10-K

                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                            ----------------------

                                   FORM 10-K


[X] ANNUAL  REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
    ACT OF 1934
    For the fiscal year ended December 31, 2002
                                      or
[ ] TRANSITION  REPORT  PURSUANT  TO  SECTION  13  OR 15(D) OF THE SECURITIES
    EXCHANGE ACT OF 1934

    For the transition period from to

                         COMMISSION FILE NUMBER 0-935

                            ----------------------

                          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 N. ORLEANS ST., SUITE 800, CHICAGO, IL                  60610
   (Address of Principal Executive Offices)                  (Zip Code)

                                (312) 222-9550
             (Registrant's Telephone Number, Including Area Code)

          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

  TITLE OF EACH CLASS               NAME OF EACH EXCHANGE ON WHICH REGISTERED
  -------------------               -----------------------------------------
         None                                    Not Applicable

          SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                        COMMON STOCK, $0.001 PAR VALUE
                               (Title of class)

      Indicate by check mark whether the registrant (1) has  filed  all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange  Act  of
1934  during  the  preceding  12 months  (or  for  such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ ]  No [X]

      Indicate  by check mark if disclosure of delinquent  filers  pursuant  to
Item 405 of Regulation S-K  is not contained herein, and will not be contained,
to  the best of registrant's knowledge,  in  definitive  proxy  or  information
statements incorporated by reference in Part III of this Form 10-K. [ ]

      Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No [X]

      The  aggregate market value of the Common Stock held by non-affiliates of
the  Company  as  of June 28, 2002, the last business day of the Company's most
recently completed second fiscal quarter of fiscal 2002, was $16,694,958, based
upon the average bid  and  asked price of shares of the Company's Common Stock,
$0.001 par value per share ("Common  Stock"), of $0.83 per share as reported on
the Nasdaq Over-the-Counter Bulletin Board  Market  on that date. The aggregate
market value of the Common Stock held by non-affiliates  of  the  Company as of
June  30, 2003, the last business day of the Company's most recently  completed
second  quarter  of fiscal 2003, was $8,564,133, based upon the average bid and
asked price of shares  of  the  Company's  Common  Stock  of $0.31 per share as
reported on the Pink Sheet Market on that date.

      The  number of shares of Common Stock outstanding as of June 30, 2003 was
36,442,180.


                          MOLECULAR DIAGNOSTICS, INC.
                          ANNUAL REPORT ON FORM 10-K
                               DECEMBER 31, 2002

                               TABLE OF CONTENTS
                                                                           PAGE

PART I

ITEM 1. BUSINESS
        General Development of Business................................      1
        Recent Developments                                                  1
           a) Bridge II Financing......................................      1
           b) Other Financing..........................................      1
           c) Settlement of Round Valley Capital, LLC Loan.............      2
           d) Resignation of Officer...................................      2
           e) Samba....................................................      2
           f) Short-term liquidity Problems............................      2
           g) Information About Industry Segments......................      3
        Description of Business                                              3
           a) General Overview.........................................      3
           b) Products.................................................      3
              1)  InPath System........................................      3
              2)  In-Cell HPV Test.....................................      5
              3)  Samba Software Products and Services.................      4
              4)  Automated Microscopy Instruments.....................      4
                   1)  AcCell..........................................      4
                   2)  AcCell Savant...................................      6
           c) Back-Log of Orders.......................................      5
           d) Markets..................................................      5
           e) Government Regulation, Clinical Studies and Regulatory Strategy7
           f) Competition..............................................     10
           g) Operations...............................................     11
           h) Intellectual Property....................................     10
           i) Research and Development.................................     13
           j) Component and Raw Materials..............................     12
           k) Working Capital Practices................................     14
           l) Employees................................................     13
        Financial Information About  Foreign and Domestic Operations and Export
        Sales..........................................................     13
        Cautionary Statement for the Purposes  of  the "Safe Harbor" Provisions
        of the Private Securities Litigation Reform Act of 1995........     15
ITEM 2. PROPERTIES.....................................................     19
ITEM 3. LEGAL PROCEEDINGS..............................................     19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............     22



PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
        MATTERS........................................................     23
        Market Information.............................................     23
        Holders........................................................     23
        Dividends......................................................     23
        Stock Transfer Agent...........................................     23
        Recent Sales of Unregistered Securities and Use of Proceeds....     24
        Reimbursement of Legal Fees....................................     25
        Equity Compensation Plan Table Information.....................     25
ITEM 6. SELECTED FINANCIAL DATA........................................     27
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS..........................................     27
        Results of Operations..........................................     27
           a) Overview.................................................     27
           b) Significant Accounting Policies..........................     28
           c) Revenue..................................................     29
           d) Costs and Expenses.......................................     29
              1)  Cost of Goods Sold...................................     29
              2)  Research and Development.............................     30
              3)  Selling, General and Administrative..................     30
              4)  Impairment Loss......................................     31
              5)  Other Income and Expense.............................     31
                   1)  Interest Income.................................     31
                   2)  Interest Expense................................     32
                   3)  Other Income and Expense, Net...................     32
           e) Net Loss.................................................     33
           f) Liquidity and Capital Resources..........................     33
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.....     39
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................     39
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
        AND FINANCIAL DISCLOSURE.......................................     39
        Resignation of Auditors........................................     39
        Engagement of new Auditors.....................................     40

PART III
ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY................     40
ITEM 11.EXECUTIVE COMPENSATION.........................................     42
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.     44
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................     49
ITEM 14.CONTROLS AND PROCEDURES........................................     51

PART IV
ITEM 15.EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 10-K
        Documents Filed as Part of Report..............................     53
           a) Financial Statements.....................................     53
           b) Financial Statement Schedules............................     53
           c) Exhibits.................................................     53
Signatures    .........................................................     63
Certifications.........................................................     64
Index to Financial Statements
Report of Independent Auditors.........................................    F-1
Consolidated Balance Sheets at December 31, 2002 and 2001..............    F-2
Consolidated Statements of Operations for the three years ended
December 31, 2002, 2001, and 2000......................................    F-3
Consolidated Statements of Cash Flows for the three years ended
December 31, 2002, 2001, and 2000......................................    F-4
Consolidated Statement of Stockholder's Equity (Deficit) for the three
years ended December 31, 2002, 2001 and 2000...........................    F-9


Notes to Consolidated Financial Statements.............................   F-10
EXHIBIT INDEX..........................................................   ii-1


                                    PART I

ITEM 1.    BUSINESS

GENERAL DEVELOPMENT OF BUSINESS

       We  were  incorporated  in Delaware in December 1998 as the successor to
Bell National Corporation. Bell  National  was  incorporated  in  California in
1958.  In  December  1998,  Bell  National,  which was then a shell corporation
without  any  business  activity, acquired InPath,  LLC,  a  development  stage
company engaged in the design and development of products used in screening for
cervical and other types  of  cancer.  For accounting purposes, the acquisition
was treated as if InPath had acquired Bell  National.  However,  Bell  National
continued  as  the  legal entity and the registrant for Securities and Exchange
Commission  filing  purposes.  Bell  National  merged  into  Ampersand  Medical
Corporation, its wholly-owned  subsidiary,  in  May 1999 in order to change the
state  of  incorporation  of  the  company to Delaware.  In  January  1999,  we
purchased all of the assets of Samba  Technologies,  SARL,  ("Samba")  based in
France,  from  Unilog Regions, S.A. In September 2001, we acquired 100% of  the
outstanding stock  of  AccuMed  International,  Inc., ("AccuMed") by means of a
merger of AccuMed into our wholly-owned subsidiary.  Shortly  after the AccuMed
merger  we changed our corporate name to Molecular Diagnostics, Inc.  The  name
change was  effected  by  the  merger of our wholly-owned subsidiary, Molecular
Diagnostics,   Inc.,  with  and  into   Ampersand   Medical   Corporation.   In
October 2001, we  became  a  minority  shareholder  in  Cell  Solutions, LLC, a
Virginia   limited  liability  company.  Except  where  the  context  otherwise
requires, "MDI", the "Company", "we" and "our" refers to Molecular Diagnostics,
Inc., and subsidiaries, and its predecessors.

       MDI  is  focused  on the design, development and marketing of the InPath
System,  Samba software and  related  image  analysis  systems.  The  component
products of  the InPath System are intended to detect, at the earliest possible
stage, cancer  and  cancer  related  diseases  and may be used in a laboratory,
clinic, or doctor's office. We also design and manufacture  the AcCell computer
aided automated microscopy instrument and the AcCell Savant, an instrument that
includes   an  AcCell  and  software,  which  collects  quantitative   cellular
information used in support of a diagnostic process. These instruments are sold
to laboratories  and  medical  diagnostic  companies  for use in the customers'
proprietary  applications.  The  instruments,  in certain instances,  are  also
placed  in  the  customers'  facility on a fee-for-use  basis.  Samba  designs,
develops and markets web-enabled  software  based  systems  for image analysis,
image  capture,  and  image  transmission  and  management  for  clinical   and
industrial  applications.  Samba  also  is  developing the software used in the
InPath System. Nearly all of our reported revenue  to  date  has  been from the
sale of Samba and AcCell products and services.

RECENT DEVELOPMENTS

       BRIDGE II FINANCING

       Beginning  in  October  2002,  we began an issue of up to $4,000,000  in
series Bridge II Convertible Promissory  Notes  to  accredited  investors.  The
notes  bear  interest at 12 % per annum payable at maturity date in kind in the
form of shares  of  our  common  stock and are due July 31, 2003. The notes are
convertible at any time into our common  stock.  The  note conversion price and
the value of common shares paid in kind as interest for the first $1,000,000 in
cash subscriptions, determined on a "first come - first served basis," is $0.10
per  share. The note conversion price and the value of common  shares  paid  in
kind as  interest  for the remaining $3,000,000 of principal amount of notes in
the series is $0.15 per share. We granted each note holder the right to receive
a private warrant to  purchase  one  share  of  our  common stock for each four
shares of our common stock into which the notes convert at an exercise price of
$0.15  per  share  for  warrants  due  to  holders  of notes within  the  first
$1,000,000 principal subscription class and $0.20 per share for warrants due to
holders of the remaining $3,000,000 principal class of  notes. The warrants are
not  issuable  until such time as we complete significant additional  financing
plans. We granted  a  junior  security  position  in  all  of our assets to the
holders  of  the Bridge II convertible promissory notes. Through  December  31,
2002, we had issued  $550,000  in  principal  amount  of  Bridge II convertible
promissory  notes  in exchange for cash. Between January 1, 2003  and  July  8,
2003,  we  issued  an additional  $1,141,000  principal  amount  of  Bridge  II
convertible promissory  notes  in  exchange  for cash. The Company is currently
negotiating additional financing.

       OTHER FINANCING

       On April 2, 2003, we issued a $1,000,000 Convertible Promissory Note due
April 2, 2004 to an affiliate, Suzanne M. Gombrich,  the wife of Peter Gombrich
our Chairman and CEO, in exchange for cash. The note bears interest at the rate
of 12% per annum and is convertible into our common stock at a conversion price
of  $0.10  per  share.  As additional consideration, we granted  the  holder  a
warrant to purchase 1,000,000  shares  of our common stock at an exercise price
of  $0.15  per share. We also granted the  holder  a  first  priority  security
interest in  all  of our assets. We used all of the cash proceeds from the note
to fund the exercise  of a purchase option to reacquire our assets in the final
settlement with Round Valley Capital, LLC.

       SETTLEMENT OF ROUND VALLEY CAPITAL, LLC LOAN AND RELATED LITIGATION

       On August 30, 2002, we issued a promissory note to Round Valley Capital,
LLC ("RVC") in the amount of $825,500 representing $650,000 in cash received in
exchange for the note and  $175,500 in unearned interest. The note was due June
1, 2003 and bore interest at  a  calculated rate of 36% per annum. The note was
secured by all of our assets. We paid  transaction  fees  in  cash of $147,063,
issued RVC 711,364 shares of our common stock and issued warrants  to  purchase
681,818 shares of our common stock at an exercise price of $0.20 per share.  We
also  issued a certificate representing 5,750,000 shares of our common stock as
additional  collateral  for  the  loan.  As  of  December 31, 2002, we had made
principal  and  interest  payments against the note of  $350,000  and  $59,500,
respectively. As a result of  issues over the value of collateral, RVC declared
the  note to be in default under  the  terms  of  the  note  and  attempted  to
foreclose  on  our  assets and sell them at auction. We instituted legal action
against RVC, halting  the  foreclosure  and asset sale, and immediately entered
into settlement negotiations. In early December  2002,  we reached a settlement
agreement with RVC under which we were required to pay the  remaining  $300,000
principal   balance  of  the  note  plus  an  additional  amount  of  $190,000,
representing  the  remaining  unearned  interest on the note plus penalties, by
January 14, 2003. The agreement, which was  amended  in January and February of
2003, provided that if the payment due on January 14,  2003  was  not made in a
timely  manner, a default penalty would be assessed each week payment  was  not
made until  a  final payment amounting to $900,000 would be due on February 26,
2003. We were not  able to make the payment due on January 14, 2003 and made no
further payments until  February  17, 2003, when we paid RVC $250,000 leaving a
remaining balance due under the settlement agreement of $650,000. At the end of
February, RVC proceeded with foreclosure  against  our  assets. At that time we
agreed  to  pay RVC $100,000 for an option to repurchase our  assets  any  time
prior to the  close of business on April 2, 2003. The option prevented RVC from
selling the assets  to any party other than MDI before that date. We used funds
obtained from Bridge  II  convertible  promissory  note investors, as described
above, to make the aforementioned $250,000 payment to RVC. On April 2, 2003, we
paid RVC $900,000, utilizing funds received under a convertible promissory note
issued  to  an  affiliate,  as  described above, and exercised  the  option  to
repurchase our assets. In conjunction  with  this  final  payment, RVC returned
5,750,000 shares of our common stock issued as collateral,  711,364  shares  of
our  common  stock issued and warrants to purchase 481,818 shares of our common
stock issued to RVC as payment for transaction fees. We cancelled the shares of
our common stock  and  warrants to purchase our common stock that were returned
by RVC.

