) Includes: (i) 3,303,925 shares issued as a result of the merger of InPath,
LLC and Bell National Corporation in December 1998; (ii) 838,434 shares
owned by Mr. Gombrich's wife; (iii) 479,827 shares owned by The EAG Trust,
479,827 shares owned by The CMC Trust, and 479,827 shares owned by The MDG
Trust, for each of which Mrs. Gombrich serves as sole Trustee; and (iv)
73,333 shares underlying options exercisable by Mr. Gombrich within sixty
days. Mr. Gombrich disclaims beneficial ownership of the shares held by his
wife and the Trusts for which she serves as Trustee.
(2) Includes: (i) 2,201,667 shares received as a result of the conversion
during 2000 of the principal and accrued interest related to a 6%
convertible promissory note purchased in a private offering in March 1999;
(ii) 200,000 shares purchased in a 1999 private offering; and (iii)
1,333,333 shares purchased in a 2000 private offering.
(3) Includes: (i) 503,333 shares owned by Milley Management, Inc., of which Mr.
Milley is the sole director and executive officer, (ii) 1,494,667 shares
owned by Cadmus Corporation, of which Mr. Milley is a director and
executive officer, and 250,000 shares issuable to Cadmus Corporation under
a warrant granted by Molecular Diagnostics that was exercisable on August
7, 2001; (iii) 506,250 shares owned by Azimuth Corporation, of which Mr.
Milley is a director and executive officer, and 2,875,000 shares issuable
to Azimuth Corporation under warrants granted by Molecular Diagnostics that
were exercisable on August 7, 2001; (iv) 148,655 shares owned by Winchester
National, Inc., of which Mr. Milley is a director, and (v) 70,000 shares
subject to options granted by Molecular Diagnostics to Mr. Milley that were
exercisable on August 7, 2001 or which have or will become exercisable
within 60 days thereafter.
(4) Includes: (i) 606,786 shares purchased in private transactions in November
and December 1998; (ii) 600,000 and 210,000 shares received in a Claims
Settlement Agreement in December 1998; and (iii) 250,000 warrants.
(5) Includes 503,333 shares received in a Claims Settlement Agreement in
December 1998.
(6) Includes: (i) 250,000 shares purchased in a 1999 private offering; (ii)
256,250 shares received as the result of the February 2000 conversion of a
promissory note and related accrued interest; (iii) 500,000 shares
underlying warrants issued in consideration of a waiver of a convertible
promissory note; and (iv) 2,375,000 shares underlying warrants exercisable
within sixty days.
(7) Includes: (i) 300,000 shares received as a result of the merger of InPath,
LLC and Bell National Corporation in December 1998; (ii) 396,688 shares
received as the result of the conversion during 2000 of the principal and
accrued interest related to a 6% convertible promissory note purchased in a
private offering in May 1999; and (iii) 436,667 shares underlying options
exercisable within sixty days.
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(8) Includes: (i) 463,333 shares received in a Claims Settlement Agreement in
December 1998; (ii) 37,084 shares acquired in a private transaction in
1989; and (iii) 70,000 shares underlying stock options, which are
exercisable within sixty days.
(9) Includes: (i) 191,616 shares owned by Northlea Partners, Ltd., of which Dr.
Abeles is the general partner, 62,500 shares issuable to Northlea Partners,
Ltd. under a warrant granted by Molecular Diagnostics that was exercisable
on August 7, 2001, and (ii) 70,000 shares subject to options granted by
Molecular Diagnostics to Dr. Abeles which were exercisable on August 7,
2001 or have or will become exercisable within 60 days thereafter. Dr.
Abeles disclaims beneficial ownership of all shares owned by Northlea
Partners, Ltd. except 2,491 shares, which shares are attributable to his 1%
interest in Northlea Partners, Ltd. as general partner.
(10) Includes: (i) 1,664,000 shares underlying Series B convertible preferred
stock purchased in a private offering during 2001; and (ii) 500,000 shares
underlying a convertible promissory note issued in 2001.
(11) Includes: (i) 465,697 shares issued as a result of the merger of InPath,
LLC and Bell National Corporation in December 1998; (ii) 653,030 shares
purchased in a private offering during 1999; (iii) 233,333 shares purchased
in a private offering during 2000; (iv) 531,614 shares underlying a warrant
issued as compensation for services performed during 2000; and (v) 70,000
shares owned by The Research Works, which is controlled by Mr. Ritger.
(12) Includes: (i) 838,434 shares received as the result of the conversion of
the principal and accrued interest related to 6% convertible promissory
notes purchased in a private offering during 1999; and (ii) 479,827 shares
owned by The EAG Trust, 479,827 shares owned by the CMC Trust, and 479,827
shares owned by The MDG Trust, for which Mrs. Gombrich serves as trustee.
Mrs. Gombrich disclaims beneficial ownership of all shares owned by the
trusts.
(13) Represents shares received as the result of the merger of InPath, LLC and
Bell National Corporation in December 1998.
(14) Including 154,647 shares underlying Series A convertible preferred stock,
8,737 shares underlying options exercisable in 60 days and 16,381 shares
underlying warrants.
(15) Represents warrants issued by AccuMed in connection with various
financings.
(16) Represents shares purchased in a private offering during 1999.
(17) Represents shares purchased in a private offering during 2000.
(18) Includes: (i) 68,250 shares issued to Bathgate or its designees as
compensation for services rendered during 2001; and (ii) 227,500 shares
underlying warrants issued to Bathgate designees as compensation for
services during 2001.
(19) Represents shares received as a result of the conversion of the principal
and accrued interest related to 6% convertible promissory notes purchased
in a private offering during 1999.
(20) Represents shares underlying Series B convertible preferred stock purchased
in a private offering during 2001.
(21) Includes: (i) 250,000 shares purchased in a private offering during 1999;
(ii) 25,000 shares received as compensation for services rendered during
1999; and (iii) 387,019 shares underlying warrant exercisable within sixty
days received as compensation for services performed during 1999.
(22) Includes: (i) 75,758 shares purchased in a private offering during 1999;
(ii) 33,333 shares purchased in a private offering during 2000; and (iii)
100,000 shares underlying 25,000 shares of Series B convertible preferred
stock purchased in a private offering during 2001.
(23) Includes: (i) 76,000 shares received as the result of the exercise of a
warrant received for services performed during 1999; and (ii) 15,000 shares
purchased in a private offering during 2000.
(24) Represents 250,000 shares underlying a warrant received as compensation for
services during 1999 and exercisable within sixty days.
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(25) Includes: (i) 131,313 shares received as a result of the conversion of the
principal and accrued interest related to a 6% convertible promissory note
purchase in a private offering during 1999; and (ii) 180,000 shares
underlying warrants issued to Monarch Consulting, which is controlled by
Mr. Kruljac, for services performed in 2001.
