-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HxvOEQ8Ry9pWNsToHCPAh9BB2HogFqPCZUMxlXVKMQH8k802ZZyfICVCWCn2XWZU pzoxLDF14ktfRkJRHez4Og== 0000950137-02-004519.txt : 20020814 0000950137-02-004519.hdr.sgml : 20020814 20020814182051 ACCESSION NUMBER: 0000950137-02-004519 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020814 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: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-00935 FILM NUMBER: 02738374 BUSINESS ADDRESS: STREET 1: 900 NORTH FRANKLIN STREET STREET 2: SUITE 210 CITY: CHICAGO STATE: IL ZIP: 60610 BUSINESS PHONE: 4078490290 MAIL ADDRESS: STREET 1: 900 NORTH FRANKLIN STREET 1 STREET 2: SUITE 210 CITY: CHICAGO STATE: IL ZIP: 60610 FORMER COMPANY: FORMER CONFORMED NAME: BELL NATIONAL CORP DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: PACIFIC COAST HOLDINGS INC DATE OF NAME CHANGE: 19830303 FORMER COMPANY: FORMER CONFORMED NAME: AMPERSAND MEDICAL CORP DATE OF NAME CHANGE: 19990527 10-Q 1 c71317e10vq.txt QUARTERLY REPORT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
COMMISSION FILE NUMBER 0-935 --------------------- MOLECULAR DIAGNOSTICS, INC. (Exact name of registrant as specified in its charter) DELAWARE 36-4296006 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 414 NORTH ORLEANS STREET, SUITE 510 60610 CHICAGO, IL (Zip Code) (Address of principal executive offices)
(312) 222-9550 (Registrant's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. COMMON STOCK, $0.001 PAR VALUE 26,332,225 (Class) Outstanding shares as of August 10, 2002
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- MOLECULAR DIAGNOSTICS, INC. QUARTERLY REPORT ON FORM 10-Q JUNE 30, 2002 TABLE OF CONTENTS
PAGE ---- PART I. -- FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) a) Consolidated Balance Sheets -- June 30, 2002 and December 31, 2001................................................. 2 b) Consolidated Statements of Operations -- Six months ended June 30, 2002 and June 30, 2001 and three months ended June 30, 2002 and June 30, 2001............................... 3 c) Consolidated Statements of Cash Flows -- Six months ended June 30, 2002 and June 30, 2001............................. 4 d) Notes to Consolidated Financial Statements -- June 30, 2002..................................................... 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 14 Item 3. Quantitative and Qualitative Disclosures about Market Risk........................................................ 18 PART II. -- OTHER INFORMATION Item 1. Legal Proceedings........................................... 19 Item 2. Changes in Securities and Use of Proceeds................... 19 Item 3. Defaults upon Senior Securities............................. 19 Item 4. Submission of Matters to Vote of Security Holders........... 19 Item 5. Other Information........................................... 20 Item 6. Exhibits and Reports on Form 8-K............................ 20 SIGNATURES............................................................. 21 EXHIBIT INDEX.......................................................... 22
1 PART I. -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS MOLECULAR DIAGNOSTICS, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
JUNE 30, DECEMBER 31, 2002 2001 ----------- ------------ (UNAUDITED) ASSETS Current Assets: Cash and cash equivalents................................. $ 116 $ 1,025 Accounts receivable, net allowance for doubtful accounts of $4 at June 30, 2002 and December 31, 2001........... 348 463 Inventories............................................... 440 533 Refundable taxes.......................................... 127 116 Due from officer.......................................... (9) 50 Prepaid expenses and other current assets................. 268 141 -------- -------- Total current assets................................. 1,290 2,328 Fixed assets, net........................................... 820 835 Other Assets: License, patents, and technology, net of amortization..... 7,853 8,180 Goodwill.................................................. 283 283 -------- -------- Total assets......................................... $ 10,246 $ 11,626 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable.......................................... $ 3,211 $ 2,502 Accrued payroll costs..................................... 1,111 868 Accrued expenses.......................................... 2,240 1,175 Deferred revenue.......................................... 353 567 Revolving line of credit.................................. 76 177 Lease obligation.......................................... 141 87 Notes payable -- related party............................ 86 65 Notes payable............................................. 3,555 1,359 -------- -------- Total current liabilities............................ $ 10,773 $ 6,800 Lease obligation, less current portion...................... 150 203 Deferred revenue............................................ 150 -- -------- -------- Total liabilities.................................... 11,073 7,003 -------- -------- Stockholders' Equity (Deficit) Preferred stock, $0.001 par value; shares authorized -- 10,000,000; shares issued and outstanding -- 3,416,336 and 3,493,078, at June 30, 2002 and December 31, 2001............................. 19,519 21,089 Common stock, $0.001 par value; shares authorized -- 100,000,000; shares issued and outstanding -- 25,836,561 and 25,304,883, at June 31, 2002 and December 31, 2001, respectively............... 26 26 Additional paid-in capital................................ 15,435 12,212 Common stock held in treasury, at cost (192,088 shares)... (327) (327) Deferred compensation..................................... (36) (61) Accumulated deficit....................................... (35,300) (28,289) Accumulated comprehensive loss -- Cumulative translation adjustment...................... (144) (27) -------- -------- Total stockholders' equity (deficit)................. (827) 4,623 -------- -------- Total liabilities and stockholders' equity........... $ 10,246 $ 11,626 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 2 MOLECULAR DIAGNOSTICS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, ------------------------- ----------------------- 2002 2001 2002 2001 ----------- ----------- ---------- ---------- Net revenues................................. $ 1,158 $ 697 $ 502 $ 288 Operating expenses Cost of revenues........................... 482 487 287 209 Research and development................... 2,535 1,938 1,602 1,055 Selling, general, and administrative expenses................................ 4,422 2,713 2,039 959 ---------- ---------- ---------- ---------- Total operating expenses................ 7,439 5,138 3,928 2,223 ---------- ---------- ---------- ---------- Operating loss............................... (6,281) (4,441) (3,426) (1,935) Other income (expense): Interest (expense) -- related party........ (9) (226) (8) (50) Interest (expense)......................... (872) (119) (768) (68) Interest income, related party............. -- 18 -- 9 Interest income............................ -- 53 -- 35 Gain on litigation settlement.............. 151 -- 1 -- Other, net................................. -- 3 -- -- ---------- ---------- ---------- ---------- (730) (271) (775) (74) ---------- ---------- ---------- ---------- Loss before income taxes..................... $ (7,011) $ (4,712) $ (4,201) $ (2,009) Income tax expense........................... -- -- -- -- ---------- ---------- ---------- ---------- Net Loss..................................... $ (7,011) $ (4,712) $ (4,201) $ (2,009) ========== ========== ========== ========== Preferred stock dividend..................... (414) (212) (292) (142) Deemed dividend upon issuance of convertible preferred stock............................ -- (1,933) -- (66) ---------- ---------- ---------- ---------- Total dividends.............................. (414) (2,145) (292) (208) ---------- ---------- ---------- ---------- Net loss available to common stockholders.... $ (7,425) $ (6,857) $ (4,493) $ (2,217) ========== ========== ========== ========== Basic and fully diluted net loss per common share...................................... $ (0.29) $ (0.23) $ (0.17) $ (0.07) ========== ========== ========== ========== Weighed average number of common shares outstanding................................ 25,654,840 30,369,328 25,747,224 30,468,212 ========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 3 MOLECULAR DIAGNOSTICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE SIX MONTHS ENDED JUNE 30, ------------------- 2002 2001 -------- -------- (UNAUDITED) OPERATING ACTIVITIES: Net Loss.................................................. $(7,011) $(4,712) Adjustments to reconcile net loss to net cash used in operating activities: Amortization of debt discount........................... 683 248 Depreciation and amortization........................... 482 254 Stock, warrants, and options issued to non-employees for service............................................... 765 416 Compensation expense related to stock appreciation rights, stock options, and restricted stock........... 81 92 Expenses paid with common stock......................... -- 24 Interest paid with common stock......................... 79 -- Licensing fees recognized from Ventana contract......... (298) -- Changes in assets and liabilities: Accounts receivables, net............................ 184 (89) Inventories.......................................... 66 203 Refundable taxes..................................... 2 11 Due from stockholder................................. 59 -- Deferred acquisition costs........................... -- (319) Prepaid expenses and other assets.................... (174) (79) Prepaid royalties.................................... -- 27 Accounts payable..................................... 755 12 Deposits............................................. (28) (47) Deferred revenue..................................... (89) (137) Accrued expenses..................................... 1,342 (59) ------- ------- Net cash used in operating activities....................... (3,102) (4,155) INVESTING ACTIVITIES: Expenditures for licenses, patents and technology......... (4) (70) Capital purchase.......................................... (87) (325) Advances for notes receivable............................. -- (1,170) ------- ------- Net cash used in investing activities....................... (91) (1,565) FINANCING ACTIVITIES: Proceeds from issuance of convertible notes payable....... 2,600 500 Proceeds from issuance of notes payable, related party.... 25 495 Proceeds from issuance of common stock, net of costs incurred................................................ -- 200 Proceeds from issuance convertible preferred stock, net of costs incurred.......................................... -- 5,840 Payment of notes payable.................................. (150) Payment of notes payable, related party................... -- (795) Payment of revolving line of credit, net.................. (111) (30) Deposit received for future purchase of stock............. -- (500) ------- ------- Net cash provided by financing activities................... 2,364 5,710 ------- ------- Effect of exchange rate changes on cash and cash equivalents............................................... (80) 7 ------- ------- Net increase (decrease) in cash and cash equivalents........ (909) (3) Cash and cash equivalents at beginning of period............ 1,025 13 ------- ------- Cash and cash equivalents at end of period.................. $ 116 $ 10 ======= ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest................................................ $ 8 $ 3 Non-cash transaction during the period: Deferred financing costs................................ $ -- $ 124 Preferred stock converted into common stock............. $ 345 $ --