       RESIGNATION OF OFFICER

       On January 22, 2003  Stephen  G. Wasko tendered his resignation from his
position as our President and Chief Operating Officer, a position he held since
June 10, 2002. In February 2003 Mr. Wasko  filed  a  claim  with  the  Illinois
Department of Labor seeking approximately $84,000 in salary and bonuses due him
at   the   time   of  his  resignation  and  severance  payments  amounting  to
approximately $180,000.  We  are contesting the portion of the claim related to
severance payments. Our Board  of  Directors reappointed Peter P. Gombrich, our
Chairman and CEO, to temporarily fill  the  positions  of  President  and Chief
Operating  Officer.  In  June 2003, the Board of Directors appointed Dennis  L.
Bergquist to be our President and Chief Financial Officer.

       BANKRUPTCY FILING OF SAMBA TECHNOLOGIES, SARL

       In late December of  2002,  the  General Managers of Samba Technologies,
Sarl, our wholly-owned subsidiary based in  France,  filed  a petition with the
French Commercial Court for protection under the Bankruptcy Laws of France. The
Court approved the petition to cover all activities of Samba  prior to December
20,  2002.  Samba  was  unable to meet its current obligations primarily  as  a
result of our cash flow problems  and  our related failure to pay 262,000 Euros
due to Samba for work performed on behalf  of our U.S. operations. During 2003,
Samba has maintained its normal operations under  the  protection of the French
Commercial  Court and its managers have been supervised by  a  Court  appointed
Administrator.  Samba will continue to operate under the current format until a
plan of reorganization  and  continuation  is approved by the Court, which must
act by December of 2003, unless a extension of time is granted. In consort with
the Samba managers, we anticipate filing a Continuation  Plan  with  the French
Commercial Court during the third quarter of 2003. The Plan includes a  payment
structure  for  our  debt,  direct participation in Samba's equity by the Samba
managers,  and  additional participation  in  Samba's  equity  by  a  strategic
partner, with a portion  of  the  investment used to fund working capital. Upon
approval of the Plan, Samba will resume normal operations.

       DELINQUENT PAYROLL TAX LIABILITIES

       We are delinquent in paying  Federal  and  certain  State  employee  and
employer  payroll  taxes  for a portion of 2001. We owed approximately $678,000
for this period including estimated penalties and interest of $250,000. In June
of 2003 we elected to recharacterize loans made to certain employees in lieu of
salary during the last quarter  of  2002  and  the first five months of 2003 as
payroll. As a result of this election, we estimate  that  we  owe an additional
$80,000 in related Federal and State payroll taxes for the first  two  quarters
of  2003.  We  may  also  be  subject  to  certain late filing and late payment
penalties, as well as interest on the unpaid  amounts.  We included the amounts
due,  except  for  the  unknown penalties and interest, as liabilities  in  our
accounting records and Consolidated  Financial  Statements  for  the respective
periods. We are currently in the process of communicating through  counsel with
the Internal Revenue Service. At this time we do not believe it is possible  to
determine the impact, if any, upon our financial condition.

       SHORT-TERM LIQUIDITY PROBLEMS

       We continued to have severe liquidity problems and had insufficient cash
on hand to effectively manage our business during the first six months of 2003.
As  a  result of our inability to meet cash payroll needs additional staff were
laid off  or  resigned,  including  key  accounting personnel. During this time
period, we reduced our operations to a minimum  level.  Our  Chairman  and  CEO
continued  to  loan  personal  funds to the Company to meet some of our current
cash needs. In February and March of 2003, we raised funds from the issuance of
Bridge II convertible promissory notes, including $1,000,000 from an affiliate,
as described above, to make the  final loan settlement payments to RVC, also as
described above. Beginning in late  April  of 2003, we issued additional Bridge
II  convertible promissory notes, the proceeds  of  which  were  used  to  meet
current operating needs, including those related to completing the audit of our
year-end  financial  statements.  We  have  continued  to  raise operating cash
through  the date of this report through the issuance of additional  Bridge  II
convertible   promissory   notes   and  management  is  negotiating  additional
financing.

       PLAN TO RESTRUCTURE OUTSTANDING LIABILITIES

       Beginning in early 2003, we began  to  work on a plan to restructure all
of  our  outstanding liabilities to unsecured creditors.  We  have  engaged  an
independent  firm  with  expertise  in  such  plans,  and  have been working to
finalize the proposal. We plan to submit a formal restructuring proposal to our
unsecured creditors during the third quarter of 2003, contingent on our ability
to raise sufficient new equity to fund our operations as well as the plan.

       AUTHORIZED SHARES OF COMMON STOCK

       As  a  result  of  the  issuance  of  numerous  convertible  securities,
including  the Bridge I and Bridge II convertible promissory notes and  related
warrants, we  do not have sufficient shares of common stock authorized to issue
upon exercise of  all  of  our  currently  outstanding  convertible securities,
warrants and options. Our Board of Directors has approved  an  increase  in the
number  of  authorized  shares  of  common  stock  from  100,000,000  shares to
175,000,000  shares, but such action requires a vote of our stockholders.  This
issue will be  placed  on  the  agenda  at  the  next  annual  meeting  of  our
stockholders or at a special meeting to be called for this purpose. The failure
to have a sufficient number of authorized shares may constitute a breach of one
or more of our agreements governing issuance of such securities.

       INSURANCE

       Due to liquidity problems, we were unable to pay the continuing premiums
on   insurance   policies  covering  Directors  &  Officers  Liability,  Public
Liability, Property  Damage and Workers Employment Compensation. These policies
were all cancelled retroactive  to  October  29, 2002. We are currently working
with insurance providers to reinstate our insurance  coverage in these areas as
soon as possible.

       INFORMATION ABOUT INDUSTRY SEGMENTS

       We operate primarily in an industry segment involving  medical  devices,
diagnostics,  and  supplies.  All of our operations during the reporting period
were  conducted  within this segment.  We  expect  to  continue  to  focus  our
operations on this industry segment.

DESCRIPTION OF BUSINESS

       GENERAL OVERVIEW

       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 analysis 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.

PRODUCTS

       THE INPATH SYSTEM

       We are currently developing and testing a family of products for use  in
cancer  screening  and  diagnosis.  We  call this family of products the InPath
System. The core of the InPath System is  a combination of protein antibodies--
the  Cocktail-CVX--that  allows  the  InPath System  to  detect  and  highlight
abnormal cervical cells in a rapid and  objective  fashion.  We  intend  to use
different  antibody  combinations  to  detect  and  diagnose different types of
cancer and other cancer-related diseases.

       The initial application of the InPath System is  designed to enhance the
current  cervical cancer screening process performed in laboratories,  commonly
referred to  as  the  PAP  test. Our ultimate goal is to perform this screening
test in a matter of minutes  at  the point of service, whether in a laboratory,
doctor's office, clinic or mobile  medical  vehicle. The InPath System includes
the following components:

       {circle}An FDA approved unique sample  collection device consisting of a
             small disposable balloon, shaped to  fit the cervix. The device is
             intended  to  replace  the  spatula and brush  currently  used  to
             collect patient cytology samples.

       {circle}A biochemical assay, fully-automated,  is applied to a sample to
                    identify abnormal cells.

                    {circle}In  the  laboratory version of  the  InPath  System
                    slide based test,  this  biochemical  assay  is  applied to
                    sample   cells   released  from  a  collection  device  and
                    deposited on a glass slide.

                    {circle}In the point  of  service  version  of  the  InPath
                    System,  this biochemical assay is applied directly to  the
                    cellular sample  and  analyzed  either in solution or while
                    still on the collection device.

       {circle}An instrument that performs an automated analysis of a sample by
             means  of an optical scan that detects the  presence  of  multiple
             wavelengths  of  fluorescent  light.  This  light  is  produced by
             fluorescent   reporter   tags,   which  are  attached  to  certain
             components used in the biochemical assay.

                    {circle}In the laboratory version of the InPath System, the
                    AcCell computer aided automated  microscopy instrument uses
                    a camera to read the various wavelengths  of light from the
                    sample.

                    {circle}In  the  point  of  service version of  the  InPath
                    System,  the proprietary instrument  uses  custom  designed
                    optical  devices   and   lasers   to  capture  the  various
                    wavelengths of light directly on the collector.

       {circle}Custom designed software that controls the automated instruments
             and processes the analysis of the captured light detected.


       IN-CELL HPV TEST

       In June 2000, we obtained world-wide exclusive license from Invirion and
Bruce  Patterson,  M.D., its principal, for a proprietary medical technology to
detect the presence  of  E6 and E7 genes of the human papillomavirus ("HPV"), a
sexually transmitted disease.  These viral oncogenes signify that the virus has
assimilated into the patient's cellular  DNA,  and  presence  of E6/E7 genes is
much more closely associated with a woman's risk of developing  cervical cancer
than currently marketed HPV tests. We intended to use this technology  as  part
of  the  InPath  System  to  allow  physicians  to  manage  patient  care.  The
combination  of  the  two  tests  could  give  the healthcare provider a better
picture of the level of any disease present and  whether a patient may be at an
increased  risk  to  develop certain diseases in the  future.  Based  on  these
results, the health care  provider  may  prescribe  a  more  thorough course of
treatment.  We  began  to  offer  this product for sale as an Analyte  Specific
Reagent ("ASR") for use by laboratories  qualified  to  perform high complexity
tests  in  "home-brew"  applications  at the end of 2001 and  recorded  initial
orders and shipments in the first quarter of 2002. We have been unable to raise
sufficient  capital to devote the required  dollars  to  further  the  clinical
development of  this product. During 2002 we began discussions with a number of
potential  strategic   and   distribution   partners.  We  reached  an  initial
understanding, which included a deposit of $100,000,  with  Ventana regarding a
license for the In-Cell HPV test in July of 2002. We were unable  to  negotiate
the final terms of the license and we agreed to terminate the understanding. We
continue to negotiate the return of the deposit, less amounts owing to  us  for
related products and services, with Ventana. We anticipate that during 2003, we
will conclude an agreement with another of these potential partners to complete
clinical  product  development  and  begin  large-scale  distribution. This new
agreement should result in initial license fees and an ongoing  royalty payment
stream.

       SAMBA SOFTWARE PRODUCTS AND SERVICES

       Samba designs, develops and  markets  web-enabled software based systems
for  image analysis, image capture, and image transmission  and  management  in
clinical  and  industrial  applications.  Samba  also  designs  the imaging and
analysis software used in the laboratory version of the InPath System. Samba is
currently working on control and analysis software for other instruments in the
InPath System. Nearly all of our reported revenue to date is derived  from  the
sale  of  Samba's  products and services to other researchers, other instrument
manufacturers and pharmaceutical companies.

       Samba software  suites, a group of programs that may be used alone or in
combination for a particular  application,  allow the user to capture and share
digital  images  and  related  data. Examples of  applications  are  radiology,
pathology, and real-time coordination  between  a  pathologist  and a physician
during  surgical  procedures.  Samba software can create a single data  folder,
where patient information, physician  case  notes  and  diagnostic  images from
various  sources  are maintained or annotated. The software can be employed  in
local  or  wide  area   networks,   or   through   an  Internet  browser  using
security-encrypted  files.  All  of  Samba's software, developed  using  Visual
Basic,  C/C++  and  Java,  can be used on  a  wide  variety  of  image  capture
instruments or devices and can  employ  static,  historical,  or dynamic (live)
images.  Samba  also provides software customization, installation,  interface,
network, and Internet consulting services to the users of its products.

       AUTOMATED MICROSCOPY INSTRUMENTS

       AcCell

       In  November  2001,  Ventana Medical Systems, Inc. ("Ventana") agreed to
purchase and distribute AcCell  with  their image analysis software, a computer
aided automated microscopy instrument,  designed  to  help  medical specialists
examine  and  diagnose  specimens of human cells. During 2002, we  agreed  that
Ventana  would  assume  responsibility   for   manufacturing  the  AcCell  2500
instruments directly, rather than purchasing them  from us. Ventana will pay us
a  royalty  for each instrument they manufacture. We have  elected  instead  to
proceed with  the  development  and  manufacture of the fully integrated AcCell
3000.  AcCell may be delivered with a variety of features including:

       {circle}Robotic slide-feeding systems to load and unload slides from the
             microscope;

       {circle}Bar  code  readers  to  ensure  proper identification of samples
             being analyzed;

       {circle}Electro-mechanical scanning stages  to facilitate accurate slide
             screening;

       {circle}Automated cellular focusing on slides; and

       {circle}Data  management  software to facilitate  primary  or  secondary
             review of samples and report results into record-keeping systems.