(26) Includes: (i) 16,667 shares purchased in a private offering during 2000;
and (ii) 41,666 shares owned by the John Lamb -- IRA.
(27) Includes: (i) 16,666 shares purchased in a private offering during 2000;
and (ii) 25,000 underlying 6,250 shares of Series B convertible preferred
stock purchased in a private offering during 2001.
(28) Includes: (i) 33,333 shares purchased in a private offering during 2000;
and (ii) 50,000 shares underlying 12,500 shares of Series B convertible
preferred stock purchase in a private offering during 2001.
(29) Represents 180,000 shares underlying warrants issued for services performed
during 2001.
(30) Includes: 500,000 shares underlying a convertible promissory note issued
during 2000; and (ii) 500,000 shares underlying 125,000 shares of Series B
convertible preferred stock purchased in a private offering during 2001.
(31) Represents shares underlying a warrant issued for services performed in
2000 and 2001.
(32) Includes: (i) includes 60,606 shares purchased in a private offering during
1999; and (ii) 33,333 shares purchased in a private offering during 2000.
(33) Represents shares underlying warrants issued or issuable as license fees
under a License and Technology Agreement entered into during 2000.
(34) Includes: (i) 186,616 shares received as the result of the merger of
InPath, LLC and Bell National Corporation in December 1998; and (ii) 35,000
shares purchased in a private offering during 1999.
(35) Includes: (i) 98,333 shares received as compensation for services during
2000; (ii) 48,333 shares underlying a warrant issued for services performed
during 2000; (iii) 225,542 shares received as compensation for services
performed during 2001; (iv) 116,400 shares issuable as compensation for
services performed during 2001; and (v) 291,942 shares underlying warrants
issued for services performed during 2001.
(36) Represents shares received upon the exercise of a warrant received for
services performed during 1999.
(37) Includes: (i) 50,000 shares purchased in a private offering during 2000;
and (ii) 40,000 shares owned by The Georgie Stanley II Trust, 40,000 shares
owned by The Benjamin A. Stanley Trust, and 40,000 shares owned by The
Michael Bredt Stanley Trust for each of which Mr. Stanley serves as
Trustee.
(38) Includes: (i) 175,148 shares received as the result of the conversion of
the principal and accrued interest related to a 6% convertible promissory
note purchased in a private offering during 1999; (ii) 222,167 shares
underlying a warrant issued for services performed during 2000 and 2001;
(iii) 50,000 shares underlying shares of Series B convertible preferred
stock purchased in a private offering during 2001; and (iv) 80,500 shares
received as compensation for services performed during 2001.
(39) Represents shares acquired in a private transaction in 1999.
(40)Represents warrants issued in the AccuMed merger in exchange for warrants
issued by AccuMed as additional consideration for a long term credit line.
(41)Represents warrants issued in the AccuMed merger in exchange for warrants
issued by AccuMed as compensation for services.
For purposes of this table, a person is deemed to have beneficial ownership of
any shares of common stock which such person may acquire within 60 days after
the date of this prospectus. For purposes of computing the percentage of
outstanding shares of common stock held by each person named above, any security
which such person has the right to acquire from us within 60 days after the date
of this prospectus is
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deemed to be outstanding, but is not deemed to be outstanding for the purpose of
computing the percentage ownership of any other person.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On September 1, 1998, we issued a note payable in the amount of $175,000 to
Mr. Peter P. Gombrich, our Chairman and Chief Executive Officer, in payment for
funds advanced by Mr. Gombrich. The note was due September 1, 2003 and interest
was payable at each anniversary date at the rate of 8% per annum. Principal
payments in the amount of $26,000, $130,000 and 19,000 were made during 2000,
1999 and 1998, respectively, to repay the entire note.
In January 1999, our board of directors authorized the raising of up to
$1,500,000 in debt or new equity to provide funding for current operations.
Subsequently, on various dates between March 1, 1999 and June 29, 1999, we
issued a series of interest-bearing 6% convertible promissory notes totaling
$969,600, including a note in the amount of $500,000 issued to Seaside Partners,
L.P., a hedge fund and a significant shareholder. Seaside Partners, L.P.
receives investment management services from Seaside Advisors, L.L.C., of which
Dr. Denis M. O'Donnell, a director, is a member and manager. We also issued a
note in the amount of $75,000 to Leonard R. Prange, our President, Chief
Operating Officer and Chief Financial Officer, in exchange for cash. The
maturity date of these notes was January 28, 2000, subject to extension by us to
June 30, 2000. We extended the maturity date of the notes to June 30, 2000. The
notes and accrued interest due thereon were automatically converted into shares
of our common stock on April 28, 2000.
On December 10, 1999, we borrowed $50,000 from Azimuth Corporation, a
company controlled by Alexander M. Milley, a director and significant
shareholder. The note evidencing this loan bore interest at the rate of 12% per
annum and the principal along with accrued interest was convertible into our
common stock at a conversion price of $0.20 per share. On February 22, 2000,
Azimuth Corporation exercised its right to convert the principal amount of the
note plus accrued interest due thereon in the amount of $1,250 into 256,250
shares of our common stock.
On January 6, 2000 and April 28, 2000, we sold 200,000 shares and 1,333,333
shares, respectively, of our common stock to Seaside Partners, L.P. in a private
offering. The shares were sold to Seaside Partners, L.P. under the same terms
and conditions as those of the other participants in the private offering,
including the purchase prices of $0.33 per share and $1.50 per share,
respectively. Dr. O'Donnell, our director, is a member and manager of Seaside
Advisors, L.L.C., which provides investment management services to Seaside
Partners, L.P.
On April 28, 2000, we received a promissory note in the amount of
$2,000,000 evidencing the purchase price paid by Seaside Partners, L.P. for the
1,333,333 shares of common stock referred to in the prior paragraph. That note
bears interest at the rate of 8% per annum and the original due date was July
28, 2000. We agreed to extend the due date of that note until November 30, 2000.
Seaside has made principal payments of $1,550,000 under the note. The note is
currently in default and we are negotiating revised terms with Seaside Partners,
L.P., including a new due date and penalties for the default. As of September
28, 2001, an additional $54,000 was due from Seaside Partners, L.P.,
representing accrued interest on the note to that date.
On May 24, 2000, we granted Dr. O'Donnell, our director, warrants to
purchase 155,455 and 629,446 shares of our common stock, exercisable at $.01 per
share. The warrant to purchase 155,455 shares issued to Dr. O'Donnell was
compensation for finders services performed in 1999 on the private offering of
6% convertible promissory notes due in 2000 and a private offering of common
stock in late 1999 at $0.33 per share. Both offerings were sold at prices
representing small discounts to the market price of our common stock at the time
of the offerings. The warrant to purchase 629,446 shares issued to Dr. O'Donnell
was compensation for finders services performed in 2000 in a private offering of
common stock at a price of $1.50 per share, an approximate 20% discount to the
market price of the common stock when the offering was priced. The warrants
expire five years from the date of the grant. Dr. O'Donnell elected to take all
of the compensation due to him for finders services in the form of warrants
rather than cash or shares of
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common stock. We also recorded an accrual of $50,000 in 1999 to cover estimated
out-of-pocket expenses, reimbursable to Dr. O'Donnell upon submission of
detailed expense bills.