The accompanying notes are an integral part of these consolidated financial statements. 4 MOLECULAR DIAGNOSTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) NOTE 1. ORGANIZATION Molecular Diagnostics, Inc. was incorporated as Ampersand Medical Corporation ("Ampersand") in Delaware on December 15, 1998, as the successor to Bell National Corporation ("Bell National"). Bell National was incorporated in California in 1958. Except where the context otherwise requires, "Molecular Diagnostics", "MDI", "we", "us" and "our" refers to Molecular Diagnostics Inc., its subsidiaries and its predecessors. On September 25, 2001, we changed our corporate name to Molecular Diagnostics, Inc. in order to better represent our operations and products. The name change was effected by a merger of Ampersand with and into its wholly-owned subsidiary. We retained Ampersand's Certificate of Incorporation, except as amended to reflect the new name, bylaws and capitalization. On December 4, 1998, Bell National, then a shell corporation without any business activity, acquired InPath, LLC, ("InPath") a development-stage company engaged in the design and development of medical instruments and related tests. In the acquisition, Bell National issued 4,288,790 shares of common stock and warrants to purchase 3,175,850 shares of common stock to the members of InPath in exchange for their membership interests in InPath. Based upon the terms of the acquisition agreement for financial reporting and accounting purposes, the InPath acquisition was accounted for as a reverse acquisition whereby InPath was deemed to have acquired Bell National. However, Bell National was the continuing legal entity and registrant for both Securities and Exchange Commission ("SEC") filing purposes and income tax filing purposes, until its merger into Ampersand in May 1999. On September 17, 2001, we completed the acquisition of AccuMed International, Inc. ("AccuMed") whereby AccuMed was merged into one of our wholly-owned subsidiaries. The value of the transaction was approximately $14,178. Accordingly, the consolidated financial statements presented hereunder include the operations of InPath from March 16, 1998 (inception), the operations of Molecular Diagnostics (including its predecessors Bell National and Ampersand) from December 4, 1998, and the operations of AccuMed from September 17, 2001. We are focused on the design, development and marketing of the InPath System. The InPath System and related products are intended to detect cancer and cancer related diseases. These products may be used in a laboratory, clinic, or doctor's office. We acquired all of the assets of Samba Technologies, SARL ("Samba") in January 1999 from Unilog Regions, SA. Samba designs, develops, and markets web-enabled software based systems for image analysis, image capture, and image transmission and management for clinical and industrial applications. Samba is also developing software used in the InPath System. We incurred significant operating losses since our inception. Management expects that significant ongoing operating expenditures will be necessary to successfully implement our business plan and develop, manufacture and market our products. These circumstances raise substantial doubt about our ability to continue as a going concern. Implementation of these plans and our ability to continue as a going concern depend upon our ability to secure substantial additional financing. Our plans include substantial efforts to obtain additional capital. If we are unable to obtain adequate additional financing or generate profitable sales revenues, we may be required to curtail our product development and other activities and we may be forced to cease operations. 5 MOLECULAR DIAGNOSTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 2. BASIS OF PRESENTATION The consolidated financial statements included herein have been prepared by us without audit according to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States have been omitted pursuant to such rules and regulations. The financial statements reflect, in the opinion of management, all adjustments necessary to present fairly the financial position and results of operations as of and for the periods indicated. The results of operations for the six months ended June 30, 2002, are not necessarily indicative of the results to be expected for the full year or for any other period. The consolidated financial statements include Molecular Diagnostics and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated. These financial statements should be read in conjunction with the audited financial statements and the notes thereto included in our 2001 Annual Report on Form 10-K/A, as filed with the SEC. NOTE 3. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which supersedes both SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30, Reporting the Results of Operations -- Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions ("Opinion 30"), for the disposal of a segment of a business (as previously defined in that Opinion). SFAS No. 144 retains the fundamental provisions in SFAS No. 121 for recognizing and measuring impairment losses on long-lived assets held for use and long-lived assets to be disposed of by sale, while also resolving significant implementation issues associated with SFAS No. 121. For example, SFAS No. 144 provides guidance on how a long-lived asset that is used as part of a group should be evaluated for impairment, establishes criteria for when a long-lived asset is held for sale, and prescribes the accounting for a long-lived asset that will be disposed of other than by sale. SFAS No. 144 retains the basic provisions of Opinion 30 on how to present discontinued operations in the income statement but broadens that presentation to include a component of an entity (rather than a segment of a business). Unlike SFAS No. 121, SFAS No. 144 does not provide guidance on impairment of goodwill. Rather, goodwill is evaluated for impairment under SFAS No. 142, Goodwill and Other Intangible Assets. MDI adopted SFAS No. 144 on January 1, 2002, and there was no impact to the results of operations or its financial position upon adoption. NOTE 4. ACQUISITION On September 17, 2001, we acquired AccuMed by issuing 3,911,245 shares of our common stock to holders of AccuMed's outstanding common stock, and 218,438 shares of our Series A convertible preferred stock to holders of AccuMed's outstanding Series A convertible preferred stock. As a result of the acquisition, we (1) assumed AccuMed's outstanding stock options and warrants, (2) forgave a note receivable due from AccuMed, (3) wrote-off unamortized license fees and prepaid royalties previously paid under a licensing agreement with AccuMed and, (4) received 192,088 shares of our common stock that was held by AccuMed. The value of the transaction was approximately $14,178 and was determined based on the market price of our common stock over the period of a few days before and after February 7, 2001, the date the merger was agreed to and announced. The acquisition was recorded as a purchase business combination in accordance with Statement of Financial Accounting Standards No. 141, Business Combinations. Accordingly, the excess of the purchase price over the fair value of identifiable assets (including identifiable intangible assets) was 6 MOLECULAR DIAGNOSTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) allocated to goodwill and other intangible assets. The consolidated financial statements include the operating results of the business from the respective date of acquisition. Acquired technology license agreements are being amortized over the remaining life of the respective agreements which is seventeen years for our license agreement and two years for the Dianon license agreement. The following selected pro forma consolidated results of operations are presented as if the AccuMed acquisition had occurred on January 1, 2001. This information is presented for illustrative purposes only and is not necessarily indicative of the operating results that would have been achieved if the acquisition had been completed as of January 1, 2001, nor are they necessarily indicative of the future operating results of Molecular Diagnostics. The pro forma data does not give effect to any cost savings or restructuring and integration costs that might result. Pro forma results for the six and three months ended June 30:
SIX MONTHS THREE MONTHS ENDED JUNE 30, ENDED JUNE 30, ----------------- ----------------- 2002 2001 2002 2001 ------- ------- ------- ------- Revenues....................................... $ 1,158 $ 1,357 $ 502 $ 416 Net loss available to common stockholders...... (7,425) (7,880) (4,493) (2,733) Basic and fully diluted net loss per share..... $ (0.29) $ (0.23) $ (0.17) $ (0.08)
NOTE 5. NOTE RECEIVABLE -- RELATED PARTY A note receivable (payable), due from an officer of MDI was outstanding for approximately ($9) and $50 at June 30, 2002 and December 31, 2001, respectively. NOTE 6. LICENSES, PATENTS, AND TECHNOLOGY Licenses, patents, and technology include the following at June 30, 2002: Licenses.................................................... $1,027 Patent costs................................................ 133 MDI Technology Agreement.................................... 7,230 Dianon Technology Agreement................................. 260 ------ Subtotal.................................................... 8,650 Less accumulated amortization............................... (797) ------ Total..................................................... $7,853 ======
Effective January 1, 2002, we adopted a change in accounting principle to comply with the specific provisions and guidance of SFAS 141 and SFAS 142. We estimate that our adoption of SFAS 142 will result in a $7 decrease in amortization expense and $7 increase in net income during 2002 related to goodwill. We have completed the transitional intangible asset impairment test required under SFAS 142 and, based on the results of the test, concluded that no impairment of goodwill or other indefinite lived intangible assets has occurred. Therefore, no impairment loss will be recorded in connection with our adoption of the statement. Our definite lived intangible assets of $8,650, net of accumulated amortization of $797, continue to be amortized over their useful lives. 7 MOLECULAR DIAGNOSTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Amortization expense for intangible assets during the three and six months ended June 30, 2002 was $164 and $328, respectively. Estimated amortization expense for the remainder of 2002 and the five succeeding fiscal years is as follows:
ESTIMATED AMORTIZATION EXPENSE ------------ 2002 (remainder)............................................ $328 2003........................................................ $612 2004........................................................ $526 2005........................................................ $526 2006........................................................ $526 2007........................................................ $526