       The  current  AcCell  instrument  is a key tool of our research process,
clinical trials, and the InPath System laboratory based test. During the fourth
quarter of 2001, we initiated development  of the next generation of the AcCell
instrument, AcCell 2500, utilizing strategic design and manufacturing partners.
During that same fourth quarter, we also signed  contracts  with  customers  to
deliver  both the current version and the next generation of AcCell instruments
beginning  late  in  2001.  During 2002, we continued development of the AcCell
platforms  and  delivered  initial  prototype  systems  to  customers.  We  are
continuing to sell and market  these  instruments to other potential customers,
OEM laboratories and into the diagnostics marketplace.

       AcCell Savant

       The  AcCell  Savant  includes  an AcCell base instrument as well  as  an
electronic  imaging  system and image analysis  software.  This  instrument  is
designed for use as a  quantitative  microscopy  platform.  We  currently  have
instruments in use in a customer's laboratory or clinical facility for research
purposes under a fee-per-use contract, which extends through 2003. The customer
has  also  agreed  to  be  a beta test site for new and updated versions of the
proprietary image analysis software used in the application. Variations of this
platform may also be used with image analysis software developed by Samba.

       BACK-LOG OF ORDERS

       At December 31, 2002,  we  had  a backlog (that is, firm purchase orders
for goods or services) of signed contracts  of $750,000, to be completed within
the  next  twelve  months, amounting to $42,000  for  InPath  System  products;
$108,000 for AcCell  instruments  and  AcCell Savant products, exclusive of fee
per use revenues, which are covered by a  contract  through  2003; and $600,000
for Samba-related products.

       MARKETS

       According   to   several   industry  reports,  there  are  approximately
60,000,000 PAP tests performed annually  in  the United States. The U.S. market
for cervical screening today amounts to approximately  $1,000,000,000, based on
current average costs to perform the existing test. We do  not  plan to develop
and  train  a  large direct sales force to sell the InPath System. Our  initial
strategy is to market  the  laboratory  version  of  the InPath System to major
laboratory organizations in the United States. Once the  InPath System has been
successfully  established  in the laboratory market, our strategy  is  to  form
alliances  with these laboratories  and  other  medical  products  distribution
companies and  utilize their sales forces to broaden sales of the InPath System
to hospitals, clinics,  managed  care  organizations and office-based physician
groups.

       The  cost  of  the  PAP  test  outside   of  the  United  States,  where
approximately  100,000,000 tests are performed, vary  widely  from  country  to
country. Outside of the United States, most healthcare services are provided by
governmental organizations. Healthcare in many of these countries is managed by
governmental agencies,  often  at the local level, making the precise number of
tests  performed  difficult  to  validate.   In   developing   countries  where
healthcare,   especially   cancer   screening,   may   be  minimal,  non-profit
organizations  often  supplement government health programs.  We  estimate  the
total of the non-U.S. market today at between $500,000,000 and $600,000,000.

       We intend to distribute  InPath System into both markets pursuant to our
statutory regulatory approvals. We  also  anticipate  that because our products
are more cost-effective and designed to increase access  to cervical screening,
the  potential  combined  market  could  be expanded to a level  in  excess  of
$3,000,000,000.

       The AcCell is a key proprietary component  of  the laboratory version of
the  InPath  System.  In  addition,  we  are  marketing  the AcCell  instrument
platform, including the version currently in development, to medical diagnostic
companies as a means to automate specific diagnostic testing processes. We will
attempt to expand our existing customer base and to supply  the AcCell platform
to  additional  customers  who  are interested in automating their  proprietary
diagnostic testing processes. We  market  the  AcCell as the most versatile and
cost-effective  automated  microscopy  platform  currently  available.  We  are
expanding our existing customer base for the AcCell Savant and will continue to
market this product to customers interested in image  analysis and quantitative
microscopy. We introduced a new version of the analysis  software  used  on the
AcCell  Savant  in  mid  2002.  We  believe  these innovations will allow us to
increase  the  level of potential customer interest  in  the  instrument,  thus
enabling us to expand our market.

       Samba currently sells its products and services through direct sales and
representatives in Europe and through a distribution arrangement in Central and
South America. Prior  to  1999,  Samba  had a distribution arrangement in North
America. Since our acquisition of Samba,  we  have  restricted the marketing of
Samba products in the United States because of our limited  operating  capital.
Samba  is adding to its distribution agreements to cover specific countries  or
market segments  in  Europe,  Asia,  the  Middle  East  and  North  Africa. The
potential  market  includes  large laboratories, integrated healthcare delivery
networks, web-based medical information  providers, and laboratory and hospital
information system vendors. We have licensed  Samba software to a large medical
diagnostics  company  in  the  United  States  and  had   several   pilot-study
installations in place during 2002 in the United States.

       GOVERNMENT REGULATION, CLINICAL STUDIES AND REGULATORY STRATEGY

       The  development,  manufacture,  sale,  and distribution of some of  our
products  is  regulated  by  the  Food  and  Drug  Administration  ("FDA")  and
comparable authorities in certain states and foreign  countries.  In the United
States,  the  Food,  Drug  and  Cosmetic  Act  (the  "FD&C  Act")  and  related
regulations apply to some of our products. These products cannot be shipped  in
interstate commerce without prior authorization from the FDA.

       Medical devices may be authorized by the FDA for marketing in the United
States either pursuant to a pre-market notification under Section 510(k) of the
FD&C Act,  commonly  referred  to  as  a  510(k)  notification, or a pre-market
approval  application  (a  "PMA").  The  process  of  obtaining  FDA  marketing
clearance and approval from other applicable regulatory  authorities  is costly
and  there can be no guarantee that the process will be successful. The  510(k)
notifications  and  PMA  applications  typically  require  preliminary internal
studies, field studies, and/or clinical trials, in addition  to  submission  of
other design documentation. We manage the regulatory process through the use of
consultants,  Clinical  Research  Organizations,  ("CROs")  and  members of our
Medical Advisory Board.

       A 510(k) notification, among other things, requires an applicant to show
that  its  products  are  "substantially  equivalent"  in  terms of safety  and
effectiveness to an existing FDA cleared predicate product.  An  applicant  may
only market a product submitted through a 510(k) notification after the FDA has
issued  a  written  notification  determining  the product has been found to be
substantially equivalent. The E2 collector was approved  for  marketing  by the
FDA on May 31, 2002 under the 510(k) notification.

       To  obtain  PMA  approval  for  a device, an applicant must demonstrate,
independent of other similar devices, that  the  device in question is safe and
effective  for its intended uses. A PMA must be supported  by  extensive  data,
including pre-clinical and clinical trial data, as well as extensive literature
and design documentation  to  prove the safety and effectiveness of the device.
The PMA process is substantially  longer  than  a  510(k) notification process.
During the review period, the FDA may conduct extensive reviews of our clinical
trial center documentation and our manufacturing facilities  and  processes  or
those  of  our  strategic partners. In addition, the FDA may request additional
information and clarifications and convene a physician advisory panel to assist
in its determination.

       The FD&C Act  generally  bars advertising, promoting, or other marketing
of medical devices that the FDA has  not  approved  or  cleared.  Moreover, FDA
enforcement  policy  strictly  prohibits  the  promotion  of  known or approved
medical devices for non-approved or "off-label" uses. In addition,  the FDA may
withdraw  product clearances or approvals for failure to comply with regulatory
standards.

       Our  current  and  prospective  foreign  operations  are also subject to
government  regulation, which varies from country to country.  Many  countries,
directly or indirectly  through reimbursement limitations, control the price of
most  healthcare  products.   Developing  countries  put  restrictions  on  the
importation of finished products,  which  may  delay such importation. European
Directives  establish  the requirements for medical  devices  in  the  European
Union. The specific directives are the Medical Device Directive (MDD 93/42/EEC)
and   the  In-Vitro  Diagnostics   Device   Directive   (IVDD/98/79/EEC).   The
International  Organization  for  Standardization ("ISO") establishes standards
for  compliance  with  these  directives,   particularly   for  quality  system
requirements.

       The FDA has adopted regulations governing the design  and manufacture of
medical devices that are, for the most part, harmonized with the  ISO's quality
system standards for medical devices. The FDA's adoption of the ISO's  approach
to  regulation  and  other  changes  to  the  manner in which the FDA regulates
medical devices will increase the cost of compliance with those regulations.

       We will be subject to certain registration,  record-keeping  and medical
device  reporting  requirements  of  the FDA. Our manufacturing facilities,  or
those of our strategic partners, will  be obligated to follow the FDA's Quality
System Regulation and be subject to periodic  FDA  inspections.  Any failure to
comply  with  the  FDA's  Quality  System Regulation or any other FDA or  other
government regulations would have a  material  adverse  effect  on  our  future
operations.

       The  Cocktail  CVX  as part of the InPath System will need to be cleared
for marketing under a PMA+ by  the  FDA,  as described above, prior to its sale
and use in the U.S. clinical market. We cannot  be sure whether or when the FDA
will clear the InPath System. Internationally, the InPath System may be subject
to  various government regulations, which may delay  the  introduction  of  new
products and services and adversely affect our business.

       The  InPath  System  may  be  subject to regulation in the United States
under  the  Clinical  Laboratory Improvement  Act  ("CLIA").  CLIA  establishes
quality standards for laboratories  conducting  testing to ensure the accuracy,
reliability and timeliness of patient test results,  regardless  of  where  the
test  is  performed.  The  requirements  for laboratories vary depending on the
complexity of the tests performed. Thus, the  more  complicated  the  test, the
more  stringent  the  requirement.  Tests  are  categorized as high complexity,
moderate complexity (including the category of provider  performed  microscopy)
and  waived  tests. CLIA specifies quality standards for laboratory proficiency
testing, patient test management, quality control, personnel qualifications and
quality assurance, as applicable.

       The FDA  is  responsible  for  categorization  of  commercially marketed
laboratory  tests. The Centers for Disease Control ("CDC") is  responsible  for
categorization  of laboratory procedures such as provider-performed microscopy.
For  commercially-marketed  tests,  the  FDA  now  determines  the  appropriate
complexity   category   as  it  reviews  pre-market  submissions  for  clinical
laboratory devices. Manufacturers  are  asked  to  include an extra copy of the
package insert identified as "FOR CLIA CLASSIFICATION"  in  the  submission for
product commercialization (i.e., 510(k) or PMA). Manufacturers are  notified of
the  assigned  complexity  through routine FDA correspondence (that is,  as  an
enclosure with a clearance or  approval  letter  or  as  a  separate  letter in
response  to other submissions). Categorization is effective as of the date  of
the written notification to the manufacturer.

       We are developing the InPath System to be user-friendly, require minimum
operator training,  and  have  safety  and  operating  checks  built  into  the
functionality  of  the  instruments. We believe that our efforts will result in
the FDA and/or the CDC assigning  the  lowest  possible  Classification  to the
InPath  System.  If,  however,  these  products  are  classified  into a higher
category, it may have a significant impact on our ability to market the product
in the United States.

       We continue to conduct clinical studies and trials on our InPath  System
during  its  development.  These  studies and trials vary in terms of number of
patient  samples,  individual  product   components,   specific  processes  and
conditions, purpose, and other factors which may affect the results.

       We  have publicly reported the results of some of  the  studies  of  the
InPath System and Cocktail-CVX to various medical meetings, in publications and
in public announcements.  Such  studies  demonstrate the system's capability to
detect  cervical cellular abnormalities. The  sensitivity  factor,  the  test's
performance  in  detecting versus missing actual disease, commonly called false
negatives, is critical in terms of patient health.

       In  each  of   the  reported  studies  and  trials,  the  InPath  System
demonstrated over 98% accuracy  in  detecting  high-grade  cervical disease and
cancer.  In addition, the results demonstrate that the InPath  System  produces
more accurate  results  than the current PAP test. A Meta Analysis conducted in
2000 on the PAP test, which reviewed the results of 94 previous studies, showed
an average sensitivity of 74% and an average specificity of 68%.

       Data  from studies  of  other  InPath  System  products  has  also  been
presented at medical  conferences.  A  controlled study of our In-Cell HPV test
showed the test accurately detected nearly  100%  of  patients  with high-grade
disease and 64% of patients with low-grade disease.

       In a presentation of early results of the clinical trial of  the  InPath
System  collector,  data  showed that the cytology reports on samples collected
with the InPath System collector  were  at least as accurate as those collected
with the conventional brush/spatula method.  The  InPath  System collector also
proved to be more comfortable for the patient and provided less blood and mucus
and  required  only  one  device to collect both endocervical and  ectocervical
cells. The results of the additional  clinical  patients data were submitted in
January 2002 and we received FDA clearance to market  the  collector on May 31,
2002.

       We   believe   the  results  of  these  studies  support  the  continued
development process of  the  InPath  System.  We  moved  ahead  with additional
studies  and  clinical  trials  in late 2001 and others began in 2002.  Due  to
liquidity problems we were forced  to suspend all of our ongoing studies during
the last half of 2002.