On September 22, 2000, we issued a convertible promissory note, with a term
of one year, to Azimuth Corporation in exchange for $500,000 in cash. That note
bore interest at the rate of 15% per annum and was convertible into our common
stock at a conversion price of $1.00 per share after February 22, 2001. As
discussed below, the holder agreed to relinquish the conversion rights on July
26, 2001. The conversion price was less than the market price of our common
stock at the date of issuance of the note. Therefore, the holder was considered
to have a beneficial conversion feature. We determined the value of this
beneficial conversion feature to be $125,000. This value was recorded as a
reduction to the debt and is being amortized as additional interest expense over
the life of the note. The majority of the proceeds of the note were used to make
a loan to AccuMed in accordance with the terms of our then pending merger
agreement with AccuMed. Mr. Milley, our director, is a director and executive
officer of Azimuth Corporation.
On December 4, 2000, we issued a promissory note, with a maturity date of
December 31, 2000, to Azimuth Corporation, in exchange for $200,000 in cash.
That note bore interest at the rate of 12% per annum. As an additional
inducement, we granted Azimuth Corporation a warrant to purchase 50,000 shares
of common stock at an exercise price of $0.937 per share, the approximate market
price of our common stock on the date the warrant was granted. That warrant
expires five years from the date of grant. We repaid the note and accrued
interest on February 20, 2001. In that the note was not repaid when due, we were
obligated by the terms of the note to grant Azimuth Corporation a warrant to
purchase an additional 25,000 shares of our common stock at an exercise price of
$0.01 per share, representing a two month late payment penalty. The proceeds of
the note were used for general working capital and to pay license fees.
On December 11, 2000, we issued a promissory note, with a maturity date 180
days from the date of issue, to Azimuth Corporation, in exchange for $100,000 in
cash. That note bore interest at the rate of 12% per annum. As an additional
inducement, we granted Azimuth Corporation a warrant to purchase 1,000,000
shares of our common stock at an exercise price of $1.25 per share, an
approximate 15% premium over the market price of the common stock at the date
that the warrant was issued. That warrant expires five years after the date of
grant. We repaid the note and accrued interest on February 20, 2001. The
proceeds of the note were used to repay a convertible promissory note held by
AccuMed.
On February 1, 2001 and February 7, 2001, we issued promissory notes to
Azimuth Corporation in exchange for $25,000 and $470,000, respectively, in cash.
Those notes bear interest at the rate of 15% per annum. Those notes are required
to be repaid from the proceeds of any new offering of debt or equity undertaken
by us subsequent to the dates of the notes. As an additional inducement for the
note issued on February 7, 2001, we granted Azimuth Corporation a warrant to
purchase 1,000,000 shares of our common stock at an exercise price of $0.25 per
share, an approximate discount of 83% from the market price of our common stock
on the date the warrant was issued. That warrant expires five years after the
date of grant. We repaid both notes and accrued interest on February 20, 2001.
The proceeds of the notes were used to fund a portion of the loan to AccuMed
upon the signing of the merger agreement on February 7, 2001.
On July 26, 2001, we issued a promissory note to Cadmus Corporation in
exchange for $100,000 in cash. On August 6, 2001, we issued a promissory note to
Azimuth Corporation in exchange for $100,000 in cash. Like Azimuth Corporation,
Cadmus Corporation is controlled by Alexander Milley, one of our directors and
significant stockholder. The notes are due on September 22, 2001 and bear
interest at the rate of 15% per annum. As an additional inducement for the
notes, we issued five-year warrants to Cadmus Corporation and Azimuth
Corporation entitling the holders to each purchase 250,000 shares of the common
stock at an exercise price of $1.00 per share. The closing market prices of the
common stock on the respective issue dates of the warrants were $0.97 per share
and $0.93 per share. We determined the fair value of these warrants to be $7,200
using the fair value interest rate method. This value will be amortized as
additional interest expense over the life of the notes and the full amount was
charged to expense during the third quarter.
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In addition, on July 26, 2001, we issued a five-year warrant to Azimuth
Corporation entitling the holder to purchase 500,000 shares of our common stock
at $1.00 per share in consideration of Azimuth Corporation's agreement to
relinquish the conversion rights granted to it under the terms of a convertible
promissory note we issued in September 2000, which entitled Azimuth Corporation
to convert the principal and accrued interest due under that note into our
common stock at a conversion price of $1.00 per share. As noted above, the
September 2000 note was considered to have a beneficial conversion feature for
which we had determined a fair value of $125,000 in 2000. This fair value was
recorded as a discount to the debt and was being amortized as additional
interest expense over the term of the note. The closing market price of our
common stock on the issue date of this warrant was $0.97 per share. We
determined the fair value of the warrant to be approximately $21,000 based on
the value of the unamortized debt discount at the date this warrant was issued
and the conversion right was waived. This value will be amortized as additional
interest expense over the life of the note and the full amount was charged to
expense during the third quarter.
On August 6, 2001, we issued a promissory note to Northlea Partners, Ltd.
in exchange for $25,000 in cash. John Abeles, one of our directors, is the
general partner of Northlea Partners, Ltd. The terms of the note are the same as
the notes issued on July 26, 2001 to Cadmus Corporation and Azimuth Corporation.
As an additional incentive to purchase this note, we issued a five-year warrant
to Northlea Partners, Ltd. entitling the holder to purchase 62,500 shares of
common stock at an exercise price of $1.00 per share. The closing market price
of the common stock on the issue date of this warrant was $0.93 per share. We
determined the fair value of the warrant to be $825 using the fair value
interest rate method. This value will be amortized as additional interest
expense over the life of the note and the full amount was charged to expense
during the third quarter.
We believe that our historical financial position has made it difficult to
access standard sources for capital. We have limited assets on which a lender
might seek a security interest to provide loans or a line of credit. We have
been able to utilize the accounts receivable base of Samba as a means to locally
fund the subsidiary. However, no such base exists with us. Since we have no
asset base against which to arrange secured loans, we must deal with unsecured
lending. The terms and conditions of the $500,000 convertible promissory note
issued in September 2000 to Azimuth Corporation are identical to two other
convertible promissory notes issued to unaffiliated third parties. In
transactions in which we have borrowed short-term funds for brief periods of
time, such funds were not available to us from any other sources. Accordingly,
our board of directors believes that the interest rates and additional
consideration paid to Azimuth Corporation for these short-term loans are in
accordance with what other companies might be required to pay for such loans
were their financial circumstances similar to ours. The terms of each loan were
approved by all members of the board who are not affiliated with Azimuth
Corporation.