NOTE 7. ACCRUED PAYROLL TAXES We are delinquent in paying federal and state 2000 and 2001 employee and employer payroll taxes. As of June 30, 2002, we owed $586 in past-due payroll taxes, including $160 in assessed statutory penalties and interest. We have retained legal representation who is working with the Internal Revenue Service to attempt to reach an agreement on the total due, settlement term and basis for payment. At this time, we believe it is not possible to determine the impact, if any, upon our financial condition. Past-due payroll taxes, assessed penalties and interest were included in accrued payroll costs in the June 30, 2002 and December 31, 2001 consolidated balance sheets. We are also delinquent in filing federal and state income tax returns for 1999 and 2000, and we are actively attempting to remedy this matter. NOTE 8. NOTES PAYABLE -- RELATED PARTIES Debt from related parties at June 30, 2002 consists of: Northlea Partners, Ltd., $25 Promissory Note issued August 6, 2001; interest rate 15% per annum; matures September 22, 2001; note in default; interest rate increases to 18% per annum upon default.................................... $25 Northlea Partners, Ltd., $15 Convertible Promissory Note issued September 20, 2001; interest rate 9% per annum; matures December 18, 2001; note in arrears................ 15 Northlea Partners, Ltd., $25 Bridge Note issued May 28, 2002; interest rate 7% per annum, matures July 30, 2002; 25,000 warrants at an exercise price of $0.70; net of unamortized debt discount of $4; note in arrears.......... 21 Robert Shaw, $25 Convertible Promissory Note issued September 20, 2001; interest rate 9% per annual; matures December 18, 2001; note in arrears........................ 25 --- $86 ===
The carrying amount of notes payable approximates fair value at June 30, 2002. DEFAULTS ON NOTES FROM RELATED PARTIES AND NOTES PAYABLE Northlea Partners, Ltd. $25 note dated August 6, 2001; interest rate per annum increases from 15% to 18%. As of August 1, 2002, we are in default on the Bridge Notes and are working with the holders to remedy the default. Management is currently discussing default resolutions with holders of notes in default. All other notes in default, including those to related parties, have no default remedies in the note agreements. Management is currently discussing default resolutions with holders of notes in default. 8 MOLECULAR DIAGNOSTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 9. NOTES PAYABLE Notes payable at June 30, 2002 consists of: Monsun, AS, $500 Promissory Note issued November 1, 2000; interest rate 15% per annum; beneficial conversion feature valued at $125; extension of maturity date for issuance of 100,000 warrants at an exercise price of $0.60 per share and 200,000 warrants at $0.30 per share; matures July 31, 2002; note in default..................................... $ 512 NeoMed Innovations III, $500 Promissory Note issued May 15, 2001; interest rate 7% per annum, matures July 30, 2002; 560,000 warrants with an exercise price of $0.65 per share; net of unamortized debt discount of $36; note in arrears................................................... 464 Xillix Technologies Corporation, $361 Promissory Note issued June 26, 1998; interest rate Canadian Prime plus 6% per annum, due on demand; represents debt of AccuMed International............................................. 34 Western Economic Diversification, $221 Promissory Note issued June 1989; no interest, due on demand.............. 189 Schwarz, Cooper, Greenberger & Krauss, $118 Promissory Note issued February 13, 2002; interest rate 12% per annum final settlement due September 1, 2002.................... 100 Bridge Notes issued for $2,600 between March 19, 2002 and June 28, 2002; interest rate of 7% per annum, that mature July 30, 2002; 2,600,000 warrants at an exercise price of $0.70; net of unamortized debt discount of $344; note in arrears................................................... 2,256 ------ $3,555 ======
The carrying amounts of notes payable approximates fair value at June 30, 2002. From March 19, 2002 through June 28, 2002, we received cash of $2,625 from over 25 separate investors and issued new convertible promissory notes ("Bridge Notes") and 2,625,000 warrants ("Bridge Warrants"). The Bridge Notes bear interest at 7% per annum and mature on July 30, 2002. The Bridge Notes are currently in arrears. The Bridge Notes are convertible at any time at the option of the holder or automatically when we receive an equity infusion of at least $7,000. The conversion price of the Bridge Notes are equal to a 25% discount to the market price of the common stock at the date of conversion, but will not be less than $0.50 per share nor greater than $1.00 per share. Each of the Bridge Warrants is exercisable into one share of common stock at an exercise price of $0.65 per share for a period of five years. Upon conversion, the Bridge Notes holder will be entitled to receive an additional number of warrants ("Private Warrants") equal to 25% of the number of common shares issued in conversion of the Bridge Notes. These Private Warrants will be exercisable into one share of our common stock at a price equal to 150% of the conversion price of the Bridge Notes. Using the fair value interest rate method, we determined the fair value of the Bridge Warrants issued to be $108 as of June 30, 2002. Of this amount, $71 was charged to interest expense during the quarter ended June 30, 2002. The value of the beneficial conversion feature of total Bridge Notes was determined to be $1,050 at June 30, 2002 based on a closing price of our common stock of $0.87. This beneficial conversion feature was accounted for as debt discount. Interest expense of $631 was recorded during the quarter ended June 30, 2002 for accretion of this debt discount. As the conversion terms of these notes are not fixed at June 30, 2002 the ultimate amount of the debt discount will vary based on the market price of common stock. Changes in the underlying value of this beneficial conversion feature will be recorded prospectively in future periods. DEFAULTS ON NOTES PAYABLE Defaults on notes payable are in Notes to Consolidated Financial Statements -- Note 8 preceding. 9 MOLECULAR DIAGNOSTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 10. STOCKHOLDERS' EQUITY BASIC AND FULLY-DILUTED COMMON STOCK Basic net loss per share is based upon net loss and the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per common share adjusts for the effect of common stock equivalents such as stock options and stock warrants, only in the periods presented in which such effect would have been dilutive. Diluted net loss per share is not presented separately, as the effect of the common stock equivalents is anti-dilutive for each of the periods presented. Accordingly, diluted net loss per share is the same as basic net loss per share. Fully-diluted shares of common stock are calculated by assuming MDI's warrants, stock appreciation rights and employee stock options to purchase common stock, convertible notes payable and convertible preferred stock have been converted and exchanged for MDI's common stock. MDI's basic and fully-diluted common stock for the period ended June 30, 2002 are summarized below:
FULLY-DILUTED INSTRUMENT BASIC COMMON COMMON - ---------- ----------------- --------------- Common stock........................................... 25,836,561 25,836,561 Warrants, options, SARs and convertible notes.......... -- 24,383,973 Convertible preferred stock............................ -- 27,248,569 ---------- ---------- Total................................................ 25,836,561 77,469,103 ========== ==========
Summary of MDI's preferred stock capital table as of June 30, 2002 is as follows:
SHARES ISSUED & OFFERING SHARES AUTHORIZED OUTSTANDING - -------- ----------------- --------------- Series A convertible................................... 590,197 118,093 Series B convertible, 10% cumulative................... 1,500,000 1,357,356 Series C convertible, 10% cumulative................... 1,666,666 1,331,499 Series D convertible, 10% cumulative................... 300,000 175,000 Series E convertible, 10% cumulative................... 800,000 434,388 ---------- ---------- TOTAL PREFERRED STOCK................................ 4,856,863 3,416,336 ========== ==========
SUMMARY OF PREFERRED STOCK TERMS SERIES A CONVERTIBLE PREFERRED STOCK
Liquidation Value: $4.50 per share Conversion Price: $10.3034 per share Conversion Rate: 0.4368 -- Liquidation Value divided by Conversion Price ($4.50/$10.3034) Voting Rights: None Dividends: None Conversion Period: Any time -- 3 years
10 MOLECULAR DIAGNOSTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SERIES B CONVERTIBLE PREFERRED STOCK
Liquidation Value: $4.00 per share Conversion Price: $1.00 per share Conversion Rate: 4.00 -- Liquidation Value divided by Conversion Price ($4.00/$1.00) Voting Rights: None Dividends: 10% -- Quarterly -- Commencing June 30, 2001 Conversion Period: Any time Cumulative dividends in arrears at June 30, 2002 were $733
SERIES C CONVERTIBLE PREFERRED STOCK
Liquidation Value: $3.00 per share Conversion Price: $0.60 per share Conversion Rate: 5.00 -- Liquidation Value divided by Conversion Price ($3.00/$0.60) Voting Rights: None Dividends: 10% -- Quarterly -- Commencing June 30, 2002 Conversion Period: Any time Cumulative dividends in arrears at June 30, 2002 were $265
SERIES D CONVERTIBLE PREFERRED STOCK
Liquidation Value: $10.00 per share Conversion Price: $1.00 per share Conversion Rate: 10.00 -- Liquidation Value divided by Conversion Price ($10.00/$1.00) Voting Rights: None Dividends: 10% -- Quarterly -- Commencing April 30, 2002 Conversion Period: After April 1, 2002 Cumulative dividends in arrears at June 30, 2002 were $116
SERIES E CONVERTIBLE PREFERRED STOCK
Liquidation Value: $22.00 per share Conversion Price: $0.80 per share Conversion Rate: 27.50 -- Liquidation Value divided by Conversion Price ($22.00/$0.80) Voting Rights: Equal in all respects to holders of common shares Dividends: 10% -- Quarterly -- Commencing May 31, 2002 Conversion Period: After December 1, 2002 Cumulative dividends in arrears at June 30, 2002 were $99