       We completed the initial phase  of  our clinical studies during 2002 and
we hope to begin the second phase during later  half of 2003, contingent on our
securing  adequate  financing  for our operations. At  the  conclusion  of  the
studies, the data will be submitted to the FDA as a PMA and will form the basis
of our substantiation of the clinical  and economic value of the InPath System.
It will also allow us to continue to offer  it for sale as an ASR in the United
States and for full-scale commercial and clinical  use  in  countries  such  as
Mexico,  Peru,  Chile,  India,  China  and other developing nations. We are not
permitted to market non-ASR products in  the  United  States,  with clinical or
diagnostic claims until we have received clearance from the FDA. ASR tests make
no  medical  claims  but  may  be used by laboratories, which are qualified  to
perform high complexity tests, and  physicians  as  components  of  "home-brew"
procedures.  We  received  our  first  U.S.  ASR orders in early 2002. In other
countries  listed,  we may need regulatory and importation  approval;  however,
such approvals are generally based on the data submitted to the FDA.

       We are pursuing  regulatory  approval  of  the  InPath  System  products
through  a  series  of  submissions and in some cases, using data from a single
clinical  study.  This  tiered  approach  is  designed  to  accelerate  revenue
opportunities for the InPath  System in the short term and to drive adoption of
our innovative products over the  long  term,  while minimizing the expense and
time involved in undertaking the appropriate study.

       The first stage of the overall strategy involved  the  submission of our
e2 Collector for approval as a substantially equivalent device to the brush and
spatula method of gathering samples used in the current PAP tests.  The  510(k)
notification  was  completed  and filed in late September 2001. Additional data
was furnished to the FDA in the  first  quarter  of 2002 and subsequent to that
submission we received approval to market the Collector in the United States.

       The second stage of our overall strategy involves  the  continuing study
of  the  InPath System and Cocktail-CVX, as described in preceding  paragraphs.
This submission  will  cover  the  InPath  System  as a means to eliminate true
negative samples from further testing. We anticipate completion of this portion
of the study and submission of the data to the FDA by  the  fourth  quarter  of
2003.  We will also submit the data to foreign regulatory authorities that have
jurisdiction over these products. Subsequently, we will continue to collect and
submit data for the InPath System point of service test.

       If the submissions for the various InPath System products are cleared by
the FDA for sale in the U.S. market or approved for sale by foreign regulatory
agencies, we intend to sell the cleared products in the respective clinical
markets.


                 INPATH SYSTEM PRODUCT INTRODUCTION TIMELINES
(CHANGE TABLE DATES)
PRODUCT                           PROCESS                        TIMELINE
- -------                           -------                        --------
e2 Collector...........  Clinical trials                     Completed
                         Regulatory submission & review      September 2001
                         Regulatory clearance received       May 2002
                         US sales                            2003 / 2004
                         International sales                 2003 / 2004
Cocktail-CVX...........  Clinical trials (1)                 2003
                         Regulatory submission & review (1)  2003 / 2004
                         Regulatory clearance projected (1)  2004
                         US sales (1)                        2004
                         International sales (CE Mark) (1)   2004
Cocktail-CVX ASRs......  US sales                            Begun
                         International sales                 Begun


      (1)  All  of  the  above  target  dates  are  contingent  on our securing
adequate financing for our operations during the third quarter of 2003.

       We  currently  distribute  AcCell,  AcCell  Savant  and  Samba  software
products  into commercial markets that do not require regulatory clearance.  In
order to distribute  these  products  for use in certain clinical applications,
however, we will be required to conduct clinical trials and to make submissions
to applicable regulatory agencies for clearance.  We  do  not  have any current
plans  to  make  any  submissions  to  the  FDA  or foreign regulatory agencies
covering these products. In the future, some of our customers may include these
products  in  submissions  to the FDA or foreign regulatory  agencies  covering
their use in a customer's proprietary diagnostic or clinical process.

       COMPETITION

       Historically,  competition   in   the   healthcare   industry  has  been
characterized by the search for technological innovations and efforts to market
such innovations. The cost of healthcare delivery has always been a significant
factor  in  markets  outside  of  the  United  States.  In  recent  years,  the
U.S. market  has also become much more cost conscious. We believe technological
innovations incorporated  into  certain  of  our  products offer cost effective
benefits that address this particular market opportunity.

       Competitors may introduce new products that compete with ours, or those,
which we are developing. We believe the portion of our research and development
efforts devoted towards continued refinement and cost reduction of our products
will permit us to remain or become competitive in all  of  the markets in which
we presently distribute or intend to distribute our products.

       The  market  for  our  cancer screening and diagnostic product  line  is
significant but highly competitive. We are unaware of any other company that is
duplicating our efforts to develop  a  fully-automated,  objective analysis and
diagnostic system for cervical cancer screening that can be  used  at the point
of  service.  There  are  a  number  of companies attempting to develop in-vivo
systems to differentiate between cancerous,  pre-cancerous  and  normal tissue.
Our competition includes many companies with financial, marketing, and research
and  development  resources  substantially greater than ours. There can  be  no
assurance that our technological innovations will provide us with a competitive
advantage.

       Similarly, the worldwide  markets  in which we sell Samba's products are
highly  competitive.  Several U.S. and foreign  companies  are  developing  and
marketing products and services that compete directly with Samba's products and
services. However, Samba  has  the benefit of a robust customer base throughout
Europe, as well as a few long-term customers in the United States. Our strategy
is to use these customers as references  in our marketing efforts to expand the
sales and use of Samba products.

       There are several U.S. and foreign  companies that produce automated and
quantitative  microscopy  instruments.  In  the  past,  the  market  for  these
instruments has been primarily limited to research  applications. However, as a
result of recent advances in the area of molecular diagnostics,  we believe the
market  for  such  instruments  and  applications  will increase over the  next
several years. We believe our instruments are the most versatile cost-effective
platforms available in the current market whether as  an outright purchase or a
fee-for-use application.

       We believe that all of our products must compete  primarily on the basis
of accuracy, functionality, product features and effectiveness  of  the product
in  standard  medical applications. We also believe that cost control and  cost
effectiveness  are  additional  key  factors  in  achieving  or  maintaining  a
competitive advantage.  We  focus  a  significant amount of product development
effort on producing systems and tests, which will not add to overall healthcare
cost. Specifically, there are several companies  whose technologies are similar
to,   or   overlap  with  MDI's.  These  include  Cytyc  Corporation,   Tripath
Corporation,  Digene  Corporation,  Ventana Medical Systems, Inc., ChromaVision
Systems, Inc., and Applied Imaging, Inc.  However, none of these companies have
developed the fully integrated solution necessary  to deliver a fully automated
solution.   To   develop   fully-automated  solutions,  companies   must   have
technologies that fully integrate  microscopy instruments, imaging software and
cancer-detecting biochemistry. At most,  our  competitors have two of the three
technologies.  Only  our  Company  has  developed  and   integrated  all  three
technologies into a solution for cervical cancer screening.

       OPERATIONS

       We conduct research and development work for the InPath  System  using a
combination  of  our  employees  and  contract workers in our Chicago, Illinois
laboratory, and contract laboratory facilities located in several states.

       We  do  not  intend  to  invest capital  to  construct  and  maintain  a
medical-products manufacturing facility  and  all  its  related quality systems
requirements. Our strategy is to utilize the operations,  quality  systems, and
facilities   of  a  contract  manufacturer  specializing  in  medical  products
manufacturing  to  meet  our  current  and  future  needs in the U.S. and other
international markets. This strategy covers manufacturing  requirements related
to InPath System chemical components, plastic and silicone parts for the sample
collector,  InPath  System  instruments  and  the  AcCell  and  AcCell   Savant
instruments.

       We  have  preliminary agreements, including design and development work,
with manufacturers  of  medical  grade  components to supply low volumes of the
silicone balloon and other components of  the  sample collection device. We are
negotiating  additional agreements with manufacturers  to  supply  much  higher
volumes that will be needed once we begin to sell the sample collection device.
These manufacturers  have the capacity to handle high volume production through
facilities in both the United States and several foreign countries.

       We entered into  a  strategic  partnership  with Cell Solutions, LLP, in
October 2001, to design, develop and improve leading-edge  manual  slide  based
preparation systems with state-of-art biochemical preservatives.

       We  also  have  a  preliminary  agreement  with  a large manufacturer of
chemical  and  biological  tests  to  integrate  the  various  combinations  of
ingredients that make up our assay Cocktail-CVX into a single product delivered
in high volume.

       We have a sufficient supply of AcCell platforms. The computers, cameras,
automated slide staining equipment and slide preparation equipment,  that  make
up  the remainder of the laboratory version of the InPath System, are available
from several manufacturers. These instruments are used in a sequential process.
The AcCell  platform  on  which the actual sample screening is done is computer
controlled by our proprietary Samba software.

       We have preliminary  agreements  with  medical  instrument manufacturers
covering the design, development and initial manufacturing  of  both  the  next
generation AcCell platform and the point of service instrument.

       Samba  develops  its  software  products  at its own facility located in
France. Additional software development work is conducted  at  our  facility in
Chicago.  The  Samba  software  products  are  installed  and  integrated  with
off-the-shelf computer and imaging components at the customer's location, or at
our  French  or  Chicago  facility,  immediately  prior to delivery. Consulting
services are generally performed at the customer's  location,  or at our French
or  Chicago  facility, using customer data and communications access.  We  have
added staff at  our Chicago facility to support the delivery of Samba and image
analysis software  products  to  customers  in  the  United  States.  Liquidity
problems caused us to reduce this staff during the last half of 2002.

       INTELLECTUAL PROPERTY

       We  rely on a combination of patents, licenses, trade names, trademarks,
know-how, proprietary  technology,  and  policies and procedures to protect our
intellectual  property.  We  consider  such  security  and  protection  a  very
important aspect of the successful marketing of  our  products  in the U.S. and
foreign markets.

       In  the  United  States we follow the practice of immediately  filing  a
provisional patent application  for  each  invention  as  soon  as  it has been
determined  that  the  invention meets the minimum standards for patentability.
While a provisional patent  application  does  not provide any formal rights or
protections, it does establish an official priority date for the invention that
carries  over to any utility patent applications  that  are  derived  from  the
provisional application within the next 12 months. A utility patent application
begins the  process  that  can  culminate  in the issuance of a U.S. patent. We
convert each outstanding provisional patent  application  into  some  number of
utility  patent  applications  within this 12 month period. In most cases  each
provisional application results in one utility filing. However, in some cases a
single provisional application has generated two independent utility filings or
multiple (up to five) provisional  applications  have  been consolidated into a
single  utility application. During the prosecution of a  utility  application,
the U.S.  Patent  Office  may  require us to divide the application into two or
more  separate  applications  or we  may  file  a  continuation-in-part  patent
application  that  expands  upon  the  technology  claimed  in  another  patent
application and which has the potential of superseding the earlier application.
For these reasons, estimating the number  of  patents  that are likely to issue
based  upon  the  numbers  of  provisional  and utility applications  filed  is
difficult.

       Prior to filing a utility application  in  the  United States, we review
the  application  to  determine  whether  obtaining  patent  coverage  for  the
invention outside of the United States is necessary or desirable to support our
business  model.  If  so,  a  patent  application  is  filed  under the  Patent
Cooperation  Treaty  (PCT) at  the  same  time  that the U.S. filing  is  made.
Depending  upon  the  nature of the invention and business  considerations,  we
typically specify the patent offices in three to six countries to which the PCT
application is to be submitted after the initial examination is completed.

       As of June 2003,  we have filed ten U.S. utility patent applications and
two PCT applications. Four  of the U.S. utility applications were "allowed" and
issued as U.S. Patents during  2002.  Twelve additional provisional U.S. patent
applications have also been filed. In order  to  reduce the expenses related to
patent prosecution, we are currently treating these  applications  as inactive.
We  also  have five foreign patent applications pending. This group of  patents
and patent  applications  cover all aspects of the InPath system including, but
not limited to, the point of  service  instrument; the personal and physicians'
collectors;  and  the slide-based test. As  a  result  of  the  acquisition  of
AccuMed,  we  acquired   seventeen   issued   U.S. patents;  four  U.S.  patent
applications,  which issued as patents during 2002;  two  U.S. design  patents;
twenty-six foreign  patents,  of  which  seventeen  were transferred to a third
party under a license agreement; and twenty-seven foreign  patent  applications
primarily  covering  the  AcCell  and  AcCell  Savant  technology  and  related
software.  We  also  hold  an  exclusive  license  from  Invirion and Dr. Bruce
Patterson covering a patent and certain medical technology  for detection of E6
and E7 genes in cancer causing types of HPV virus. We purchased the license for
cash, future royalties, and other considerations.

       We continue to prepare additional patent applications  for processes and
inventions  arising from our research and development process. The  protections
provided by a  patent  are  determined  by  the  claims that are allowed by the
patent office that is processing the application. During the patent prosecution
process it is not unusual for the claims made in the  initial application to be
modified or deleted or for new claims to be added to the  application. For this
reason it is not possible to know the exact extent of protection  provided by a
patent until it issues.