We have negotiated similar compensation terms for all individuals, groups,
or companies, who provide placement or finders services in private offering of
equity or debt. The exercise price of warrants issued as compensation related to
finders services has varied depending on the price of the offering. Affiliated
parties were treated the same as all other outside parties providing finders
services.
33
PLAN OF DISTRIBUTION
We are registering the common stock on behalf of the selling stockholders.
The common stock may be offered and sold by the selling stockholders, or by
purchasers, transferees, donees, pledgees or other successors in interest,
directly or through brokers, dealers, agents or underwriters who may receive
compensation in the form of discounts, commissions or similar selling expenses
paid by the selling stockholders or by a purchaser of the common stock on whose
behalf such broker-dealer may act as agent. Sales and transfers of the common
stock may be effected from time to time in one or more transactions, in private
or public transactions, in the over-the-counter market, in negotiated
transactions or otherwise, at a fixed price or prices that may be changed, at
market prices prevailing at the time of sale, at negotiated prices, without
consideration or by any other legally available means. The selling stockholders
may sell any or all of the common stock from time to time in one or more of the
following methods:
- ordinary brokers transactions, which may include long or short sales;
- transactions involving cross or block trades or otherwise on the
Over-the-Counter Bulletin Board;
- purchases by brokers, dealers or underwriters as principal and resales by
such purchasers for their own accounts under this prospectus;
- "at the market" offerings to or through market makers or into an existing
market for the common stock;
- in other ways not involving market makers or established trading markets,
including direct sales to purchasers or sales effected through agents;
- through transactions in options, swaps or other derivatives (whether
exchange listed or otherwise); or
- any combination of the above.
In addition, the selling stockholders or successors in interest may enter
into hedging transactions with broker-dealers who may engage in short sales of
common stock in the course of hedging the positions they assume with the selling
stockholders. The selling stockholders or successors in interest may also enter
into option or other transactions with broker-dealers that require delivery by
such broker-dealers of the common stock, which common stock may be resold
thereafter under this prospectus.
Brokers, dealers, underwriters or agents participating in the distribution
of the common stock may receive compensation in the form of discounts,
concessions or commissions from the selling stockholders and/or the purchasers
of common stock for whom such broker-dealers may act as agent or to whom they
may sell as principal, or both (which compensation as to a particular
broker-dealer may be in excess of customary commissions).
The selling stockholders and any broker-dealers acting in connection with
the sale of the common stock by this prospectus may be deemed to be underwriters
within the meaning of Section 2(11) of the Securities Act, and any commissions
received by them and any profit realized by them on the resale of common stock
as principals may be underwriting compensation under the Securities Act. Neither
we nor the selling stockholders can presently estimate the amount of such
compensation. We do not know of any existing arrangements between the selling
stockholders and any other stockholder, broker, dealer, underwriter or agent
relating to the sale or distribution of the common stock.
The selling stockholders and any other persons participating in a
distribution of securities will be subject to applicable provisions of the
Securities Exchange Act and the rules and regulations thereunder, including,
without limitation, Regulation M, which may restrict certain activities of, and
limit the timing of purchases and sales of securities by, the selling
stockholders and other persons participating in a distribution of securities.
Furthermore, under Regulation M, persons engaged in a distribution of securities
are prohibited from simultaneously engaging in market making and certain other
activities with respect to such securities for a specified period of time prior
to the commencement of such distributions subject to specified exceptions or
exemptions.
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Any securities covered by this prospectus that qualify for sale under Rule
144 under the Securities Act may be sold under that rule rather than under this
prospectus.
We cannot assure you that the selling stockholders will sell any or all of
the shares of common stock offered by this prospectus.
In order to comply with the securities laws of certain states, if
applicable, the selling stockholders will sell the common stock in jurisdictions
only through registered or licensed brokers or dealers. In addition, in certain
states, the selling stockholders may not sell the common stock unless the shares
of common stock have been registered or qualified for sale in the applicable
state or an exemption from the registration or qualification requirement is
available and is complied with.
We will not receive any proceeds from the sale of the common stock covered
by this prospectus. We have agreed to pay all of the expenses incident to the
registration of the common stock, other than discounts and selling concessions
or commissions, if any, and fees and expenses of counsel for the selling
stockholders, if any.
DESCRIPTION OF CAPITAL STOCK
GENERAL
We have set forth in this section a description of certain rights and
preferences of our convertible preferred stock as well as our other outstanding
securities and contractual obligations because we believe they are materially
relevant to an investor's understanding of an investment in our shares of common
stock.
Our authorized capital stock consists of 55,000,000 shares, consisting of
50,000,000 shares of common stock, par value $0.001 per share, and 5,000,000
shares of preferred stock, par value $0.001 per share. On September 28, 2001 we
had:
- 34,544,774 shares of common stock issued and outstanding;
- 590,197 shares of Series A convertible preferred stock of which 572,485
were issued and outstanding;
- 1,500,000 shares of Series B convertible preferred stock of which
1,499,856 were issued and outstanding;
- 1,800,000 shares of Series C convertible preferred stock of which none
were issued and outstanding;
- 8,220,007 warrants that entitle the holders the right to purchase
8,220,007 shares of common stock at prices ranging from $0.01 to $23.75;
- $1,085,000 aggregate principal amount convertible promissory notes that
entitle the holders to purchase 1,038,962 shares of common stock; and
- 3,507,395 options that entitle the holders to purchase shares of common
stock at prices ranging from $0.39 to $36.08.
When we implement the reverse stock split that our stockholders approved in
May 2001, each three shares of our issued and outstanding common stock will be
converted into one share of common stock and our convertible securities will be
correspondingly adjusted. The reverse stock split will not affect the number of
shares we are authorized to issue.
COMMON STOCK
Each share of our common stock has the same relative rights and is
identical in all respects with each other share of common stock.
35
Subject to any prior rights of the holders of any preferred stock then
outstanding, holders of our common stock are entitled to receive such dividends
as are declared by our board of directors out of funds legally available
therefor. Full voting rights are vested in the holders of common stock, each
share being entitled to one vote, subject to the rights of the holders of any
preferred stock then outstanding. Our board of directors may issue authorized
shares of common stock without stockholder approval. Subject to any prior rights
of the holders of any preferred stock then outstanding, in the event of our
liquidation, dissolution or winding up, holders of shares of our common stock
are entitled to receive pro rata, any assets distributable to stockholders with
respect to shares held by them. Holders of shares of common stock do not have
any preemptive rights to subscribe for any additional securities which may be
issued by or any cumulative voting rights. The outstanding shares of our common
stock are fully paid and non-assessable.
PREFERRED STOCK
Our preferred stock may be issued in one or more series at such time or
times and for such consideration as our board of directors may determine. Our
board of directors is expressly authorized at any time, and from time to time,
to provide for the issuance of preferred stock with such voting rights and other
powers, preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions, as shall be stated and
expressed in the resolution provided for the issuance of the preferred stock.