ISSUANCE OF RESTRICTED SHARES FOR SERVICES Beginning in 1999, we have, at various times, issued restricted shares of common stock to non-employee consultants for services. Some of the shares issued were made for past services and their value was fixed. Other issuances were made as partial consideration for services to be performed under three-year consulting agreements and vest over the life of the agreements. The measurement date of these shares has not been determined as of June 30, 2002. Therefore the value of the these shares will be based on the market value of 11 MOLECULAR DIAGNOSTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) the common stock at the end of each interim period until the measurement date is determined. A fair value of these shares of $87 and $185 was calculated using the Black-Scholes valuation model and we recorded $4 and $38 as expense during the quarter ended June 30, 2002 and June 30, 2001, respectively. ISSUANCE OF STOCK OPTIONS TO NON-EMPLOYEES FOR SERVICES Beginning in 1999, we have, at various times, granted options to purchase shares of our common stock to non-employee consultants. We issued the options as partial consideration for services to be performed under three-year consulting agreements and vest over the life of the agreements. The measurement date of these options has not been determined as of June 30, 2002. Therefore the value of the these shares will be based on the market value of the common stock at the end of each interim period until the measurement date is determined. A fair value of $125 and $484 was calculated for these options at June 30, 2002 and June 30, 2001, respectively, using the Black-Scholes valuation model. This value is charged to expense over the term of the consulting agreements. The amount of expense to be ultimately recognized will vary depending on the market value of the common stock at the end of each interim period. We recorded $5 as expense related to these options during the quarter ended June 30, 2002. ISSUANCE OF WARRANTS FOR SERVICES During the first quarter 2002, we issued warrants to purchase 750,000 shares of common stock at $0.01 per share in exchange for services to a law firm. Using the Black-Scholes valuation model, the fair value of these warrants was calculated to be $675. In 2000 and 2001, we issued warrants to purchase common stock to non-employees as compensation for financial services. The warrants vest in equal amounts each month over the service period. We may terminate the agreements upon thirty days written notice, and any unvested warrants as of the date of termination would be cancelled. For those warrants where the measurement date has not been determined, fair values of $63 and $464 were calculated at June 30, 2002 and June 30, 2001, respectively, using the Black-Scholes valuation model. The amount of expense to be ultimately recognized will vary depending on the market value of the common stock at the end of each period. We recorded $16 and $72 as expense related to these warrants during the quarter ended June 30, 2002 and 2001, respectively. CELL SOLUTIONS INVESTMENT On October 11, 2001, we made a 30% investment in Cell Solutions, LLC. ("Cell Solutions"), a company formed for the purpose of developing and improving slide preparation systems. As consideration, we issued Cell Solutions five-year warrants to purchase 172,120 shares of common stock with an exercise price of $0.82. These warrants were valued using Black-Scholes and determined to have a value of $127 which was included as an investment at December 31, 2001. We also determined the fair value of the investment to be impaired at December 31, 2001 and consequently the investment was written down to zero as a result of the uncertainty of future benefit or revenue stream. We are contractually committed to issue a total of 1,549,086 additional warrants with the same terms based upon delivery of certain products by Cell Solutions. As of June 30, 2002, Cell Solutions had not delivered these products and we were not bound to issue additional warrants. STOCK APPRECIATION RIGHTS At June 30, 2002 and June 30, 2001, we had 450,000 stock appreciation rights ("SARs") outstanding. Issued in 1989, these SARs have an exercise price of $0.30 and were deemed automatically exercised on November 20, 2001. In general, each SAR entitles the holder to receive upon exercise an amount equal to the excess, if any, of the market value per share of common stock at the date of exercise over the exercise price of the SAR, plus any dividends or distributions per share made by us prior to the exercise date. In lieu of making cash payments, we may, and intend to, elect to issue shares of common stock on a one share for one SAR basis. Since the SARs were deemed exercised on November 20, 2001, no compensation expense was recorded 12 MOLECULAR DIAGNOSTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) for the three or six month periods ended June 30, 2002. We recorded compensation expense in the amount of $92 for the six-months ended June 30, 2001 to reflect the difference between the closing market price of our common stock at June 30, 2001 and December 31, 2000 and the exercise price of the SARs. APPLICATION OF BLACK-SCHOLES VALUATION MODEL In applying the Black-Scholes valuation model, we have used an expected dividend yield of zero, a risk-free interest rate of 6% and a volatility factor of 90% for the three months ended June 30, 2002 and 2001, and a fair value of the underlying common shares of closing market price on the date of the grant. The expected life equaled the term of the warrants, options, or restricted shares. NOTE 11. SUBSEQUENT EVENTS STOCK PURCHASE AGREEMENT On May 9, 2002, we entered into a stock purchase agreement ("Purchase Agreement") that was amended May 16, 2002 and June 24, 2002. In accordance with the terms of the Purchase Agreement, we are to deliver 21,428,000 shares of restricted common stock in exchange for $15,000 upon closing of the Purchase Agreement. We also delivered to an escrow agent 740,000 restricted shares of Series E convertible preferred shares as collateral for the Purchase Agreement. As of August 14, 2002, the closing under the Purchase Agreement has not yet occurred. LICENSE AGREEMENT -- LETTER OF INTENT On July 12, 2002, we entered into letter of intent ("LOI") with Ventana Medical Systems, Inc. ("Ventana") for exclusive use and distribution license rights to certain MDI processes, systems and technologies with respect to HPV tests for use in Ventana's slide-based technology platform. The LOI requires Ventana to deliver a $100 deposit upon execution of the LOI, $200 upon our delivery of certain license and development agreements, and $400 upon completion of specific technology validations. We received $300 upon meeting the first two LOI milestones in July 2002. NOTE 12. LEGAL PROCEEDINGS LITIGATION CONTINGENCIES From time to time, we have been a party to routine pending or threatened legal proceedings and arbitrations. We insure some, but not all, of our exposure with respect to such proceedings. Based upon information presently available, and in light of legal and other defenses available to us, management does not consider the liability from any threatened or pending litigation to be material nor have we experienced any significant environmental problems. 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated financial statements presented in Part I, Item 1 of this quarterly report and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in Part I, Item 7 of our Annual Report on Form 10-K/A for the year ended December 31, 2001. FORWARD-LOOKING STATEMENTS Certain statements contained in this discussion and analysis of financial condition and results of operations that are not related to historical results are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Statements that are predictive, that depend upon or refer to future events or conditions, or that include words such as "expects," "anticipates," "intends," "plans," "believes," "estimates," "hopes," and similar expressions constitute forward-looking statements. In addition, any statements concerning future financial performance (including future revenues, earnings or growth rates), ongoing business strategies or prospects, or possible future actions by us are also forward-looking statements. These forward-looking statements are based on beliefs of our management as well as current expectations, projections and assumptions currently available to the Company and are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated. Should one or more of those risks or uncertainties materialize or should underlying expectations, projections and assumptions prove incorrect, actual results may vary materially from those described. Those events and uncertainties are difficult to predict accurately and many are beyond our control. We assume no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date of these statements. SIGNIFICANT ACCOUNTING POLICIES Revenue Recognition. Molecular Diagnostics recognizes revenue upon shipment of product or license to customers and no remaining obligations or contingencies exist, or in the case of sales of software by our wholly owned subsidiary Samba, upon shipment if persuasive evidence of an arrangement exists, sufficient vendor-specific objective evidence exists to support allocating the total fee to all elements of the arrangement, fee is fixed or determinable, and collection is probable. Revenue from ongoing client maintenance is recognized ratably over the post-contract support term, generally twelve months. Revenue from training services and professional services is recognized when the service is completed. Revenue from implementation and installation services is recognized using the percentage of completion method. Samba calculates percentage of completion based on the estimated total number of hours of service required to complete an implementation project and the actual number of hours of service rendered. Implementation and installation services are generally completed within 120 days. License, Patents, and Technology. License, patents, and purchased technology are recorded at their acquisition cost. Costs to prepare patent filings are capitalized when incurred. Costs related to abandoned or denied patent applications are written off at the time of abandonment or denial. Amortization is commenced as of the date of acquisition or upon the grant of the final patent. Costs are amortized over the asset's useful life, which ranges from two to seventeen years. We assess licenses, patents, and technology annually for impairment unless an event has occurred which would indicate a possible impairment. Stock Compensation. As permitted by the Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123), Molecular Diagnostics uses the intrinsic value method to account for stock options as set forth in Accounting Principles Board No. 25, Accounting for Stock Issued to Employees (APB 25). Application of Black-Scholes Valuation Model. In applying the Black-Scholes valuation model, we have used an expected dividend yield of zero, a risk-free interest rate of 6% for 2002 and 2001, a volatility factor of 90% for 2002 and 216% for 2001, and the closing market price of the underlying common stock on the date of the grant. The expected life equaled the term of the warrants, options, or restricted shares. 