       Patent  applications  filed  prior  to  November 29, 2000 in the  United
States are maintained in secrecy until any resulting  patent  issues.  As there
have   been  examples  of  U.S. patent  applications  that  have  remained  "in
prosecution"  and,  therefore,  secret  for decades, it is not possible to know
with certainty that any U.S. patent that we may own, file for or have issued to
us will not be pre-empted or impaired by  patents  filed  before  ours and that
subsequently issue to others. Utility patent applications filed in  the  United
States after November 29, 2000 are published eighteen months after the earliest
applicable filing date. As this revised standard takes full effect, the chances
that  such a "submarine" patent will impair our intellectual property portfolio
will be  significantly  reduced.  Foreign patent applications are automatically
published eighteen months after filing.  As  the  time  required to prosecute a
foreign utility patent application generally exceeds eighteen  months  and  the
foreign patents use a "first to file" rather than a "first to invent" standard,
we  do  not consider submarine patents to be a significant consideration in our
patent protection outside of the United States.

       Samba  software  and  technology  consists  primarily  of trade secrets,
know-how, and technical documentation. To further enhance security, we restrict
access  to  our  software  source  codes  and  the  details of the step-by-step
instructions  for  command,  control  and  operation  of  a  software  program.
Furthermore, a hardware security key, or "dongle," is required  in  order for a
user to operate the software.

       Our  products  are  or will be sold worldwide, under trademarks that  we
consider to be important to  our business. We own the Samba trademark and trade
names of "Samba", "InPath", "e2 Collector", "Cocktail-CVX", "In-Cell HPV Test",
"AcCell" and "AcCell Savant". We may file additional U.S. and foreign trademark
applications in the future.

       Our future technology acquisition  efforts  will be focused toward those
technologies that have strong patent or trade secret protection.

       We cannot be sure that patents or trademarks  issued  or  which  may  be
issued  in  the  future  will  provide  us  with  any  significant  competitive
advantages. We cannot be sure any of our patent applications will be granted or
that validity or enforceability will not be successfully challenged.  The  cost
of  any  patent  related  litigation  could  be  substantial even if we were to
prevail.  In addition, we cannot be sure that someone  will  not  independently
develop similar  technologies  or  products, duplicate our technology or design
around the patented aspects of our products. The protection provided by patents
depends upon a variety of factors, which  may  severely  limit the value of the
patent protection, particularly in foreign countries. We intend to protect much
of  our core technology as trade secrets, either because patent  protection  is
not possible  or,  in  our  opinion,  would  be less effective than maintaining
secrecy. However, we cannot be sure that our efforts  to  maintain secrecy will
be successful or that third parties will not be able to develop  the technology
independently.

       RESEARCH AND DEVELOPMENT

       Our  research  and  development  efforts are focused on introducing  new
products  as  well as enhancing our existing  product  line.  We  utilize  both
in-house and contracted  research  and development efforts. We believe research
and development is critical to the success of our business strategy. During the
years  2002,  2001, and 2000 our research  and  development  expenditures  were
approximately $3,338,000, $4,034,000, and, $3,426,000, respectively.

       We completed  clinical  testing  of  the  sample  collection device, the
e2 Collector, and submitted the results of this trial to the FDA in the form of
a 510(k) notification on September 28, 2001.

       The  design  and  validation  of the laboratory version  of  the  InPath
System,  including image analysis software  developed  in-house  by  Samba,  is
currently  in  process.  We have reviewed and validated the performance of over
forty biological components  for  use in our Cocktail-CVX. We used samples from
patients  with  normal  and abnormal (those  with  cancer  or  its  precursors)
pathology  reports in our  studies.  We  selected  a  specific  combination  of
chemical and  biological  components for the Cocktail-CVX and commenced testing
in the fourth quarter of 2001.

       The design specifications  for  the point of service analysis instrument
are complete and several prototypes have been assembled. Additional development
work will progress with an outside strategic design/manufacturing partner based
upon further funding.

       Our research work in the area of chemical and biological components will
continue for the foreseeable future as we  seek  to  refine the current process
and  add  additional  capabilities  to  our analysis procedure,  including  the
detection of other forms of cancer and precursors to cancer.

       We   have  entered  into  negotiations   with   an   outside   strategic
design/manufacturing  partner  to develop the next generation AcCell instrument
platform. The design specifications are complete and prototypes are in process.

       We completed development  of  a  new  version of the AcCell Savant image
analysis software, which will make the device  more  user  friendly and in-line
with current software technologies, during 2002.

       We anticipate the need to invest a substantial amount  of capital in the
research  and  development process, including the cost of clinical  trials,  in
order to complete  the development and use of the InPath System and bring it to
market.

       COMPONENTS AND RAW MATERIALS

       Low cost products  are  a  key  component  of  our business strategy. We
designed  the sample collection device using widely available  and  inexpensive
silicone and  plastic  materials.  These  materials are available from numerous
sources  and  can  be  fabricated  into  finished   devices  by  a  variety  of
manufacturers within and outside the United States. We  can use sources outside
of the United States, so that we may service a particular  market at the lowest
possible cost.

       The instrument components of the laboratory version of the InPath System
are  available  from  a  number  of  sources.  Computers,  cameras,   automated
slide-staining  instruments  and  automated  slide-preparation instruments  are
currently  available  from several large manufacturers.  We  have  an  adequate
supply  of  current AcCell  platforms  used  in  the  InPath  System  and  have
contracted for  the design and manufacture of the next generation of the AcCell
platform.

       The point  of  service  instruments  are  designed  to use off-the-shelf
components and a limited number of custom manufactured parts  or  use  a  third
party manufactured instrument. The strategic partner chosen to manufacture  the
unique  final  instrument,  as  is  the  case  with  the  company  building the
prototypes, will be responsible for sourcing, fabrication, and assembly  of all
components into the final instrument.

       Samba's  software products are based on leading edge technology and  are
compatible  with  numerous   off-the-shelf   computers,   computer  components,
microscopes, and imaging equipment.

       WORKING CAPITAL PRACTICES

       As  of December 31, 2002, we have not sold any InPath  System  products,
except for ASR's.  During  2002,  we  sold several AcCell instrument platforms,
billed and received fees under an AcCell Savant fee-for-use contract and closed
on additional sales of Samba software products  in  the  United States. We have
financed  our  U.S. operations and research and development  by  raising  funds
through the sale  of  debt  or equity. We will continue to use these methods to
fund our operations until such  time  as  we  are  able  to  generate  adequate
revenues and profits from the sales of some or all of our products.

       The sale of Samba products, totaling approximately $783,066 for the year
ended  December 31,  2002, outside the United States generates revenue that  is
used  to  support  Samba   operations.   Samba   has  obtained  a  150,000 Euro
(approximately   $158,000)  overdraw  facility  from  its   bank   to   provide
supplemental funds,  as  needed.  Availability  of  funds  under  the  overdraw
facility is based on and secured by Samba's monthly billings to customers.  The
overdraw  facility  is  especially  helpful  since  collection periods for many
customers may exceed standard thirty-day terms. Customers  requiring government
funding to pay their bills or customers outside France often  take  longer than
thirty  days  to  pay.  At  times  Samba  requires a deposit on an order before
ordering any equipment or beginning any work.

       Similarly, we believe that future sales  of  the  InPath System or other
products  into foreign markets will result in collection periods  that  may  be
longer than  those  expected for domestic sales of these products. Our strategy
will be to use letters  of  credit  or other secured forms of payment, whenever
possible, in sales of products in foreign markets.

       EMPLOYEES

       As of June 30, 2003 we employed  a  total  of six full-time employees in
the United States and nine full-time employees in France.  The  Samba employees
in  France are represented by a national labor union (customary to  all  French
workers)  and Samba management considers its relations with its employees to be
good. The staff  reductions  from  prior years were undertaken in late 2002 and
during 2003 to date in order to conserve  our  limited  operating  funds during
those  timeframes. We will attempt to rehire key operational personnel  in  the
second half  of  2003,  contingent on our ability to secure adequate funding to
meet our operational requirements.

FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES

       Our current operations  outside  North  America  are conducted by Samba.
Sales of Samba products accounted for a significant portion  of  sales reported
for 2002 and nearly all of our sales reported for 2001 and prior periods.

       Markets outside of North America are an important factor in our business
strategy.  Any  business  that  operates on a worldwide basis and conducts  its
business in one or more local currencies is subject to risks of fluctuations in
the value of those currencies against  the  dollar.  It  is subject to changing
political  climates,  differences in culture and the local practices  of  doing
business. It is also subject  to North American and foreign government actions,
such  as export and import rules,  tariffs  and  duties,  embargoes  and  trade
sanctions. We do not regard these risks, however, as a significant deterrent to
our strategy to introduce our InPath System to foreign markets.

       As we begin to market and sell our InPath System, we will closely review
our foreign  operational  practices.  We  will  attempt  to adopt strategies to
minimize  risks  of changing economic and political conditions  within  foreign
countries.

                                          2002       2001       2000
                                          ----       ----       ----
      NORTH AMERICA:
      Revenue........................   $    963   $     75   $    0.0
      Profit (loss)..................   $(11,937)  $(16,468)  $ (6,506)
      Total Assets...................   $  9,047   $ 10,876   $  3,617
      FRANCE:
      Revenue........................   $    783   $    802   $  1,094
      Profit (loss)..................   $    (23)  $   (162)  $   (105)
      Total Assets...................   $    612   $    750   $    958

       As part of the Series D convertible preferred stock offering in November
2001,  we  licensed  software and software technology to Ventana. We recognized
revenue of $297,000 related to the license and technology development agreement
during 2002. We did not  recognize  any  revenue  related  to  the  license and
technology development agreement during 2001.

CAUTIONARY  STATEMENT  FOR  PURPOSES  OF  THE  "SAFE HARBOR" PROVISIONS OF  THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

       There are forward-looking statements throughout this report that are not
historical facts, including statements in this Item 1  and statements contained
in material incorporated into this report by reference.  These  statements  are
based  on  our  current  expectations  and  plans,  and  involve many risks and
uncertainties.  Some of these risks and uncertainties are factors  that  affect
all international businesses, while others are specific to us, and the areas of
the medical products industry in which we operate.

       The factors below in some cases have affected our historical results and
could affect our  future  results, causing them to differ, possibly materially,
from those expressed in this report's forward-looking statements. These factors
include: our ability to raise  capital;  our  ability to settle litigation; our
ability to retain key employees, economic conditions; technological advances in
the medical field; demand and market acceptance  risks  for  new  and  existing
products,  technologies,  and  healthcare  services;  the impact of competitive
products  and pricing; manufacturing capacity; new plant  start-ups;  U.S.  and
international  regulatory,  trade, and tax policies; product development risks,
including  technological  difficulties;   ability   to   enforce  patents;  and
foreseeable and unforeseeable foreign regulatory and commercialization factors.

       Currency  fluctuations  are  also  a  significant  variable  for  global
companies,   especially   fluctuations   in  local  currencies  where   hedging
opportunities are unreasonably expensive or  unavailable.  If  the value of the
U.S. dollar strengthens relative to the currencies of the countries in which we
market or intend to market our products, our ability to achieve projected sales
and net earnings in such countries could be adversely affected.

       We   believe  that  our  expectations  with  regard  to  forward-looking
statements are  based  upon  reasonable  assumptions  within  the bounds of our
current  business  and  operations  knowledge, but we cannot be sure  that  our
actual results or performance will conform to any future results or performance
expressed or implied by any forward-looking statements.

RISK FACTORS

       The  risks  described  below are  not  the  only  ones  we  are  facing.
Additional risks are described  in  this  report  under recent developments and
litigation.  There  may also be risks not presently known  to  us  or  that  we
currently deem immaterial  that  may  also impair our business operations.  Our
business, financial condition or results  of  operations  could  be  materially
adversely affected by any of these risks. The trading price of our common stock
could decline due to any of these risks

       THERE IS A LIMITED MARKET FOR "PENNY STOCKS" SUCH AS OUR COMMON STOCK.

       Our  Common  Stock  is  considered  a "penny stock" because, among other
things, our price is below $5 per share, it trades on the Over-the-Counter Pink
Sheet Market and we have net tangible assets  of  less  than  $2,000,000.  As a
result, there may be little or coverage by security analysts, the trading price
may  be lower, and it may be more difficult for our stockholders to dispose of,
or to obtain accurate quotations as to the market value of, their Common Stock.
Being a penny stock could limit the liquidity of our Common Stock.

       THE HISTORICALLY VOLATILE MARKET PRICE OF OUR COMMON STOCK MAY AFFECT
THE VALUE OF OUR STOCKHOLDERS' INVESTMENTS.

       The  market  price  of our Common Stock, like that of many other medical
products and biotechnology companies,  has  in  the  past been highly volatile.
This  volatility  is  likely  to continue for the foreseeable  future.  Factors
affecting potential volatility include:

       *   general economic and other external market factors;

       *   announcements of mergers, acquisitions, licenses and strategic
           agreements;

       *   announcements of private or public sales of securities;

       *   announcements of new products or technology by us or our competitors;

       *   ability to finance our operations;

       *   fluctuations in operating results; and

       *   announcements of the Food and Drug Administration ("FDA") relating
           to products.

       OUR COMMON STOCK IS UNLIKELY TO PRODUCE DIVIDEND INCOME FOR THE
FORESEEABLE FUTURE.