Our board of directors is authorized to designate the series and the number of
shares comprising such series, the dividend rate, the redemption rights, if any,
any purchase, retirement or sinking fund provisions, any conversion rights and
any special voting rights with respect to the shares of such series. The ability
of our board of directors to issue preferred stock without stockholder approval
could make an acquisition by an unwanted suitor of a controlling interest in us
more difficult, time-consuming or costly, or otherwise discourage an attempt to
acquire control of us. Shares of preferred stock redeemed or acquired by us may
return to the status of authorized but unissued shares, without designation as
to series, and my be reissued by our board of directors.
SERIES A CONVERTIBLE PREFERRED STOCK
We are authorized to issue 590,197 shares of Series A convertible preferred
stock, of which 572,485 shares were issued and outstanding as of September 28,
2001. Each share of Series A convertible preferred stock has a stated value of
$4.50 and an initial conversion price of $10.3034. The Series A convertible
preferred stock ranks senior to our common stock and on parity with our Series B
and Series C convertible preferred stock. We may issue other series of preferred
stock at any time and from time to time without the consent of the holders of
the Series A convertible preferred stock.
DIVIDENDS
Shares of the Series A convertible preferred stock pay no dividends.
VOTING RIGHTS
The holders of the Series A convertible preferred stock have no right to
vote on any matter except as required by Delaware law. If the Series A
convertible preferred stock is entitled to vote with the holders of common stock
as one class, each share of Series A convertible preferred stock shall entitle
the holder to the number of votes that equals the number of shares of common
stock into which each share of Series A convertible preferred stock is
convertible. Without first obtaining the approval of a majority of the shares of
Series A convertible preferred stock then outstanding, we may not repeal, amend
or change the Series A convertible preferred stock Certificate of Designations
or our Certificate of Incorporation to alter or change the powers, preferences
or rights of the Series A convertible preferred stock so as to affect them
adversely.
36
LIQUIDATION
The liquidation preference of the Series A convertible preferred stock is
$4.50 per share. Upon liquidation, dissolution or winding up of Molecular
Diagnostics, each holder of the Series A convertible preferred stock is entitled
to be paid in cash out of our assets available for distribution to shareholders
an amount equal to the liquidation preference of the Series A convertible
preferred stock before any amounts may be paid to any class or series of capital
stock ranking junior to the Series A convertible preferred stock.
If the assets available for distribution to the holders of Series A
convertible preferred stock and any other security rendering on parity with the
preferred stock are insufficient to pay in full all amounts payable to the
holders of the Series A convertible preferred stock and all other parity
securities, then all of the assets available for distribution to the holders of
the Series A convertible preferred stock and parity securities will be
distributed among the holders ratably in proportion to the amounts that would be
payable if there were sufficient assets to permit payment in full. After payment
in full, the holders of the Series A convertible preferred stock will not be
entitled to any further distribution of assets. A merger or consolidation will
be considered a liquidation event in certain circumstances.
RESERVATION OF SHARES
We have authorized and will reserve and keep available a sufficient number
of shares of our common stock as will be issuable upon the conversion of all
outstanding shares of Series A convertible preferred stock and dividends payable
thereon. These shares of our common stock, when issued, will be duly and validly
issued, fully paid and non-assessable, and free of liens.
REDEMPTION
Shares of the Series A convertible preferred stock are not redeemable.
SINKING FUND
There is no sinking fund for the Series A convertible preferred stock.
CONVERSION
Shares of Series A convertible preferred stock are convertible, at any
time, at the option of the holder into shares of common stock. Each share of the
Series A convertible preferred stock is convertible into such number of shares
of our common stock as is determined by dividing the $4.50 stated value by the
then effective conversion price (currently $10.3034), which is referred to as
the conversion rate. The conversion rate is currently 0.4367.
If during the three year period beginning March 1, 2001, the then current
market price of our common stock equals or exceeds $13.50 per share for any
twenty (20) consecutive trading days commencing 45 business days before the date
in question, each share of Series A convertible preferred stock then outstanding
will, at our option, be deemed converted into that number of shares of common
stock into which the Series A convertible preferred stock would then be
converted at the then effective conversion rate.
ADJUSTMENTS TO CONVERSION PRICE
The conversion price and the number of shares of common stock issuable upon
conversion of the Series A convertible preferred stock are subject to adjustment
from time to time upon the occurrence of any of the following events at any
time:
- If we (A) issue common stock as a dividend or a distribution with respect
to any class or series of our capital stock, (B) split or otherwise
subdivide our common stock , (C) combine our
37
outstanding shares of common stock into a greater or smaller number of
shares, or (D) issue any shares of capital stock in a reclassification;
- If there occurs a merger, consolidation, recapitalization or conveyance
of all or substantially all of our assets.
The conversion price and the conversion rate will be adjusted when we
implement the reverse stock split.
FRACTIONAL SHARES
We will not issue any fractional shares of common stock upon the conversion
of the Series A convertible preferred stock but rather will pay cash based on
the then current market price per share of our common stock.
SERIES B CONVERTIBLE PREFERRED STOCK
We are authorized to issue 1,500,000 shares of Series B convertible
preferred stock, of which 1,499,856 shares were outstanding as of September 28,
2001. We issued those shares in a private placement in February 2001 to persons
included among the selling stockholders. Each share of Series B convertible
preferred stock has a stated value of $4 and an initial conversion price of
$1.00. The Series B convertible preferred stock ranks senior to our common stock
and on parity with our Series A and Series C convertible preferred stock. We may
issue other series of preferred stock at any time and from time to time without
the consent of the holders of the Series B convertible preferred stock.
DIVIDENDS
Shares of the Series B convertible preferred stock accrue dividends on a
quarterly basis at an annual rate of 10% per share payable on the last day of
March, June, September and December, commencing March 31, 2001, out of any
assets or funds legally available for payment of dividends. Dividends are
cumulative and accrue, whether or not declared by our board of directors, but
can only be declared or paid and set apart for payment if full cumulative
dividends for all prior quarterly dividend periods then outstanding shall have
been or shall be concurrently paid or declared and set apart for payment.
We may not pay any dividends or any distribution on any class or series of
capital stock ranking junior to the Series B convertible preferred stock except
dividends payable in shares of our stock of any class junior to the preferred
stock, and we may not repurchase or redeem any junior stock, if any dividends on
the Series B convertible preferred stock are then in arrears.