14 OVERVIEW OF MOLECULAR DIAGNOSTICS 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 cancer-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 analytical instruments and related software. Our strategy is to develop products through internal development processes, strategic partnerships, licenses and acquisitions of companies. This strategy has required and will continue to require additional capital. As a result, we will incur substantial operating losses until we are able to successfully market some, or all, of our products. RESULTS OF OPERATIONS REVENUE Our revenue for the six-month period ended June 30, 2002 totaled $1,158, representing an increase of $461, or 66.1%, over revenue of $697 for the six-month period ended June 30, 2001. The 2002 revenue increase resulted primarily from the first quarter revenue recognition of $298 for providing Ventana with a three-year irrevocable, world-wide, royalty-free license for full access to Samba's image analysis software and development tools. The remaining increase represents gains in new customer AcCell instrument sales and installations. Revenue of $502 for the three months ended June 30, 2002 represented an increase of $214, or 74.3%, over revenue for the same period in 2001. This resulted from a $146 increase in revenues from Samba, a European provider of proprietary Telemedicine software and software consulting services. Samba conducts its operations in local currency, the Euro. We convert the local currency into U.S. Dollars for consolidated reporting purposes. Samba's revenue recognition is also subject to the timing of receipt and completion of customer contracts from period to period. We may experience quarter-to-quarter and year-to-year variability in revenues as a result of these contract-timing issues until we begin to market some or all of our other products. OPERATING EXPENSES Cost of Revenues Cost of revenues for the six months ended June 30, 2002 totaled $482, a decrease of $5 from the same period in 2001. No cost of revenues attributable to the Ventana license sale was recorded since related research and development costs related thereto were expensed as incurred in prior years. Increases in software sales and products with higher gross margins also contributed to the decline in cost of sales over the same period in the previous year. Cost of revenues for the three months ended June 30, 2002 totaled $287, an increase of $78, or 37.3%, from the same period in 2001. Increases in software sales and AcCell instrument deliveries with higher gross margins resulted in the increase in cost of sales over the same period in the previous year. Research and Development We devote a substantial amount of our resources to research and development ("R&D") related to new products, including markers, tests, instruments and software applications, as well as modifications and refinements of our existing products. R&D expenses increased $597 and $547 for the six month and three month periods ended June 30, 2002 to $2,535 and $1,602, an increase of 30.8% and 51.8%, respectively, over the comparable prior year periods. R&D expenses consist of costs related to specific development programs with scientists and researchers at 15 universities and hospitals; full scale device development contracts begun during 1999 with industrial design and manufacturing companies covering the disposable and instrument components of the InPath System; payments to medical and engineering consultants for advice related to the design and development of our products and their potential uses in the medical technology marketplace; instrumentation, disposables, clinical consumables, clinical supplies and regulatory costs to develop clinical trial reference laboratories and to recruit and test patients in support of our various Food and Drug Administration ("FDA") clinical trials, and payroll-related costs for in-house engineering, scientific, laboratory, and software development activities; and research management staff. The increase in expenses for the three and six-month periods in 2002 compared with the same periods in 2001 stems primarily from increased product development costs for the Cocktail CVX and HPV assays, the next version of AcCell, the AcCell 2500, and the patient participation fees of our world-wide Cocktail CVX clinical trials. Selling, General and Administrative Selling, general and administrative expenses ("SG&A") increased $1,709 and $1,080 for the six-month and three-month periods ended June 30, 2002 to $4,422 and $2,039, an increase of 62.9% and 112.6% over the same periods ended June 30, 2001, respectively. This increase is primarily due to an increase of approximately $500 in professional services fees as a result of increased investor and shareholder base and expanded operations pursuant to the AccuMed merger; an approximate $350 increase in infrastructure payroll and related payroll costs and other operating expenses resulting from the integration of the recently acquired AccuMed's operations; and increased litigation costs and contingency payments related to the SpectRx settlement, which totaled $675, in the form of warrants. Significant components of SG&A are compensation costs for executive, sales and administrative personnel, professional fees primarily related to legal and accounting and consulting services, travel costs, printing costs, fees for public and/or investor relations services, insurance premiums, facilities and office expenses, marketing related costs, and amortization/depreciation charges. OTHER INCOME AND EXPENSE Interest Expense Interest expenses, including interest expense to related parties, increased $536 and $658 for the six-month and three-month periods ended June 30, 2002 to $881 and $776, an increase of 155.3% and 557.6% over the same periods ended June 30, 2001, respectively. Approximately $631 of the three-month increase relates to a non-cash interest charge for the value of a beneficial conversion feature charged to interest expense during the period. See further discussion in the preceding Notes To Consolidated Financial Statements -- Note 9. Also, accrued interest expense resulting from related party convertible notes payable is included in interest expense -- related party. Other Income and Expense, Net For the six months ended June 30, 2002, we recorded a $150 gain from the settlement of the SpectRx litigation during the first quarter 2002. Related SpectRx settlement legal expenses are included in selling, general and administrative expenses for the period ended June 30, 2002. NET LOSS The net loss for the six and three month period ended June 30, 2002 before preferred dividends totaled $7,011 and $4,201 compared with $4,712 and $2,009 for the same periods in 2001, an increase of $2,299 and $2,192 or a 48.8% and a 109.2% increase, respectively. The increases resulted from increases in R&D expenses, SG&A and interest expenses as described previously. In addition, cumulative dividends on the outstanding Series B convertible preferred stock through Series E convertible preferred stock totaled $414 and $292 for the six and three months periods ended June 30, 2002 compared with $212 and $142 for the same periods in 2001, respectively, and $1,933 of deemed dividends on the Series B convertible preferred stock during first quarter 2001 due to a conversion feature on the Series B convertible preferred stock that was less 16 than market, resulting in a net loss available to common stockholders for the six and three months ended June 30, 2002 of $7,425 and $4,493, or $0.29 and $0.17 per share, on 25,654,840 and 25,747,224 weighted average common shares outstanding, respectively, compared with the net loss and net loss available to common stockholders for the six and three month periods ended June 30, 2001 of $6,857 and $2,217, or $0.23 and $0.07 per share, on 30,369,328 and 30,468,212 weighted average common shares outstanding. For the six months ended June 30, 2002, cumulative dividends on the outstanding Series B convertible preferred stock, Series C convertible preferred stock, Series D convertible preferred stock and Series E convertible preferred stock totaled $1,213. The weighted average shares outstanding as of June 30, 2002 reflect a 10,859,688 reduction in common stock as a result of the exchange of common stock for shares of Series E convertible preferred stock in December 2001 and the issuance of approximately 3,900,000 shares of common stock on September 17, 2001 for the AccuMed acquisition. LIQUIDITY AND CAPITAL RESOURCES R&D, clinical trials and other studies of the components of our InPath System, conversions from designs and prototypes into product manufacturing, initial sales and marketing efforts, medical consultants and advisors, and research, administrative, and executive personnel are and will continue to be the principal basis for our cash requirements. We have provided operating funds for the business since its inception through private offerings of debt and equity to U.S. and foreign accredited investors. We will be required to make additional offerings in the future to support the operations of the business until some or all of our products are introduced into the market. We used $3,102 and $4,155 for the six months ended June 30, 2002 and 2001, respectively, in operating activities. At the end of June 30, 2002 we had cash on hand of $116, a decrease of $909 compared to the $1,025 cash on hand at December 31, 2001. This decrease resulted from delays associated with our private equity financing. From March 19, 2002 through June 28, 2002, we received cash of $2,625 from over 25 separate investors and issued Bridge Notes and 2,625,000 Bridge Warrants. The Bridge Notes bear interest at 7% per annum and mature on July 30, 2002. The Bridge Notes are currently in arrears. The Bridge Notes are convertible at any time at the option of the holder or automatically when we receive an equity infusion of at least $7,000. The conversion price of the Bridge Notes are equal to a 25% discount to the market price of the common stock at the date of conversion, but will not be less than $0.50 per share nor greater than $1.00 per share. Each of the Bridge Warrants is exercisable into one share of common stock at an exercise price of $0.65 per share for a period of five years. Upon conversion, the Bridge Notes holder will be entitled to receive an additional number of warrants ("Private Warrants") equal to 25% of the number of common shares issued in conversion of the Bridge Notes. These Private Warrants will be exercisable into one share of our common stock at a price equal to 150% of the conversion price of the Bridge Notes. As of August 1, 2002, we are in default on the Bridge Notes and are working with the holders to remedy the default. Management is currently discussing default resolutions with holders of notes in default. These Bridge Notes are convertible into shares of common stock at a conversion price that is less than market. This beneficial conversion feature totals $716 at June 30, 2002, of which $403 was charged to interest expense for the period. Our capital expenditures were approximately $87 for the six months ended June 30, 2002, a reduction of $238, or 73.2% from the prior year period's $325. Capital expenditures are defined as disbursements for laboratory equipment, leasehold improvements, software, and furniture/fixtures with a purchase price in excess of $1 per item and useful life in excess of one year. The decrease in 2002 capital expenditures resulted from a reduction of laboratory and computer equipment and software purchases in support of our product development and research efforts in order to conserve cash through our private placement and bridge financings. 17 Our operations have been, and will continue to be, dependent upon management's ability to raise operating capital in the form of debt or equity. We have incurred significant operating losses since the inception of our business. We expect that significant ongoing operating expenditures will be necessary to successfully implement our business plan and develop, manufacture and market our products. These circumstances raise substantial doubt about our ability to continue as a going concern. There can be no assurance that we will be able to obtain additional capital to meet our current operating needs or to complete pending or contemplated licenses or acquisitions of technologies. If we are unable to raise sufficient adequate additional capital or generate profitable sales revenues, we may be forced to substantially curtail product research and development, clinical trials and other activities and may be forced to cease operations. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK A market risk inherent in our financial statements is the potential loss in fair value arising from adverse changes in interest rates. We do not engage in any hedge transactions or use derivative financial instruments to reduce our exposure to interest rate changes since all of our indebtedness is at fixed interest rates. At June 30, 2002, the carrying amount of our debt instruments approximated their fair value. A 10% change in the rate of interest would not have a material effect on our financial position, results of operation or cash flows. In addition, as of June 30, 2002, we were not exposed to any material foreign-currency, equity-price or other type of market or price risk. Samba conducts the majority of its operations in Europe using the Euro and other local European currencies. Since changes in translation risk are reported as adjustments to stockholders' equity, a 10% change in the foreign exchange rate would not have a material effect on our financial position, results of operation or cash flows. For the six months ended June 30, 2002, we recorded a negative cumulative translation adjustment of $80, reflecting the valuation, using the period ended currency exchange rates, of our investment in Samba. 18 PART II. OTHER INFORMATION (In thousands, except share and per share amounts) ITEM 1. LEGAL PROCEEDINGS On July 31, 2002, MDI reached a settlement with Trek Diagnostic Systems, Inc. ("Trek") with respect to Trek's allegations of certain breaches of representations and warranties made in connection with the sale of a division of AccuMed to Trek in November 1998. Under the terms of the settlement, MDI issued Trek a promissory note in which it agreed to pay Trek $80 in two equal installments, the first installment of $40 due September 1, 2002 and the second installment of $40 due December 1, 2002. In consideration of MDI's promissory note, Trek agreed to release MDI and its affiliates from any claims Trek may have against the parties relating to and arising out of the sale of the business division by AccuMed. On July 10, 2002, MDI reached a settlement with Schwartz Cooper Greenberger and Krauss by agreeing to pay $104 to Schwartz Cooper no later than September 1, 2002 as compensation for legal services rendered. Schwartz Cooper had filed a complaint against MDI in the Circuit Court of Cook County. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS From March 19, 2002 through June 28, 2002, we received cash of $2,625 from over 25 separate investors and issued Bridge Notes and 2,625,000 Bridge Warrants. We utilized these debt proceeds for working capital purposes during the three months ended June 30, 2002. Bathgate Capital Group acted as our placement agent and is due $78 in fees at June 30, 2002. On March 19, 2002, we agreed to amend a previously outstanding $500 Original Note issued to NeoMed that was originally due on May 15, 2002. The terms of conversion of the Original Note were changed to reflect the conversion terms of the new $500 Bridge Note issued to NeoMed as described above and the maturity date was extended to July 30, 2002. This Bridge Note is currently in arrears. NeoMed also received an additional 560,000 Bridge Warrants and will be entitled to receive Private Warrants on the same terms as those described above. We utilized these debt proceeds for working capital purposes during the six months ended June 30, 2002. As of August 1, 2002, we are in default on the Bridge Notes and are working with the holders to remedy the default. Management is currently discussing default resolutions with holders of notes in default. During the six months ended June 30, 2002, we made principal payments to Monsun AS and Schwarz, Cooper, Greenberger and Krauss totaling $150. We issued the notes and warrants pursuant to exemptions under Section 4(2) of the Securities Act of 1933, as amended. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS Molecular Diagnostics held its Annual Meeting of Stockholders on Friday, May 31, 2002 and adjourned it until June 21, 2002 in order to allow sufficient time for stockholders to vote on our proposals. Each holder of common stock was entitled to one vote per share of common stock for the election of directors as well as on all other matters. Each holder of Series E convertible preferred stock was entitled to vote on any matter in which the holders of common stock were entitled to vote. When voting with the holders of common stock as a single class, each holder of Series E convertible preferred stock was entitled to one vote for each share of common stock into which such holders' preferred stock was convertible on the record date. Each holder of all other series of convertible preferred stock was entitled to one vote per share of preferred stock for proposal number 19 two. The tabulation of final stockholder votes at the June 21, 2002 Annual Meeting for each proposal presented was as follows: PROPOSAL #1: ELECTION OF DIRECTORS:
(COMMON STOCK AND SERIES E CONVERTIBLE PREFERRED STOCK) ----------------------------- NOMINEE IN FAVOR WITHHELD - ------- ----------- --------- John Abeles................................................ 30,148,985 73,339 Peter Gombrich............................................. 30,140,951 81,373 Alexander Milley........................................... 30,151,615 70,709 Robert Shaw................................................ 30,151,615 70,709 Denis O'Donnell............................................ 29,780,808 441,516
PROPOSAL #2: AMENDMENT TO THE CORPORATION'S CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK (FROM 50,000,000 TO 100,000,000 SHARES) AND PREFERRED STOCK (FROM 5,000,000 TO 10,000,000):
IN FAVOR AGAINST WITHHELD ---------- ------- -------- Class I (Common Stock)................................ 14,318,131 429,454 109,790 Class II (Preferred Stock -- all series).............. 3,191,060 2,118 40 Class III (Common Stock and Preferred Stock).......... 17,509,191 431,572 109,830
PROPOSAL #3: AMENDMENT TO THE CORPORATION'S 1999 EQUITY INCENTIVE PLAN TO INCREASE BY 2,500,000 THE SHARES OF COMMON STOCK THAT MAY BE ISSUED UNDER THE PLAN:
(COMMON STOCK AND SERIES E CONVERTIBLE PREFERRED STOCK) - ------------------------------------------------------- IN FAVOR AGAINST WITHHELD - ------------------ --------------- ---------------- 22,816,861 564,596 156,280
PROPOSAL #4: RATIFICATION OF INDEPENDENT ACCOUNTANTS, ERNST & YOUNG:
(COMMON STOCK AND SERIES E CONVERTIBLE PREFERRED STOCK) - ------------------------------------------------------- IN FAVOR AGAINST WITHHELD - ------------------ --------------- ---------------- 30,170,815 27,878 23,631
ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits See Exhibit Index (b) Reports on Form 8-K MDI filed a Current Report on Form 8-K dated June 10, 2002 reporting, under Item 5, the appointments of Stephen G. Wasko, as President and Chief Operating Officer, and Michael A. Brodeur, as Interim Chief Financial Officer. 20 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MOLECULAR DIAGNOSTICS, INC. /s/ PETER P. GOMBRICH -------------------------------------- PETER P. GOMBRICH Chairman of the Board Chief Executive Officer /s/ MICHAEL A. BRODEUR -------------------------------------- Michael A. Brodeur Chief Financial Officer Principal Accounting Officer Date: August 14, 2002 21 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 2.1 Bell National Corporation Plan of Reorganization (Annex I). (Incorporated herein by reference to Item 1 of the Bell National Corporation Annual Report on Form 10-K for the period from August 20, 1985 to December 31, 1985 and for the years ended December 31, 1986 and 1987.)* 2.2 Exchange Agreement dated December 4, 1998 among the Company, InPath, and the InPath Members. (Incorporated herein by reference to Appendix A to the Bell National Corporation Definitive Proxy Statement on Schedule 14A, filed on April 30, 1999.)* 2.3 Agreement and Plan of Merger of Bell National Corporation and the Company. (Incorporated herein by reference to Appendix C to the Bell National Corporation Definitive Proxy Statement on Schedule 14A, filed on April 30, 1999.)* 2.4 Agreement and Plan of Merger by and among AccuMed International, Inc., AccuMed Acquisition Corp. and Ampersand Medical Corporation, dated as of February 7, 2001. (Incorporated herein by reference to Appendix I to Registration Statement No. 333-61666.) 2.5 Amendment No. 1, dated May 14, 2001 to the Agreement and Plan of Merger by and among AccuMed International, Inc., AccuMed Acquisition Corp. and Ampersand Medical Corporation, dated February 7, 2001. (Incorporated herein by reference to Appendix I to Registration Statement No. 333-61666.) 3.1 Restated Articles of Incorporation. (Incorporated herein by reference to Exhibit 3.1 of the Bell National Corporation Annual Report on Form 10-K for the fiscal year ended December 31, 1988.)* 3.2 Bylaws of Bell National Corporation. (Incorporated herein by reference to Exhibit 3.2 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989.)* 3.3 Certificate of Incorporation of the Company as amended. (Incorporated herein by reference to Appendix D to the Bell National Corporation Definitive Proxy Statement on Schedule 14A, filed on April 30, 1999.)* 3.4 By-laws of the Company. (Incorporated herein by reference to Appendix E to the Bell National Corporation Definitive Proxy Statement on Schedule 14A, filed on April 30, 1999.)* 3.5 Certificate of Designation, Preferences and Rights of Series A Convertible Preferred Stock of Ampersand Medical Corporation. (Incorporated herein by reference to Exhibit 3.5 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.) 3.6 Certificate of Designation, Preferences and Rights of Series B Convertible Preferred Stock of Ampersand Medical Corporation. (Incorporated herein by reference to Exhibit 3.6 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.) 3.7 Certificate of Incorporation of Molecular Diagnostics, Inc., as amended. (Incorporated herein by reference to the Company's Current Report on Form 8-K dated September 26, 2001.) 3.8 Section 6 of Article VII of the By-laws of the Company as amended. (Incorporated herein by reference to Exhibit 3.3 to the Company's S-4 Registration Statement, File No. 333-61666, filed August 24, 2001.) 3.9 Certificate of Designation, Preferences and Rights of Series C Convertible Preferred Stock of Molecular Diagnostics, Inc. (Incorporated herein by reference to Exhibit 3.4 to the Company's S-2 Registration Statement, File, No. 333083578 filed February 28, 2002) 3.10 Certificate of Amendment of Certificate of Designation, Preferences and Rights of Series C Convertible Preferred Stock. (Incorporated herein by reference to Exhibit 3.5 to the Company's S-2 Registration Statement, File, No. 333083578 filed February 28, 2002) 3.11 Certificate of Amendment of Amended Certificate of Designation, Preferences and Rights of Series C Convertible Preferred Stock. (Incorporated herein by reference to Exhibit 3.6 to the Company's S-2 Registration Statement, File, No. 333083578 filed February 28, 2002) 3.12 Certificate of Designation, Preferences and Rights of Series D Convertible Preferred Stock. (Incorporated herein by reference to Exhibit 3.7 to the Company's S-2 Registration Statement, File, No. 333083578 filed February 28, 2002)
22