       We have never paid a cash  dividend  on  our  Common Stock and we do not
anticipate  paying  cash  dividends for the foreseeable future.  We  intend  to
reinvest  any funds that might  otherwise  be  available  for  the  payment  of
dividends in further development of our business.

       OUR COMMON STOCK IS SUBJECT TO DILUTION, AND AN INVESTOR'S OWNERSHIP
INTEREST AND RELATED VALUE MAY DECLINE.

       We are  authorized  to issue up to 10,000,000 shares of preferred stock.
As of December 31, 2002, we  have  approximately  118,092  shares  of  Series A
convertible preferred stock outstanding which convert into 51,580 shares of our
common   stock;   799,856  shares  of  Series  B  convertible  preferred  stock
outstanding which convert  into 3,199,424 shares of our common stock; 1,258,833
shares of Series C convertible  preferred  stock outstanding which convert into
6,294,165 shares of our common stock; 175,000  shares  of  Series D convertible
preferred stock outstanding which convert into 1,750,000 shares  of  our common
stock,;   and  429,243.48  shares  of  Series  E  convertible  preferred  stock
outstanding,  which  convert  into 11,804,195 shares of our common stock. There
are cumulative dividends due on  the Series B, Series C, Series D, and Series E
convertible preferred stock, which  may be paid in kind in shares of our common
stock. Our Certificate of Incorporation  gives our board of directors authority
to issue the remaining undesignated shares  of preferred stock with such voting
rights, if any, designations, rights, preferences  and  limitations as they may
determine.

       At  December  31,  2002,  we  have  outstanding  warrants   to  purchase
15,240,000  shares  of  our  common  stock,  outstanding  options  to  purchase
approximately   3,508,000  shares  of  our  common  stock,  and  450,000  stock
appreciation rights which are convertible into 289,286 shares of common stock.

       At December  31,  2002,  outstanding  convertible  promissory  notes are
convertible into approximately 32,610,000 shares of our common stock. Under the
provisions of certain outstanding convertible promissory notes, the holders has
the  right  to receive a warrant to purchase additional shares of common  stock
upon exercise  of  the  conversion  right. We are unable to determine the exact
number of additional warrants to purchase  shares of our common stock that will
be issuable upon conversion of the notes.

       At  December 31, 2002, we have approximately  1,320,000  shares  of  our
common stock reserved for future stock options and 160,000 shares of our common
stock reserved for future sale to employees.

       WE HAVE A LIMITED OPERATING HISTORY AND THERE ARE DOUBTS AS TO OUR BEING
A GOING CONCERN.

       We have limited operating history. Our revenues, from inception in March
1998  through   2001,   were  derived  almost  entirely  from  sales  by  Samba
Technologies, Sarl, our wholly-owned  subsidiary.  Samba is currently operating
under protection of the French Commercial Court and we cannot be certain of the
outcome of the bankruptcy proceedings. We have sold  only a very limited amount
of our InPath System products to date.

       We will continue to devote substantial resources to product development.
We  anticipate  that we will continue to incur significant  losses  unless  and
until some or all  of  our products have been successfully introduced, if ever,
into the market place.

       We  have  incurred   substantial   losses  and  have  limited  financial
resources.  Consequently  our independent accountants  have  noted  that  these
conditions raise substantial  doubt  as  to  our ability to continue as a going
concern. Our financial statements do not include  any  adjustments  relating to
the  recoverability and classification of asset carrying amounts or the  amount
and classification  of  liabilities  that  may  result from the outcome of this
uncertainty.  The  going  concern  explanatory  paragraph  may  make  obtaining
additional financing more difficulty or costly.

       WE CONTINUE TO HAVE SEVERE LIQUIDITY PROBLEMS.

       We continue to have severe liquidity problems, which affect our overall
ability to operate our business, including the ability to employ adequate staff
and conduct ongoing studies and clinical trials of our products. Failure to
raise adequate financing to meet our business needs could materially jeopardize
MDI and its ability to conduct its business. There can be no assurance that we
will be able to secure the necessary funds.

       WE MAY NOT BE ABLE TO MEET OUR SHORT-TERM CAPITAL REQUIREMENTS.

       We believe that our existing capital resources  are  not  sufficient  to
meet the short-term requirements of our company.  These short-term requirements
include a significant amount of liabilities and promissory notes in arrears. In
addition,  we  have  unpaid tax liabilities for payroll taxes from 2001 through
2003. Therefore, we need to raise additional capital to support our operations.
We do not have any current commitments for additional funds, and our management
cannot be certain that we will be able to raise such funds.

       It is unlikely  that  we  will  be  able  to meet our short-term funding
requirements  through  the  issuance of notes or other  debt  instruments.   We
anticipate  that these short-term  funding  needs  will  require  the  sale  or
issuance of additional  shares  of common stock on instruments convertible into
common stock.  Such sales or issuances,  if  any, may have a dilutive effect on
the value of our common stock. We cannot be certain  what level of dilution, if
any, may occur or if we will be able to complete any such sales of common stock
in the future

       Our operating business plan for 2002 anticipated  that  we would need to
raise new equity. We were not able to raise the necessary level  of  new equity
and  had  to  reduce our operations significantly during the year. The lack  of
sufficient new equity continued through the first half of 2003.

       A failure  to  raise  sufficient additional funds would adversely affect
our ability to meet our short-term  capital  requirements,  resume our clinical
tests and meet our product timelines, and/or continue as a going concern.

       WE MAY NOT BE ABLE TO MEET OUR LONG-TERM CAPITAL REQUIREMENTS.

       We  do  not know if we will be able to sustain our long-term  operations
through future revenues.  Whether  we  will  need  to raise additional funds to
support our long-term operations is influenced by many  factors,  including the
costs, timing and success of efforts to develop products and market  acceptance
of our products.

       OUR PRODUCTS ARE SUBJECT TO GOVERNMENT REGULATION AND THEY MAY NOT
RECEIVE NECESSARY GOVERNMENT APPROVALS.

       The  sale  and use of our products in the United States is regulated  by
the FDA. We must meet  significant FDA requirements before we receive clearance
to market our products.  Included  in  these FDA requirements is the conduct of
lengthy and expensive clinical trials to  prove  the safety and efficacy of the
products. Until we complete such clinical trials our  products may be used only
for research purposes or to provide supplemental diagnostic  information in the
United States. We have completed FDA approval for one of our products,  the  e2
Collector. We have started clinical trials for two other products and expect to
begin  additional  trials  in  2003.  We  cannot  be  certain  that our product
development  plans  will  allow  these  additional  trials  to commence  or  be
completed according to plan or that the results of these trials,  or any future
trials, when submitted to the FDA along with other information, will  result in
FDA clearance to market our products in the United States.

       Sales of medical devices and diagnostic tests outside the United  States
are  subject  to  foreign  regulatory  requirements  that  vary from country to
country. The time required to obtain regulatory clearance in  a foreign country
may be longer or shorter than that required for FDA marketing clearance. Export
sales of certain devices that have not received FDA marketing clearance  may be
subject  to  regulations  and permits, which may restrict our ability to export
the products to foreign markets.  If  we are unable to obtain FDA clearance for
our products, we may need to seek foreign  manufacturing  agreements to be able
to produce and deliver our products to foreign markets. We  cannot  be  certain
that we will be able to secure such foreign manufacturing agreements.

       WE MAY NOT BE ABLE TO COMPETE WITH COMPANIES THAT ARE LARGER AND HAVE
MORE RESOURCES.

       We compete in the medical device and diagnostics marketplace with
companies that are much larger and have greater financial resources than we do.
We cannot be certain that our products will be able to be successfully marketed
in this competitive environment.

       WE MAY NOT BE ABLE TO MARKET OUR PRODUCTS.

       We  do  not  intend  to  maintain  a  direct  sales  force to market our
products. Therefore, in order to successfully market our products,  we  must be
able  to negotiate profitable sales and marketing agreements with organizations
that have  direct sales forces calling on domestic and foreign markets that may
use the products. If we are not able to successfully negotiate such agreements,
we may be forced  to market our products through our own sales force. We cannot
be certain that we  will  be successful in developing and training such a sales
force, should one be required,  or that we will have the financial resources to
carry out such development and training.

       WE MAY NOT BE ABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY.

       We hold a variety of patents  and  trademarks  and  have  applied  for a
significant  number of additional patents and trademarks with the United States
Patent and Trademark  Office  and several foreign patent authorities. We intend
to  file  additional  patent and trademark  applications  as  dictated  by  our
research and development  projects and business interests. We cannot be certain
that any of the currently pending  patent  or trademark applications, or any of
those which may be filed in the future, will be granted.

       We protect much of our core technology  as  trade  secrets  because  our
management  believes  that  patent protection would not be possible or would be
less effective than maintaining  secrecy.  We cannot be certain that we will be
able to maintain secrecy or that a third-party  will  not  be  able  to develop
technology independently.

       The  cost  of  litigation  to  uphold the validity of a patent or patent
application, prevent infringement or protect  trade secrets can be substantial,
even if we are successful. Furthermore, we cannot  be  certain that others will
not  develop  similar  technology  independently  or design around  the  patent
aspects of our products.

       THE LOSS OF KEY PERSONNEL COULD CAUSE OUR BUSINESS TO SUFFER.

       The  success  of our current and future operations  will  depend,  to  a
significant extent, upon  the  experience, abilities, and continued services of
key personnel, and on our ability  to  rehire  certain  key  personnel who were
released  due  to  our  severe  liquidity  problems.  Although  we  have  other
management,  a  significant  loss  of  the  services of Peter P. Gombrich,  our
Chairman  and  Chief Executive Officer, could cause  our  business  to  suffer.
Beginning at the end of 2001, we experienced significant turnover in our senior
management, including  our  president and chief financial officer. There can be
no assurance that we will be  able  to  attract  and  retain  key personnel. We
entered into employment agreements with all of our senior executives. We do not
carry key-man insurance.

ITEM 2.    PROPERTIES

       We   occupy   approximately   3,660  square  feet  of  leased  space  at
414 N. Orleans St.,  Suites 800  and 503,  Chicago,  Illinois  60610,  under  a
five-year  lease,  which expires in  September  2006.  This  space  houses  our
executive offices, research  laboratory,  and  engineering  development.  Samba
leases  approximately  300  square  meters  of  space  in a suburb of Grenoble,
France, at 53, chemin du Vieux Chene, 38240 Meylan. The  Samba lease has a term
of nine years expiring in 2008. Samba has the option to terminate  the lease at
the  end of each three-year period. The location houses Samba's administrative,
sales,  and  research and development activities. We consider our facilities to
be well utilized, well maintained, and in good operating condition. We consider
the facilities  to  be  suitable  for  their  intended  purposes  and  to  have
capacities adequate to meet current and projected needs for our operations.

ITEM 3.    LEGAL PROCEEDINGS

       SETTLED DURING 2002

       On  October 20,  2000,  we  filed  suit in Circuit Court of Cook County,
Illinois (Case No. 00 CH 15652), against SpectRx, Inc.  and  Welch  Allyn, Inc.
Our  suits  sought  injunctive  relief  and  damages  from  SpectRx based on  a
complaint of fraud and breach of certain confidentiality agreements with regard
to  our  business  plans,  marketing plans, and technology related  to  in-vivo
diagnostic devices. Our claim arose from disclosure of confidential information
to SpectRx in the course of  negotiations  contemplating  a  joint  venture  to
develop  new medical products. The information covered cancer detection systems
relying on  fluorescence  technologies  as well as bio-molecular marking agents
for  use in applications within and outside  of  the  body.  We  also  provided
SpectRx  with  marketing  plans,  revenue,  income  and  cash flow projections,
product development and launch plans, and product distribution  strategies.  In
addition,  we  provided SpectRx with certain confidential technical information
regarding patent applications, measurement technologies, design specifications,
quantitative analyses,  optimization  techniques,  positional  information  for
cellular  mapping,  and  other  technical  specifications.  Subsequent  to  the
disclosure  of  our  information  to  SpectRx,  they  entered  into  a business
arrangement  with Welch Allyn to develop products of a similar nature to  ours.
The suit also charged SpectRx and with misappropriation of our trade secrets in
violation of the Illinois Trade Secrets Act.

       Our suit  was  filed  in  response  to  a  suit  filed by SpectRx in the
Superior  Court  of  Gwinnett  County, Georgia (Civil Action  NO. 00-A-7604 1),
seeking a declaratory judgment (but  no  monetary damages or other relief) that
SpectRx did not breach the confidentiality  agreements  as charged in our suit.
On July 5, 2001, we filed counterclaims, similar to the claims  outlined in our
Illinois suit, to the SpectRx action in Georgia.

       On  February 1,  2002,  we  reached  an  out-of-  court settlement  with
SpectRx. Under the terms of the settlement, SpectRx paid a  $150,000  lump  sum
cash  payment to us, and we granted SpectRx an option to license certain of our
technology.  Additional  terms  of  the  settlement are confidential. Under the
terms of the settlement, neither party admitted  any  liability  or wrongdoing.
Welch Allyn also was a party to the settlement agreement.