VOTING RIGHTS
The holders of the Series B convertible preferred stock have no right to
vote on any matter except as required by Delaware law. If the Series B
convertible preferred stock is entitled to vote with the holders of common stock
as one class, each share of Series B convertible preferred stock shall entitle
the holder to the number of votes that equals the number of shares of common
stock into which each share of Series B convertible preferred stock is
convertible. Without first obtaining the approval of a majority of the shares of
Series B convertible preferred stock then outstanding, we may not repeal, amend
or change the Series B convertible preferred stock Certificate of Designations
or our Certificate of Incorporation to alter or change the powers, preferences
or rights of the Series B convertible preferred stock so as to affect them
adversely.
LIQUIDATION
The liquidation preference of the Series B convertible preferred stock is
$4 per share plus all accrued but unpaid dividends. Upon liquidation,
dissolution or winding up of the Company, each holder of the Series B
convertible preferred stock is entitled to be paid in cash out of our assets
available for distribution to shareholders an amount equal to the liquidation
preference of the Series B convertible preferred stock
38
before any amounts may be paid to any class or series of capital stock ranking
junior to the Series B convertible preferred stock.
If the assets available for distribution to the holders of Series B
convertible preferred stock and any other security rendering on parity with the
preferred stock are insufficient to pay in full all amounts payable to the
holders of the Series B convertible preferred stock and all other parity
securities, then all of the assets available for distribution to the holders of
the Series B convertible preferred stock and parity securities will be
distributed among the holders ratably in proportion to the amounts that would be
payable if there were sufficient assets to permit payment in full. After payment
in full, the holders of the Series B convertible preferred stock will not be
entitled to any further distribution of assets. A merger or consolidation will
be considered a liquidation event in certain circumstances.
RESERVATION OF SHARES
We have authorized and will reserve and keep available a sufficient number
of shares of our common stock as will be issuable upon the conversion of all
outstanding shares of Series B convertible preferred stock and dividends payable
thereon. These shares of our common stock, when issued, will be duly and validly
issued, fully paid and non-assessable, and free of liens.
REDEMPTION
Shares of the Series B convertible preferred stock are not redeemable.
SINKING FUND
There is no sinking fund for the Series B convertible preferred stock.
CONVERSION
Shares of Series B convertible preferred stock are convertible, at any
time, at the option of the holder, into shares of common stock. Each share of
the Series B convertible preferred stock is convertible into such number of
shares of our common stock as is determined by dividing the $4.00 stated value
per share plus all accrued but unpaid dividends by the then effective conversion
price (currently $1.00), which is referred to as the conversion rate. The
conversion rate is currently four (4).
If the then current market price of our common stock equals or exceeds
$4.00 per share for any forty (40) consecutive trading days, each share of
Series B convertible preferred stock then outstanding will, at our option, be
deemed converted into that number of shares of common stock into which the
Series B convertible preferred stock would then be converted at the then
effective conversion rate. If for any reason we do not pay any portion of the
accrued dividends on the Series B convertible preferred stock being converted,
we may pay that portion of unpaid dividends in shares of common stock.
ADJUSTMENTS TO CONVERSION PRICE
The conversion price and the number of shares of common stock issuable upon
conversion of the Series B convertible preferred stock are subject to adjustment
from time to time upon the occurrence of any of the following events at any
time:
- If we (A) issue common stock as a dividend or a distribution with respect
to any class or series of our capital stock, (B) split or otherwise
subdivide our common stock, (C) combine our outstanding shares of common
stock into a greater or smaller number of shares, or (D) issue any shares
of capital stock in a reclassification;
- If there occurs a merger, consolidation, recapitalization or conveyance
of all or substantially all of our assets.
The conversion price and the conversion rate will be adjusted when we
implement the reverse stock split.
39
FRACTIONAL SHARES
We will not issue any fractional shares of common stock upon the conversion
of the Series B convertible preferred stock but rather will pay cash based on
the then current market price per share of our common stock.
SERIES C CONVERTIBLE PREFERRED STOCK
We are authorized to issue 1,800,000 shares of Series C convertible
preferred stock, of which none were issued and outstanding as of September 28,
2001. We intend to issue these shares in a private placement that we commenced
October 2001. Each share of Series C convertible preferred stock has a stated
value of $4.50 and an initial conversion price no less than $0.75 and no greater
than $1.50. The Series C convertible preferred stock ranks senior to our common
stock and on parity with our Series A convertible preferred stock and Series B
convertible preferred stock. We may issue other series of preferred stock at any
time and from time to time without the consent of the holders of the Series C
convertible preferred stock.
DIVIDENDS
Shares of the Series C convertible preferred stock accrue dividends on a
semi-annual basis at an annual rate of 10% per share payable on the last day of
March and September, commencing March 31, 2002, out of any assets or funds
legally available for payment of dividends. Dividends are cumulative and accrue,
whether or not declared by our board of directors, but can only be declared or
paid and set apart for payment if full cumulative dividends for all prior
dividend periods then outstanding shall have been or shall be concurrently paid
or declared and set apart for payment. Dividends are payable in cash provided
that we may pay the dividends for the first two years in cash or in shares of
our common stock.
We may not pay any dividends or any distribution on any class or series of
capital stock ranking junior to the Series C convertible preferred stock except
dividends payable in shares of our stock of any class junior to the preferred
stock, and we may not repurchase or redeem any junior stock, if any dividends on
the Series C convertible preferred stock are then in arrears.
VOTING RIGHTS
The holders of the Series C convertible preferred stock have no right to
vote on any matter except as required by Delaware law. If the Series C
convertible preferred stock is entitled to vote with the holders of common stock
as one class, each share of Series C convertible preferred stock shall entitle
the holder to the number of votes that equals the number of shares of common
stock into which each share of Series C convertible preferred stock is
convertible. Without first obtaining the approval of a majority of the shares of
Series C convertible preferred stock then outstanding, we may not repeal, amend
or change the Series C convertible preferred stock Certificate of Designations
or our Certificate of Incorporation to alter or change the powers, preferences
or rights of the Series C convertible preferred stock so as to affect them
adversely.
LIQUIDATION
The liquidation preference of the Series C convertible preferred stock is
$4.50 per share plus all accrued but unpaid dividends. Upon liquidation,
dissolution or winding up of the Company, each holder of the Series C
convertible preferred stock is entitled to be paid in cash out of our assets
available for distribution to shareholders an amount equal to the liquidation
preference of the Series C convertible preferred stock before any amounts may be
paid to any class or series of capital stock ranking junior to the Series C
convertible preferred stock.
If the assets available for distribution to the holders of Series C
convertible preferred stock and any other security rendering on parity with the
preferred stock are insufficient to pay in full all amounts payable to the
holders of the Series C convertible preferred stock and all other parity
securities, then all of
40
the assets available for distribution to the holders of the Series C convertible
preferred stock and parity securities will be distributed among the holders
ratably in proportion to the amounts that would be payable if there were
sufficient assets to permit payment in full. After payment in full, the holders
of the Series C convertible preferred stock will not be entitled to any further
distribution of assets. A merger or consolidation will be considered a
liquidation event in certain circumstances.