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 3.13 Certificate of Designation, Preferences and Rights of Series E Convertible Preferred Stock. (Incorporated herein by reference to Exhibit 3.8 to the Company's S-2 Registration Statement, File, No. 333083578 filed February 28, 2002) 4.1 Form of Common Stock Purchase Warrant, as executed by Bell National Corporation on December 4, 1998 with respect to each of Mr. Gombrich, Theodore L. Koenig, William J. Ritger, Fred H. Pearson, Walter Herbst, AccuMed International, Inc., Northlea Partners Ltd., and Monroe Investments, Inc. (collectively, the "InPath Members"). (Incorporated herein by reference to Exhibit 3 of the Schedule 13D filed jointly by the InPath Members on December 14, 1998.)* 4.2 Stockholders Agreement dated December 4, 1998 among the Company, Winchester National, Inc., the InPath Members, and Mr. Milley, Mr. Shaw, Cadmus, and MMI (collectively, the "Claimants"). (Incorporated herein by reference to Exhibit 2 to the Schedule 13D filed jointly by the InPath Members on December 14, 1998.)* 4.3 Form of Common Stock Purchase Warrant issued to Holleb & Coff on July 4, 1999 representing the right to purchase 250,000 shares of Common Stock of the Company in connection with legal services rendered. (Incorporated herein by reference to Exhibit 4.3 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999.)* 4.4 Form of Common Stock Purchase Warrant issued to The Research Works on October 11, 1999 representing the right to purchase 70,000 shares of Common Stock of the Company in connection with the preparation of an investment research report. (Incorporated herein by reference to Exhibit 4.4 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999.)* 4.5 Form of Common Stock Purchase Warrant issued to Azimuth Corporation on December 10, 1999 representing the right to purchase 50,000 shares of Common Stock of the Company as additional consideration for a 12% Convertible Promissory Note issued on the same date. (Incorporated herein by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999.)* 4.6 Form of Common Stock Purchase Warrant issued to Richard Doermer on January 3, 2000 representing the right to purchase 96,250 shares of Common Stock of the Company in connection with financial advisory services rendered. (Incorporated by reference to Exhibit 4.6 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.)* 4.7 Form of Common Stock Purchase Warrant issued to Richard Doermer on January 3, 2000 representing the right to purchase 75,759 shares of Common Stock of the Company in connection with financial advisory services rendered. (Incorporated by reference to Exhibit 4.7 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.)* 4.8 Form of Common Stock Purchase Warrant issued to Richard Doermer on January 3, 2000 representing the right to purchase 121,313 shares of Common Stock of the Company in connection with financial advisory services rendered. (Incorporated by reference to Exhibit 4.8 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.)* 4.9 Form of Common Stock Purchase Warrant issued to Richard Doermer on January 3, 2000 representing the right to purchase 94,697 shares of Common Stock of the Company in connection with financial advisory services rendered. (Incorporated by reference to Exhibit 4.9 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.)* 4.10 Form of Common Stock Purchase Warrant issued to William J. Ritger on May 24, 2000 representing the right to purchase 531,614 shares of Common Stock of the Company in connection with financial advisory services rendered. (Incorporated by reference to Exhibit 4.10 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.)* 4.11 Form of Common Stock Purchase Warrant issued to Denis M. O'Donnell on May 24, 2000 representing the right to purchase 784,901 shares of Common Stock of the Company in connection with financial advisory services rendered. (Incorporated by reference to Exhibit 4.11 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.)*
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EXHIBIT NUMBER DESCRIPTION - ------- ----------- 4.12 Form of Common Stock Purchase Warrant issued to Prospektiva, SA on May 23, 2000 representing the right to purchase 48,333 shares of Common Stock of the Company in connection with financial advisory services rendered. (Incorporated by reference to Exhibit 4.12 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.)* 4.13 Form of Common Stock Purchase Warrant issued to Dr. Bruce Patterson, on September 12, 2000 representing the right to purchase 150,000 shares of Common Stock of the Company as additional consideration for the achievement of product development milestones under a License and Development Agreement for Specific Medical Technology for the Detection of Oncogenic HPV Virus. (Incorporated by reference to Exhibit 4.13 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.)* 4.14 Form of Common Stock Purchase Warrant issued to Dr. Bruce Patterson, on September 12, 2000 representing the right to purchase 100,000 shares of Common Stock of the Company as consideration for an Addendum to a License and Development Agreement for Specific Medical Technology for the Detection of Oncogenic HPV Virus. (Incorporated by reference to Exhibit 4.14 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.)* 4.15 Form of Common Stock Purchase Warrant issued to Osprey Partners, on November 22, 2000 representing the right to purchase 100,000 shares of Common Stock of the Company in connection with financial advisory services to be rendered over twelve months. (Incorporated by reference to Exhibit 4.15 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.)* 4.16 Form of Common Stock Purchase Warrant issued to Univest Management, Inc. on November 22, 2000 representing the right to purchase 100,000 shares of Common Stock of the Company in connection with financial advisory services to be rendered over twelve months. (Incorporated by reference to Exhibit 4.16 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.)* 4.17 Form of Common Stock Purchase Warrant issued to Azimuth Corporation on December 1, 2000 representing the right to purchase 50,000 shares of Common Stock of the Company as additional consideration for a 12% Promissory Note issued on December 4, 2000. (Incorporated by reference to Exhibit 4.17 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.)* 4.18 Form of Common Stock Purchase Warrant issued to Azimuth Corporation on December 8, 2000 representing the right to purchase 1,000,000 shares of Common Stock of the Company as additional consideration for a 15% Promissory Note issued on December 11, 2000 in connection with the proposed acquisition of AccuMed International, Inc. by the Company. (Incorporated by reference to Exhibit 4.18 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.)* 4.19 Form of Common Stock Purchase Warrant issued to Azimuth Corporation on February 7, 2001 representing the right to purchase 1,000,000 shares of Common Stock of the Company as additional consideration for two 15% Promissory notes issued on February 1, 2001 and February 7, 2001 in connection with the proposed acquisition of AccuMed International, Inc. by the Company. (Incorporated by reference to Exhibit 4.19 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.)* 4.20 Common Stock Purchase Warrant issued to Azimuth Corporation on August 6, 2001 representing the right to purchase 250,000 shares of common stock of the Company as additional consideration for a 15% promissory note. (Incorporated by reference to Exhibit 4.24 to the Company's S-4 Registration Statement File No. 333-61666 filed August 24, 2001.) 4.21 Common Stock Purchase Warrant issued to Cadmus Corporation on August 6, 2001 representing the right to purchase 250,000 shares of common stock of the Company as additional consideration for a 15% promissory note. (Incorporated by reference to Exhibit 4.23 to the Company's S-4 Registration Statement File No. 333-61666 filed August 24, 2001.)
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EXHIBIT NUMBER DESCRIPTION - ------- ----------- 4.22 Common Stock Purchase Warrant issued to Northlea Partners, Ltd. on August 6, 2001 representing the right to purchase 62,500 shares of common stock of the Company as additional consideration for a 15% promissory note. (Incorporated by reference to Exhibit 4.27 to the Company's S-4 Registration Statement File No. 333-61666 filed August 24, 2001.) 4.23 Common Stock Purchase Warrant issued to Azimuth Corporation on July 26, 2001 representing the right to purchase 500,000 shares of common stock of the Company as consideration of Azimuth's waiver of the conversion feature of its $500,000 convertible promissory note issued September 22, 2000. (Incorporated by reference to Exhibit 4.25 to the Company's S-4 Registration Statement File No. 333-61666 filed August 24, 2001.) 4.24 Common Stock Purchase Warrant issued to Azimuth Corporation on August 17, 2001 representing the right to purchase 25,000 shares of common stock of the Company. (Incorporated by reference to Exhibit 4.26 to the Company's S-4 Registration Statement File No. 333-61666, filed August 24, 2001.) 4.25 Common Stock Purchase Warrant issued to Tucker Anthony Incorporated on July 10, 2001 representing the right to purchase 150,000 shares of common stock of the Company. (Incorporated by reference to Exhibit 4.28 to the Company's S-2 Registration Statement, File No. 333-83578 filed February 28, 2002). 4.26 Common Stock Purchase Warrant issued to Ventana Medical Systems, Inc. on November 2, 2001 representing the right to purchase 1,750,000 shares of common stock of the Company. (Incorporated by reference to Exhibit 4.29 to the Company's S-2 Registration Statement, File No. 333-83578 filed February 28, 2002). 4.27 Form of Confidential $5,000,000 Common Stock Private Offering Memorandum dated January 2000. (Incorporated by reference to Exhibit 4.20 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.)* 4.28 Form of Confidential $5,000,000 Series B Convertible Preferred Stock Private Offering memorandum dated November 2000 and amended January 30, 2001. (Incorporated by reference to Exhibit 4.21 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.)* 4.29 Amendment No. 1 to Stockholders Agreement dated July 25, 2000 among the Company, the InPath Members, Mr. Milley, Mr. Shaw, MMI, Cadmus Corporation, and Winchester National, Inc. (Incorporated by reference to Exhibit 4.22 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.)* 4.30 Common Stock Purchase Warrant issued to Schwartz, Cooper, Greenberger & Krauss, Chartered on February 13, 2002 representing the right to purchase 750,000 shares of common stock. (Incorporated by reference to Exhibit 4.30 to the Company's S-2 Registration Statement, File No. 333-83578 filed June 28, 2002.) 4.31 Common Stock Purchase Warrant issued to Monsun AS on April 1, 2002 representing the right to purchase 200,000 shares of common stock. (Incorporated by reference to Exhibit 4.31 to the Company's S-2 Registration Statement, File No. 333-83578 filed June 28, 2002.) 4.32 Form of Common Stock Purchase Warrant issued to Cell Solutions, LLC on October 11, 2001 representing the right to purchase 172,120 shares of common stock. (Incorporated by reference to Exhibit 4.32 to the Company's S-2 Registration Statement, File No. 333-83578 filed June 28, 2002.) 4.33 Form of Common Stock Purchase Warrant issued in connection with the Bridge Financing in June 2002. (Incorporated by reference to Exhibit 4.33 to the Company's S-2 Registration Statement, File No. 333-83578 filed June 28, 2002.) 10.1 Stock Appreciation Rights Agreement dated as of November 20, 1989 between the Company and Raymond O'S. Kelly. (Incorporated herein by reference to Exhibit 10.5 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989.)* 10.2 Stock Appreciation Rights Agreement dated as of November 20, 1989 between the Company and Nicholas E. Toussaint. (Incorporated herein by reference to Exhibit 10.7 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989.)*