       In  2001, Dawn H. Grohs, a former employee / consultant to the  Company,
filed suit against the Company and certain affiliated companies, as well as two
of the Company's  senior  officers (C.A. No. 02-C-1010 (U.S. District Court for
the  Northern  District  of  Illinois).   Ms. Grohs'   claimed   fraud,  unjust
enrichment, misrepresentation, breach of contract and quantum merit  related to
her assertions that the defendants allegedly failed to provide her with equity;
tortuous  interference  with contractual relations and intentional interference
with contractual relations  based  on  alleged  encouragement of changes to the
business relationship with Ms. Grohs; breach of the  covenant of good faith and
fair  dealing,  negligent  infliction  of  emotional distress  and  intentional
infliction of emotional distress based on defendants'  treatment  of Ms. Grohs;
and violation of state law for alleged unfair and deceptive acts by  defendants
for  the purpose of inducing Ms. Grohs to continue to provide services  without
compensation.  Ms. Grohs  sought  $85,000 in wages, $40,250 in expenses, equity
for contributions and efforts during  the formation of certain of the Company's
affiliates, payment of a sum to be determined  by the court for the intentional
and/or negligent infliction of emotional distress,  a  finding that the actions
of defendants constitute unfair and deceptive acts, and  that  the court treble
the damages awarded. In addition to the specific relief described  above,  each
count  seeks  an  award of attorneys' fees and costs and such other and further
relief the court deems  just  and  appropriate.  In October 2002, we reached an
out-of-court settlement with Ms. Grohs. Under the  terms  of the settlement, we
paid  Ms. Grohs $5,000 in cash and issued 400,000 unregistered  shares  of  our
common  stock  to  her. We calculated a fair value of $84,000 for the shares of
our common stock. We  also  granted  Ms.  Gross  an  option to purchase 400,000
shares of our common stock at an exercise price of $0.20  per  share. One third
of  the  option vested immediately and the remaining two thirds vest  in  equal
amounts on the first and second annual anniversary dates of the grant.

       PENDING CURRENTLY AND AS OF DECEMBER 31, 2002

       Prior  to  our  acquisition  of AccuMed, Garrett Realty, Inc. filed suit
against AccuMed for unpaid rent and related expenses under a lease for premises
located at 900 and 920 N. Franklin in  Chicago, Illinois (Circuit Court of Cook
County  (Case  No. 01  M1 725821)). Garrett  originally  claimed  approximately
$50,000 was due them. Following  completion  of  our  acquisition  of  AccuMed,
management  vacated  AccuMed's  leased facility and consolidated its operations
into our headquarters facility. However,  Garrett  continued  to  claim ongoing
rent  and  amended  its  complaint  in 2002 claiming approximately $148,000  in
unpaid  rent and related legal costs through  July  2002.  On  July  18,  2002,
judgment  was  entered in favor of Garrett and against AccuMed in the amount of
approximately $157,000. On December 20, 2002, pursuant to a court order, Garret
seized approximately  $12,500  from  an  MDI bank account, as a partial payment
against the judgment amount. The unpaid remainder of the judgment will continue
to  accrue  interest  until  paid  in  full. Since  AccuMed  had  a  continuing
obligation  for  the minimum lease payments,  MDI  recorded  a  $290,000  lease
obligation in accounting  for  the AccuMed merger based on the present value of
the  future  payments.  We  are contesting  the  right  of  Garrett  to  pursue
collection of the judgment against  the assets of MDI. Management believes that
the amount of the accrued lease obligation  recorded as of December 31, 2002 is
sufficient to cover any remaining expenses of  this  litigation and the related
judgment.

       On May 22, 2001, a judgment in the amount of $312,000  plus interest was
entered against AccuMed (Circuit Court of Cook County (Case N0.  97 L 7158)) in
favor of Merrill Corporation. The judgment was the result of the settlement  of
an  action  brought  by  Merrill  claiming  unpaid  fees for financial printing
services,  provided to AccuMed in 1996, and related interest  and  legal  costs
totaling in  excess  of $400,000. Under terms of the settlement and the related
judgment, AccuMed was  required  to  make 12 monthly payments of $26,000, and a
final payment to include all interest  accrued  on  declining unpaid balance of
the judgment over the term of payment. AccuMed made 7  payments  in  accordance
with the terms of the settlement and ceased to make any additional payments. In
May of 2002, Merrill asserted its rights under the original judgment and  filed
a  citation  to discover assets of AccuMed and obtain the remaining amount due.
On October 17,  2002, MDI reached an agreement with Merrill whereby MDI assumed
responsibility for  the  remaining  unpaid  amount  of the judgment and related
costs totaling $145,000 and agreed to pay such amount  no  later  than November
15,  2002.  MDI  failed  to make the required payment on November 15, 2002  and
Merrill instituted an action  against  MDI  to  discover  assets  and to obtain
payment  of  the  $145,000.  As of June 30, 2003, this litigation has not  been
resolved. At December 31, 2002  MDI  had  accrued the entire $145,000 amount of
the  judgment on the records of AccuMed. Management  is  currently  negotiating
with Merrill representatives to resolve this action.

       PENDING CURRENTLY

       On  July  31,  2002,  MDI  entered  into a settlement and mutual release
agreement with Trek Diagnostic Systems, Inc.  ("Trek")  related  to  a claim of
breach  of representations and warranties included in an agreement under  which
AccuMed sold  its  microbiology  business  and  related assets to Trek in 1999.
Under  the  settlement agreement, MDI executed an $80,000  promissory  note  in
favor of Trek.  The  note  required  principal  payments  of  $40,000  each  on
September  1  and December 1, 2002. MDI made the initial payment and Trek filed
suit against MDI  (Court  of Common Pleas Cuyahoga County, Ohio (Case No. CV 03
492582)) on January 23, 2003  to collect the remaining $40,000 plus interest at
8% per annum and legal and other  costs.  At December 31, 2002, MDI accrued the
remaining amount due on the note. On April  18th,  2003,  judgment  was entered
against  MDI  in  the  amount of $40,000 plus interest. Management is currently
negotiating with Trek representatives to resolve this matter.

       On March 28, 2003 The Cleveland Clinic Foundation filed suit against MDI
(United States District  Court  for  the  Northern  District  of  Ohio,  Easter
Division,  (Case  No. 1:03CV0561)) seeking approximately $315,000 plus interest
and attorney fees and  costs.  The sum in question pertains to remaining unpaid
fees  for  certain  clinical trial  work  conducted  by  The  Cleveland  Clinic
Foundation in the Peoples  Republic  of China on behalf of MDI. At December 31,
2002, MDI has recorded the full amount owing to The Cleveland Clinic Foundation
as  a  liability  in  its  accounts. MDI is  currently  engaged  in  settlement
discussions with The Cleveland Clinic Foundation.

       On January 2, 2003, Bowne  of  Chicago, Inc.("Bowne") filed suit against
MDI (Circuit Court of Cook County, County  Department-Law Division (Case No. 03
L 000009)) claiming approximately $342,000, plus interest and attorney fees and
costs, related to financial printing service  fees  provided  to  MDI  by Bowne
during  the  period  October  25,  2001  through November 7, 2002. While MDI is
actively defending itself against the suit  claiming  the  charges for printing
services provided during the period mentioned above were excessive,  management
has  taken a conservative position and recorded the entire amount of the  Bowne
invoices  as outstanding accounts payable on the records of MDI. As of December
31, 2002 and  June 30, 2003, management and its counsel are unable to determine
the outcome of this litigation.

       On January  9,  2003,  Monsun,  AS  ("Monsun")  filed suit against Peter
Gombrich, our Chairman and CEO, (United States District  Court for the Northern
District  of Illinois Eastern Division (Case No. 03C 0184))  claiming  $500,000
plus consequential  damages  for failure to make payment in compliance with the
terms of a personal guaranty signed  by  Mr.  Gombrich  in relation to Monsun's
grant of an extension in the maturity date of a convertible  promissory note in
the principal amount of $500,000 issued by MDI on November 1,  2000.  The  note
had  an  original  maturity  date of November 1, 2001. The maturity date of the
note was initially extended until January 31, 2002 and subsequently to April 1,
2002 and finally to July 31, 2002.  Monsun granted the maturity date extensions
in exchange for various warrants issued by MDI entitling the holder to purchase
shares of our common stock at various  prices.  In  November 2002, our Board of
Directors approved the issuance of 200,000 shares of our common stock to Monsun
to satisfy a default penalty clause in the guaranty.  The terms of the guaranty
required that Monsun receive registered shares of our common stock, however, in
order to comply with securities laws, we issued the shares  of our common stock
to Monsun with a restrictive legend which permits their sale only in compliance
with  Rule 144 of the ACT. MDI has recorded the principal amount  of  the  note
plus accrued  and unpaid interest to December 31, 2002 as a note payable on its
records. Since Mr. Gombrich's potential liability under the suit, including the
failure to deliver  registered shares of our common stock, is the result of the
failure of MDI to pay  the  principal amount of its convertible promissory note
when due, our Board of Directors has agreed that MDI will assume responsibility
for Mr. Gombrich's obligations  under  the  guaranty,  including  legal  costs.
Management  and  counsel  are  unable  to  determine the result of this pending
litigation as of June 30, 2003.

       We are the defendant in several lawsuits  brought  by  current or former
unsecured creditors to collect past due amounts for goods and services. MDI has
recorded the amounts due in its records and is attempting to settle these suits
and unfiled claims.

       MDI is a defendant in several legal actions brought by former  employees
seeking to collect amounts due for unpaid wages and severance benefits. MDI has
recorded  the  amounts  due  in  its  records and is attempting to settle these
actions

       In  May  2003,  the Company, together  with  its  subsidiaries,  AccuMed
International,   Inc.   ("AccuMed")   and   Oncometrics   Imaging   Corporation
("Oncometrics"), filed suit against MonoGen, Inc. and Norman Pressman (Case No.
03 CH 08532 (Circuit Court  of  Cook County, Illinois)). The suit arises out of
two  license  agreements between AccuMed,  Oncometrics  and  MonoGen  in  which
certain intellectual  property  was transferred from AccuMed and Oncometrics to
MonoGen for $500,000 (the "Agreements").  At  the  time  of the Agreements, the
Company had not yet acquired AccuMed and Oncometrics. The technology, which was
the subject of the Agreements, had been licensed to Oncometrics  by the British
Columbia  Cancer  Agency  ("BCCA")  pursuant  to  a  written license agreement.
Pressman was the President of AccuMed and Oncometrics  when the Agreements were
negotiated and executed. As soon as the Agreements were signed, Pressman took a
position  with  MonoGen.  The  Complaint alleges that that the  technology  was
transferred at a below market price.  The  Complaint  also asserts that AccuMed
and  Oncometrics  may  not have obtained the requisite approval  from  BCCA  to
transfer the technology to MonoGen pursuant to the Agreements.

       The Complaint contains  claims  against Pressman for breach of fiduciary
duty and fraud. To the extent that the requisite  approval  from  BCCA  was not
obtained,  Pressman  breached his fiduciary duty to AccuMed and Oncometrics  by
failing to obtain that  approval,  and falsely representing that he had in fact
obtained the requisite approval. Pressman  breached  his fiduciary duty further
by failing to negotiate an arms length transaction with  MonoGen. The Complaint
also asserts claims against MonoGen for aiding and abetting Pressman's breaches
of  fiduciary  duty  to  AccuMed and Oncometrics, fraud in the  inducement  and
tortuous interference with prospective economic advantage.

       The Company's claims  against  MonoGen  have  been  dismissed  from this
action  and  consolidated  in  a separate arbitration proceeding involving  the
Company and MonoGen.  The Company's  claims  against Pressman remain pending in
this action. In June 2003, the Court dismissed  the  Company's  request  for  a
preliminary  injunction.  The  denial of preliminary injunctive relief does not
affect  the  Company's rights to pursue  permanent  injunctive  relief  at  the
conclusion of  the case, if such relief is warranted. The Company is attempting
to negotiate a global  settlement of the claims in this action, the arbitration
proceeding with MonoGen  and  any  threatened  but  unasserted  claims  by BCCA
relating  to  the  Agreements.  The failure to negotiate a favorable settlement
could have a material adverse effect on MDI's business.

       On  April 14, 2003, we received a notification from the attorney for the
licensor, Dr.  Bruce  Patterson,  M.D., Ph.D, under the License and Development
Agreement covering certain HPV technology,  which  forms  the basis for our In-
Cell HPV test, indicating that the licensor intended to terminate  the  license
in  accordance with a specific clause of the license, which permits termination
in the  event  the  Company makes an assignment for the benefit of creditors or
bankruptcy, or otherwise  relinquishes  or  loses control of all its assets. On
April 15, 2003, we informed the attorney that the facts used by the licensor to
invoke the termination right were incorrect and that we are still in control of
all  of  our assets and that such assets are pledged  as  security  under  debt
instruments  and  that  such  pledges are not included under events which would
permit the licensor to terminate the license. We, and our counsel, believe that
the MDI would prevail should the  licensor  attempt  to  pursue  a  termination
action.  We are also engaged in a dispute with the licensor over completion  of
the third  milestone of the license under which completion requires process and
procedure  verification  by  an  independent  third  party.  This  verification
requirement has not been satisfied as yet.