RESERVATION OF SHARES
We will have authorized and will reserve and keep available a sufficient
number of shares of our common stock as will be issuable upon the conversion of
all outstanding shares of Series C convertible preferred stock and dividends
payable thereon. These shares of our common stock, when issued, will be duly and
validly issued, fully paid and non-assessable, and free of liens.
REDEMPTION
Shares of the Series C convertible preferred stock are not redeemable.
SINKING FUND
There is no sinking fund for the Series C convertible preferred stock.
CONVERSION
Shares of Series C convertible preferred stock are convertible, at any time
after April 1, 2002, at the option of the holder, into shares of common stock.
Each share of the Series C convertible preferred stock is convertible into such
number of shares of our common stock as is determined by dividing the $4.50
stated value per share plus all accrued but unpaid dividends by the then
effective conversion price, which is referred to as the conversion rate.
If the then current market price of our common stock equals or exceeds
$4.50 per share for any twenty (20) consecutive trading days, each share of
Series C convertible preferred stock then outstanding will, at our option, be
deemed converted into that number of shares of common stock into which the
Series C convertible preferred stock would then be converted at the then
effective conversion rate. If for any reason we do not pay any portion of the
accrued dividends on the Series C convertible preferred stock being converted,
we may pay that portion of unpaid dividends in shares of common stock.
ADJUSTMENTS TO CONVERSION PRICE
The conversion price and the number of shares of common stock issuable upon
conversion of the Series C convertible preferred stock are subject to adjustment
from time to time upon the occurrence of any of the following events at any
time:
- If we (A) issue common stock as a dividend or a distribution with respect
to any class or series of our capital stock, (B) split or otherwise
subdivide our common stock, (C) combine our outstanding shares of common
stock into a greater or smaller number of shares, or (D) issue any shares
of capital stock in a reclassification;
- If there occurs a merger, consolidation, recapitalization or conveyance
of all or substantially all of our assets.
The conversion price and the conversion rate will be adjusted when we
implement the reverse stock split.
FRACTIONAL SHARES
We will not issue any fractional shares of common stock upon the conversion
of the Series C convertible preferred stock but rather will pay cash based on
the then current market price per share of our common stock.
41
COMMON STOCK PURCHASE WARRANTS
As of September 28, 2001, we have outstanding 8,220,007 common stock
purchase warrants, each entitling the holder the right to purchase one share of
our common stock. These common stock purchase warrants have exercise prices
ranging from $0.01 to $23.75. Common stock purchase warrants not exercised by
their respective expiration dates will expire.
ADJUSTMENTS TO EXERCISE PRICE
The exercise price and the number of shares of common stock issuable upon
the exercise of the common stock purchase warrants is subject to adjustment from
time to time upon the occurrence of any of the following events:
- If we (A) subdivide shares of our common stock, (B) declare a dividend
upon our common stock payable solely in shares of our common stock, (C)
reclassify or change our common stock into different securities, or (D)
make a distribution on our capital stock other than regular cash
dividends.
The common stock purchase warrants will be adjusted on the same basis as
the common stock when we implement the reverse stock split.
RESERVATION OF SHARES
We will have reserved a sufficient number of shares of our common stock as
will be issuable upon exercise of all outstanding common stock purchase warrants
once we implement the reverse stock split. Upon issuance, these shares of common
stock will be duly and validly issued, fully paid and non-assessable, free of
all preemptive rights and taxes.
VOTING
The holders of the common stock purchase warrants have no right to vote on
matters submitted to shareholders and have no right to receive dividends.
LISTING
There is no public trading market for the common stock purchase warrants.
FRACTIONAL SHARES
We will not issue fractional shares of common stock upon exercise of the
common stock purchase warrants but rather will pay the holder an amount in cash
equal to the fair market value of any fractional interest.
REGISTRATION RIGHTS
We are obligated to register the common stock into which the common stock
purchase warrants are exercisable provided more than one year has elapsed from
the issuance of that common stock purchase warrant. If we fail to make a filing
with the SEC to register the underlying common stock within 30 days of the
holder's request, the holder is entitled to the difference between the exercise
price and the average closing price of our common stock during the 30 calendar
days immediately following the holder's request to register the common stock
purchase warrants.
42
In addition to the common stock purchase warrants described above, we
issued warrants to Azimuth Corporation, Bathgate McColley Capital Group, LLC and
Holleb & Coff for services rendered and in connection with financings. These
warrants have the same characteristics as the common stock purchase warrants
described above with respect to reservation of shares, voting, listing and
fractional shares. The particular terms of these warrants are as follows:
AZIMUTH/CADMUS/NORTHLEA COMMON STOCK PURCHASE WARRANTS
On February 7, 2001, we issued a warrant to Azimuth Corporation entitling
Azimuth to purchase 1,000,000 shares of our common stock at an exercise price of
$0.25 per share, subject to the adjustments described below. The Azimuth warrant
expires February 7, 2006.
On August 6, 2001, we issued warrants to Azimuth Corporation, Cadmus
Corporation and Northlea Partners entitling the holders the right to purchase
250,000, 250,000 and 62,500 shares respectively of our common stock at an
exercise price of $1.00 per share subject to the adjustments described below.
These warrants expire August 6, 2006.
ADJUSTMENTS TO EXERCISE PRICE
The exercise price and the number of shares of common stock issuable upon
the exercise of the warrant are subject to adjustment from time to time upon the
occurrence of any of the following events:
- If we (A) pay a dividend or make a distribution of common stock or (B)
subdivide or combine outstanding shares of our common stock;
- If we issue or sell any shares of our common stock at a price per share
less than the exercise price;
- If we dividend or otherwise issue or sell any securities convertible into
our common stock;
- If we (A) merge or consolidate with another entity, (B) sell, lease or
otherwise transfer all or substantially all of our property or assets or
(C) effect a capital reorganization or recapitalization of our common
stock.
BATHGATE WARRANTS
On February 28, 2001, we issued five warrants pursuant to a warrant
agreement with Bathgate McColley Capital Group, LLC, entitling the holders of
those warrants the right to purchase an aggregate of 227,500 shares of our
common stock at an exercise price of $1.20 per share subject to the adjustments
described below. The Bathgate warrants expire February 28, 2006.
ADJUSTMENTS TO EXERCISE PRICE
The exercise price and the number of shares of common stock issuable upon
the exercise of the Bathgate warrants are subject to adjustment from time to
time upon the occurrence of any of the following events:
- If we (A) pay a dividend or make a distribution to holders of our common
stock, (B) subdivide or combine our outstanding shares of our common
stock, or (C) issue by reclassification of our common stock other
securities;
- If we issue rights, options, warrants or convertible securities to all or
substantially all holders of our common stock, without charge, entitling
them to purchase common stock below the then current market value per
share of common stock on the date of issuance;
43
- If we distribute to holders of common stock all or substantially all
evidences of indebtedness of assets or rights, options, warrants or
convertible securities containing the right to purchase our common stock;
- If we (A) consolidate or merge with another entity, or (B) sell or convey
all or substantially all of our property or assets of business. We may
not merge or consolidate with another entity unless we make these
adjustments.