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EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.3 Stock Appreciation Rights Agreement dated as of November 20, 1989 between the Company and Nicholas E. Toussaint. (Incorporated herein by reference to Exhibit 10.7 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989.)* 10.4 SAR Agreement Extension dated November 15, 1995 between the Company and Raymond O'S. Kelly. (Incorporated herein by reference to Exhibit 10.20 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995.)* 10.5 SAR Agreement Extension dated November 15, 1995 between the Company and Nicholas E. Toussaint. (Incorporated herein by reference to Exhibit 10.21 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995.)* 10.6 Employment Agreement dated May 1, 1998 between Mr. Gombrich and InPath, LLC, as amended on December 4, 1998. (Incorporated herein by reference to Exhibit 10.6 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998.)* 10.7 Claims Agreement dated December 4, 1998 among the Company, the Claimants, and Liberty Associates Limited Partnership. (Incorporated herein by reference to Exhibit 4 to the Schedule 13D filed jointly by the InPath Members on December 14, 1998.)* 10.8 Ampersand Medical Corporation Equity Incentive Plan established as of June 1, 1999. (Incorporated herein by reference to Appendix F to the Bell National Corporation Definitive Proxy Statement on Schedule 14A, as filed on April 30, 1999.)* 10.9 Ampersand Medical Corporation Employee Stock Purchase Plan. (Incorporated herein by reference to Appendix G to the Bell National Corporation Definitive Proxy statement on Schedule 14A, as filed on April 30, 1999.)* 10.10 Form of Promissory Note issued in connection with the Bridge Financing in June 2002. (Incorporated by reference to Exhibit 10.10 to the Company's S-2 Registration Statement, File No. 333-83578 filed June 28, 2002.) 10.11 Lease Agreement between the Company and O.P., L.L.C. dated September 1, 1999 pertaining to the premises located at suite 305, 414 N. Orleans, Chicago, IL 60610. (Incorporated herein by reference to Exhibit 10.12 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999.)* 10.12 Amendment to Lease Agreement between the Company and O.P., L.L.C. dated November 1, 1999 pertaining to the premises at suite 300, 414 N. Orleans, Chicago, IL 60610. (Incorporated herein by reference to Exhibit 10.13 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999.)* 10.13 Form of Note purchase agreements dated between March 1, 1999 and June 29, 1999 between the Company and several purchasers. (Incorporated herein by reference to Exhibit 10.14 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999.)* 10.14 Form of 6% Convertible Subordinated Note Due 2000, dated between March 1, 1999 and June 29, 1999 issued by the Company to several purchasers. (Incorporated herein by reference to Exhibit 10.15 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999.)* 10.15 Schedule of purchasers of 6% Convertible Notes Due 2000, including dates and amount purchased. (Incorporated herein by reference to Exhibit 10.16 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999.)* 10.16 Form of Senior Convertible Promissory Note issued to Azimuth Corporation on December 10, 1999. (Incorporated herein by reference to Exhibit 10.17 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999.)* 10.17 Form of Restricted Stock Award of 50,000 shares of Common Stock issued to David A. Fishman, M.D., on August 10, 1999 as additional compensation under a 36 month Consulting Agreement dated June 1, 1999. (Incorporated herein by reference to Exhibit 10.18 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999.)
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EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.18 Form of Restricted Stock award of 50,000 shares of Common Stock issued to Arthur L. Herbst, M.D., on August 10, 1999 as additional compensation under a 36 month Consulting Agreement dated July 1, 1999. (Incorporated herein by reference to Exhibit 10.19 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999.)* 10.19 Form of $2,000,000 note received from Seaside Partners, L.P. on April 28, 2000. (Incorporated by reference to Exhibit 10.20 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.)* 10.20 Form of $300,000 note received from AccuMed International, Inc. on September 22, 2000 in conjunction with the proposed acquisition of AccuMed by the Company. (Incorporated by reference to Exhibit 10.21 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.)* 10.21 Form of $500,000 Convertible Promissory Note issued to Azimuth Corporation on September 22, 2000 in connection with the proposed acquisition of AccuMed International, Inc. by the Company. (Incorporated by reference to Exhibit 10.22 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.)* 10.22 Form of $500,000 Convertible Promissory Note issued to Monsun, AS on November 1, 2000. (Incorporated by reference to Exhibit 10.23 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.)* 10.23 Form of $200,000 Promissory Note issued to Azimuth Corporation on December 4, 2000. (Incorporated by reference to Exhibit 10.24 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.)* 10.24 Form of $100,000 Promissory Note issued to Azimuth Corporation on December 11, 2000 in conjunction with the proposed acquisition of AccuMed International, Inc. by the Company. (Incorporated by reference to Exhibit 10.25 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.)* 10.25 Amendment to Patent and Technology License Agreement dated June 9, 2000 by and between Ampersand Medical Corporation, AccuMed International, Inc. and InPath, L.L.C. (Incorporated by reference to Exhibit 10.26 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.)* 10.26 License and Development Agreement for Specific Medical Technology for the Detection of Oncogenic HPV Virus dated June 23, 2000, by and between Invirion, Dr. Bruce Patterson, and Ampersand Medical Corporation. (Incorporated by reference to Exhibit 10.27 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.)* 10.27 First Addendum to License and Development Agreement for Specific Medical Technology for the Detection of Oncogenic HPV Virus dated September 12, 2000, by and between Invirion, Dr. Bruce Patterson and Ampersand Medical Corporation. (Incorporated by reference to Exhibit 10.28 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.)* 10.28 Second Addendum to License and Development Agreement for Specific Medical Technology for the Detection of Oncogenic HPV Virus dated January 12, 2001, by and between Invirion, Dr. Bruce Patterson and Ampersand Medical Corporation. (Incorporated by reference to Exhibit 10.29 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.)* 10.29 Form of $25,000 Promissory Note issued to Azimuth Corporation on February 1, 2001 in conjunction with the proposed acquisition of AccuMed International, Inc. by the Company. (Incorporated by reference to Exhibit 10.30 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.)* 10.30 Form of $470,000 Promissory Note issued to Azimuth Corporation on February 7, 2001 in conjunction with the proposed acquisition of AccuMed International, Inc. by the Company. (Incorporated by reference to Exhibit 10.31 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.)*
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EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.31 Lease Agreement between the Company and O.P., L.L.C date May 18, 2000, pertaining to premises located at 414 N. Orleans, Suite 510, Chicago, Illinois 60610. (Incorporated by reference to Exhibit 10.32 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.)* 10.32 First Amendment to Lease Agreement between the Company and O.P., L.L.C. dated February 13, 2001, pertaining to additional premises at 414 N. Orleans, Suite 503, Chicago, Illinois 60610 and extending the term of the original lease until February 28, 2006. (Incorporated by reference to Exhibit 10.33 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.)* 10.33 Form of Restricted Stock Award of 25,000 shares of Common Stock issued to Eric A Gombrich on May 1, 2000 as additional compensation under a 36 month Employment Agreement dated April 1 2000. (Incorporated by reference to Exhibit 10.34 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.)* 10.34 Form of Restricted Stock Award of 50,000 shares of Common Stock issued to Ralph M. Richart, M.D., on July 24, 2000 as additional compensation under a 36 month Consulting Agreement dated June 1, 2000. (Incorporated by reference to Exhibit 10.35 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.)* 10.35 Form of Restricted Stock Award of 50,000 shares of Common Stock issued to J. Thomas Cox, M.D., on October 20, 2000 as additional compensation under a 36 month Consulting Agreement dated October 15, 2000. (Incorporated by reference to Exhibit 10.36 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.) 10.36 Form of Voting Agreement between the Company and each of the officers and directors of AccuMed International, Inc. (Exhibit A to the Agreement and Plan of Merger included in Appendix I to the proxy statement-prospectus.) 10.37 $100,000 Promissory Note issued to Cadmus Corporation on July 26, 2001. (Incorporated by reference to Exhibit 10.39 to the Company's S-4 Registration Statement, File No. 333-61666, filed August 24, 2001.) 10.38 $100,000 Promissory Note issued to Azimuth Corporation on August 6, 2001. (Incorporated by reference to Exhibit 10.40 to the Company's S-4 Registration Statement, File No. 333-61666, filed August 24, 2001.) 10.39 $25,000 Promissory Note issued to Northlea Partners, Ltd. on August 6, 2001. (Incorporated by reference to Exhibit 10.41 to the Company's S-4 Registration Statement, File No. 333-61666, filed August 24, 2001.) 10.40 $118,500 Promissory Note issued to Schwartz, Cooper, Greenberger & Krauss on February 13, 2002. (Incorporated by reference to Exhibit 10.40 to the Company's S-2 Registration Statement, File No. 333-83578 filed June 28, 2002.) 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Peter Gombrich. 99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Michael Brodeur.
- --------------- * SEC File NO. 0-935 28 EX-99.1 3 c71317exv99w1.txt CERTIFICATION EXHIBIT 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Quarterly Report of Molecular Diagnostics, Inc. (the "Company") on Form 10-Q for the period ending June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Peter P. Gombrich, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ PETER P. GOMBRICH - --------------------------------- Peter P. Gombrich Chairman and Chief Executive Officer August 14, 2002 EX-99.2 4 c71317exv99w2.txt CERTIFICATION EXHIBIT 99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Quarterly Report of Molecular Diagnostics, Inc. (the "Company") on Form 10-Q for the period ending June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Michael A. Brodeur, Executive Vice President and Interim Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ MICHAEL A. BRODEUR - --------------------------------------- Michael A. Brodeur Executive Vice President and Interim Chief Financial Officer August 14, 2002 -----END PRIVACY-ENHANCED MESSAGE-----