No adjustment to the Bathgate warrants will be made due to any dividends or
distributions out of earnings or grant or exercise of currently authorized or
outstanding options or issuance of shares under our benefit plans.
HOLLEB WARRANT
On July 15, 1999, we issued a warrant to Holleb & Coff entitling Holleb the
right to purchase 250,000 shares of our common stock at an exercise price of
$0.33 per share. The Holleb warrant expires July 14, 2009.
TUCKER ANTHONY WARRANT
On July 10, 2001, we issued a warrant to Tucker Anthony Incorporated
entitling Tucker Anthony the right to purchase 150,000 shares of our common
stock at an exercise price of $1.20. The Tucker Anthony warrant expires July 10,
2006.
ADJUSTMENTS TO EXERCISE PRICE
The exercise price and the number of shares of common stock issuable upon
the exercise of the Tucker Anthony warrant is subject to adjustment from time to
time upon the occurrence of any of the following events:
- If we (A) declare a dividend on our outstanding common stock payable in
shares of our capital stock; (B) subdivide or combine outstanding shares
of our common stock into greater or smaller number of shares; or (C)
issue any shares of our capital stock by way of reclassification,
including a merger or consolidation.
CONVERTIBLE PROMISSORY NOTES
We have issued two convertible promissory notes, one to Monsun A/S due
November 1, 2001 and the other to NeoMed Innovations III, L.P. due May 15, 2002.
Each promissory note is for the principal amount of $500,000. If we prepay the
promissory notes, the holders, at their option, may elect to convert the
promissory note, plus accrued interest, into shares of our common stock at the
conversation rate of $1.00 per share. In addition, the number of shares of
common stock the promissory notes are convertible into is subject to adjustment
from time to time if we (A) subdivide, combine or reclassify our common stock,
or (B) exchange our common stock for securities or property of another company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar of our common stock is LaSalle Bank
National Association, Chicago, Illinois.
LEGAL MATTERS
The validity of the shares offered by this prospectus has been passed upon
for us by Schiff Hardin & Waite, Chicago, Illinois.
44
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of Molecular Diagnostics, Inc.
(formerly named Ampersand Medical Corporation) appearing in our Form 10-K, as
amended, for the year ended December 31, 2000, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon included
therein and incorporated herein by reference. Such consolidated financial
statements are incorporated herein by reference in reliance upon such report
given on the authority of such firm as experts in accounting and auditing.
The report of Ernst & Young LLP covering the December 31, 2000 financial
statements contains an explanatory paragraph that states that we have recurring
losses from operations and working capital deficiency raise substantial doubt
about our ability to continue as a going concern. The consolidated statements do
not include any adjustments that might result from the outcome of that
uncertainty.
The consolidated financial statements and schedules of AccuMed
International, Inc. and Subsidiary as of December 31, 2000 and 1999, and for
each of the years in the three-year period ended December 31, 2000, have been
incorporated by reference in this prospectus and in the registration statement
in reliance upon the report of KPMG LLP, independent certified public
accountants, incorporated by reference in this prospectus, and upon the
authority of said firm as experts in accounting and auditing.
The report of KPMG LLP covering the December 31, 2000 consolidated
financial statements contains an explanatory paragraph that states that
AccuMed's recurring losses from operations and working capital deficiency raise
substantial doubt about the entity's ability to continue as a going concern. The
consolidated statements do not include any adjustments that might result from
the outcome of that uncertainty.
WHERE YOU CAN FIND MORE INFORMATION ABOUT US
We file annual, quarterly and special reports and other information with
the SEC. You may read and copy any document we file with the SEC in Washington,
D.C. or at its regional offices located at:
Public Reference Room Midwest Regional Office
450 Fifth Street, N.W. Citicorp Center
Room 1024 500 West Madison Street
Washington, D.C. 20549 Suite 1400
Chicago, Illinois 60661
You may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330.
The SEC also maintains a web site that contains reports, proxy statements
and other information about issuers, like us, who file electronically. The
address of that site is: http://www.sec.gov.
Our common stock is listed on the Over-the-Counter Bulletin Board and
reports and proxy statements and other information about us can be inspected at
the offices of The Nasdaq-Amex Stock Market, Inc., 1735 K Street, N.W.,
Washington, DC 20006-1500.
We filed with the SEC a registration statement on Form S-2 under the
Securities Act that registers the shares of our common stock offered by this
prospectus. This prospectus constitutes a part of the registration statement but
does not contain all the information presented in the registration statement and
its exhibits. For more information we refer you to the registration statement,
including the exhibits.
The SEC allows us to "incorporate by reference" information we file with
the SEC, which means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The information
incorporated by reference is an important part of this prospectus. This
prospectus incorporates by reference:
- Annual Report on Form 10-K, as amended, for the year ended December 31,
2000;
45
- Quarterly Report on Form 10-Q, for the quarter ended March 31, 2001;
- Quarterly Report on Form 10-Q, as amended, for the quarter ended June 30,
2001;
- Current Report on Form 8-K dated September 17, 2001; and
- Current Report on Form 8-K dated September 26, 2001.
You may request a copy of the documents incorporated by reference in this
prospectus and not delivered with the prospectus at no cost by writing or by
telephoning us at the following address:
Molecular Diagnostics, Inc.
414 North Orleans Street
Suite 510
Chicago, Illinois 60610
(312) 222-9550
Attention: Leonard R. Prange
We will not provide exhibits to documents unless they are specifically
incorporated by reference. If you request any incorporated documents from us, we
will mail them to you by first class mail, or another equally prompt means,
within one business day after we receive your request.
DOCUMENTS DELIVERED WITH THIS PROSPECTUS
We are delivering a copy of our Annual Report on Form 10-K, as amended, for
the fiscal year ended December 31, 2000 and Quarterly Report on Form 10-Q, as
amended, for the quarter ended June 30, 2001 with this prospectus. We are also
delivering a copy of AccuMed's Annual Report on Form 10-K, as amended, for the
fiscal year ended December 31, 2000, and Quarterly Report on Form 10-Q for the
quarter ended June 30, 2001.
COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITY
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers and controlling persons pursuant to
our charter, bylaws or otherwise, we have been advised that in the opinion of
the SEC, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim of
indemnification against such liabilities (other than the payment by us of
expenses incurred or paid by one of our directors, officers or controlling
persons in the successful defense of any action, suit or proceeding) is asserted
by one of our directors, officers or controlling persons in connection with the
securities being registered, we will, unless in the opinion of our counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by us is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
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34,969,124 Shares
Molecular Diagnostics, Inc.
Common Stock
PROSPECTUS
October 11, 2001
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