       The Company  and  its subsidiaries Samba Sarl and AccuMed international,
Inc. (collectively, "MDI")  are  parties  to an Amended License and development
Agreement  with Ventana Medical Systems, Inc.  ("Ventana")  dated  October  31,
2001, pursuant  to  which MDI has licensed certain intellectual property rights
and technical information to Ventana. Under the Amended License and Development
Agreement, Ventana was  to  produce an automated pathology imaging system using
the intellectual property rights  and  technical information licensed from MDI,
and Ventana was to pay MDI royalties based on the sales of such imaging system,
as well as software support fees related to licensed software rights.

       Disputes have arisen between MDI  and Ventana regarding their respective
performance  under  the  Amended License and  Development  Agreement.  MDI  and
Ventana are currently negotiating  an  agreement  of  settlement  and  release,
pursuant  to  which  the  Amended  License  and  Development Agreement would be
modified or terminated and if terminated would be replaced by a new agreement.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      There  were  no  matters  submitted  to a vote of shareholders during the
fourth quarter of 2002.


                                    PART II

ITEM 5.    MARKET  FOR  REGISTRANT'S  COMMON  EQUITY  AND  RELATED  STOCKHOLDER
MATTERS

MARKET INFORMATION

       Our  common  stock  is  quoted on the Over-the-Counter Pink Sheet Market
under the symbol "MCDG" (prior to  September 25,  2001  our common stock traded
under the symbol "AMPM"). Prior to May 27, 2003 our common  stock traded on the
Nasdaq Over-the-Counter Bulletin Board under the symbol MCDG.  AccuMed's common
stock was quoted on the Nasdaq Over-the-Counter Bulletin Board under the symbol
"ACMI".

       The following table lists the high and low closing sale prices per share
of  our  common  stock  for  the  periods indicated, as reported on the  Nasdaq
Over-the-Counter Bulletin Board. These prices represent prices between dealers,
and may not include retail mark-ups, mark-downs, or commissions.

                                                              CLOSING SALES PRICE
                                                                RANGE OF COMMON
                                                                     STOCK
                                                                     -----
                                                                 HIGH     LOW
                                                                 ----     ---
      Year Ended December 31, 2002
      1st Quarter...........................................    $1.190  $0.820
      2nd Quarter...........................................    $1.120  $0.690
      3rd Quarter...........................................    $0.750  $0.380
      4th Quarter...........................................    $0.340  $0.130

      Year Ended December 31, 2001
      1st Quarter...........................................    $2.060  $0.810
      2nd Quarter...........................................    $1.590  $0.970
      3rd Quarter...........................................    $1.200  $0.360
      4th Quarter...........................................    $1.250  $0.630

HOLDERS

       As  of  June  30,  2003 we had approximately 1,330 record holders of our
shares of common stock. This number does not include other persons who may hold
only a beneficial interest, and not an interest of record, in our common stock.

DIVIDENDS

       We have not paid a cash  dividend  on  common  shares,  and the Board of
Directors is not contemplating paying one for the foreseeable future.  We  paid
non-cash  dividends,  in  the  form of newly issued shares of our common stock,
amounting to $392,869 and $34,593 during 2002 and 2001 respectively, to holders
of preferred stock who elected to convert their preferred shares and cumulative
dividends  into our common stock.  We  have  a  contingent  obligation  to  pay
cumulative dividends  on  various  Series of convertible preferred stock in the
amount of $2,189,246, which we intend  to pay through the issuance of shares of
our common stock, if and when the holders  of  the  preferred  shares  elect to
convert  their  shares  into our common stock. Cumulative dividends for various
Series  of  convertible  preferred  stock  total  approximately  $3,143,000  at
December 31, 2002, including  $954,000  in deemed dividends arising as a result
of beneficial conversion features on Series'  B  and  C  convertible  preferred
stock sold during 2001.

STOCK TRANSFER AGENT

       Our  stock  transfer agent is LaSalle Bank NA, 135 South LaSalle Street,
Chicago, IL 60603, and its telephone number is (312) 904-2000.

RECENT SALES OF UNREGISTERED SECURITIES AND USE OF PROCEEDS

       In  November  2001,   we  completed  a  private  placement  of  Series D
convertible preferred stock to  Ventana  pursuant  to Regulation D. We received
$1,750,000  in  net  proceeds  from  the  sale  of 175,000 shares  of  Series D
convertible preferred stock. The Series D convertible  preferred  stock  has  a
dividend  rate  of 10% and is convertible into our common stock at a conversion
price of $1.00 per  share.  We  also  issued  a  three-year  warrant to Ventana
entitling  the holder to purchase 1,750,000 shares of our common  stock  at  an
exercise price  of  $1.15  per  share.  The  sale  of  the Series D Convertible
preferred  stock  to  Ventana  was  made  in  conjunction with  a  license  and
technology agreement under which Ventana was granted  a  perpetual  license  to
Samba  software  and  agreed  to  purchase AcCell instruments over a three year
period.  During the first quarter of  2002,  we  fulfilled  the  terms  of  the
transfer of  Samba software under the license. We reduced the carrying value of
175,000 shares of Series D convertible preferred stock issued to Ventana in the
transaction from  $1,750,000  to $525,000. This amount reflects a value for the
shares of Series D convertible  preferred stock equal to the value of a similar
number of shares of Series C convertible  preferred  stock,  which  was  issued
during the same time period of 2001. There were no warrants, licenses, or other
agreements  attached  to Series C convertible preferred stock. We calculated  a
fair value of $928,000 for the warrant issued to Ventana and recorded the value
as additional paid in capital.  We  used  the Black-Scholes valuation method to
calculate  the  value of the warrant. We recorded  the  remaining  $297,000  as
license fee revenue.

       In  December   2001,  we  completed  an  exchange  offer  in  which  our
shareholders tendered 10,859,688 shares  of  our  common  stock in exchange for
approximately  434,388 shares  of  Series E  convertible preferred  stock.  The
Series E  convertible  preferred  stock  has a dividend  rate  of  10%  and  is
convertible  into our common stock at any time  after  December 1,  2002  at  a
conversion rate  equal  to  $0.80  per  share. During December of 2002, holders
converted 5,144 shares of Series E convertible  preferred stock into our common
stock. We issued: 128,601 registered shares of our  common  stock  representing
registered  shares  originally  converted  into  Series E convertible preferred
stock  by  the  holder;  12,860  unregistered  shares  of   our   common  stock
representing  the 10% Series E convertible preferred stock conversion  premium;
and 13,719 shares  of our common stock representing cumulative dividends due on
Series E convertible preferred stock as of the date of conversion.


       Between October  28,  2002  and  November 17, 2002 we issued $550,000 in
principal amount Bridge II convertible promissory  notes  to  four  holders  in
exchange  for  cash. The notes are convertible into common stock at any time at
$0.10 per share.  Since the notes are convertible at less than the market price
on the date of issuance, the holders are deemed to have a beneficial conversion
feature. We calculated  a  fair  value  $330,000 for this beneficial conversion
feature and will amortize the amount as additional  interest  expense  over the
life  of  the  notes. Upon completion of significant additional financing plans
during 2003, the  holders  of  the  Bridge  II  notes are entitled to receive a
warrant to purchase one share of our common stock  for  each four shares of our
common stock into which the note converts.

       Between October 30, 2002 and November 7, 2002, four  holders converted a
total of 525,000 shares of our Series B convertible preferred  stock, including
cumulative  dividends  due  thereon  as of the conversion date, into  3,788,969
unregistered shares of our common stock.

       In November 2002, we issued 225,001  unregistered  shares  of our common
stock  to Ralph M. Richart, M.D., as payment for accrued and unpaid  consulting
fees amounting  to  $179,689  due  to him for the period June 2000 through June
2002 in accordance with the terms of a consulting agreement.

       In November 2002, we issued 400,000  unregistered  shares  of our common
stock  to  Dawn Grohs, a former consultant to MDI. A fair value of $84,000  was
calculated for  the shares based on the market price of our common stock on the
date of issuance.  The  par  value of $0.001 of the common shares, or $400, was
recorded as common stock and the  remaining  amount  was recorded as additional
paid  in  capital.  We  recorded  an offsetting expense amount  of  $84,000  to
research and development costs during  2002.  At  the  same  time, we issued an
option  to  Ms.  Grohs  to  purchase 400,000 shares of our common stock  at  an
exercise price of $0.20 per share.  One  third of the option vested immediately
and the remaining two thirds vest in equal  amounts  on  the  first  and second
anniversaries of the grant date.

       In  November  2002, we issued 200,000 unregistered shares of our  common
stock to Monsun, AS as payment of a default penalty on a convertible promissory
note. A fair value of $42,000 was calculated for the shares based on the market
price of our common stock on the date of issuance.

       In November 2002,  we issued a warrant to purchase 200,000 shares of our
common stock at an exercise price of $0.16 per share. The warrant was issued to
an advisor as a "finder's fee"  related  to  locating  investors  for Bridge II
notes described above.

       In  December  2002,  a  holder  converted  10,000  shares  of  Series  C
convertible  preferred  stock,  including  dividends  due  thereon  as  of  the
conversion date, into 55,657 shares of unregistered common stock.

       We  issued  the common stock, convertible promissory notes, and warrants
pursuant to exemptions  under  Section  4(2)  of  the Securities Act of 1934 as
amended.


REIMBURSEMENT OF LEGAL FEES

       On November 1, 2001 MDI issued a Convertible Promissory Note to Schwarz,
Cooper,  Greenberger &  Krauss  ("SCGK")  in  exchange for  $500,000  in  legal
services. The Note bears interest at the rate of  12%  per  year  and is due in
five  installments.  The  Note  is  convertible  into Common Stock of MDI  upon
issuance of the Note at a conversion price equal to  the  stock  price  on  the
conversion date.

       In  accordance  with  Promissory Note provisions, SCGK forgave the final
installment on the note, which  was  due  February 28, 2002. Therefore, MDI did
not include the final payment in its debt balance as of December 31, 2001.

       MDI  executed  a  settlement agreement  with  SpectRx  in  January  2002
regarding the outstanding litigation in which SCGK served as MDI's counsel. MDI
also executed an agreement  with  SCGK  for  its  outstanding legal fees, dated
February 13, 2002, that stipulated that MDI would provide SCGK with warrants to
purchase 750,000 shares of common stock, a promissory  note  in  the  amount of
$118,500  and  a  personal  guaranty  of  the note from Peter Gombrich. MDI was
required to pay a $25,000 fee upon the execution of the agreement.

       On February 13, 2002, MDI issued 750,000 warrants to SCGK for its common
stock. The warrants are exercisable at $.01  per  share.  The  750,000 warrants
represent  payment  for  the  SpectRx  settlement. The expiration date  of  the
warrant  is  February 12,  2012  and  warrants   may  not  be  exercised  until
February 14, 2003.

EQUITY COMPENSATION PLAN INFORMATION

                     EQUITY COMPENSATION PLAN INFORMATION

Plan Category                           Number of securities to      Weighted-average         Number of securities
                                        be issued opon exercise      Excersise price of       remaining available for
                                        of outstanding options,      outstanding options,     future issuance under
                                        warrants and rights          warrants, and rights     equity compensation plans
                                                                                              (excluding securities
                                                                                              reflected in column (a))

                                                 (a)                         (b)                        (c)

1999 EQUITY INCENTIVE PLAN AS AMENDED -
5,500,000 SHARES                               3,507,517                    $1.296                   1,319,817

1999 EMPLOYEE STOCK PURCHASE PLAN -
200,000 SHARES                                        --                        --                     160,415

EQUITY COMPENSATION PLANS NOT APPROVED
BY SECURITY HOLDERS
  Warrants issued with debt (1)                7,554,318                    $0.506                           0
  Warrants issued for finders services (2)     2,658,426                    $0.696                           0
  Warrants issued for IR services (3)            680,000                    $0.860                           0
  Warrants issued of other services (4)        1,051,493                    $0.086                           0
  Warrants issued for asset acquisitions (5)     472,120                    $0.305                           0
  Warrants from AccuMed acquisition (7)        1,074,056                    $7.174                           0


   1)        MDI  has  and  will  most  likely  continue  to attach warrants to
       issuances of debt as an additional consideration to debt holders in lieu
       of payment of higher interest rates on the debt, which would be required
       based  on  market  interest  rates  prevalent at the time  of  the  debt
       issuance  and  the  significant level of  risk  involved  based  on  the
       financial condition of MDI.

   2)        MDI  has and will  most  likely  continue  to  issue  warrants  to
       financial advisors  who act as finders in the placement of MDI's debt or
       equity  instruments.  The   issuance   of  warrants  to  these  advisors
       significantly  reduces  the  cash  costs,  which   would   otherwise  be
       associated with raising debt or equity.

   3)        MDI has generally included warrants in compensation agreements for
       providers  of investor relations and or public relations services.  This
       practice significantly  reduces  the  cash  costs to MDI to obtain these
       services.

   4)        From time to time, MDI has issued warrants  to  providers of legal
       and  consulting  services  in lieu of cash payments for those  services.
       During 2002, MDI issued a warrant  to a law firm entitling the holder to
       purchase 750,000 shares of MDI's common  stock  at  an exercise price of
       $0.01 per share in settlement of fees due to the firm  arising  from the
       settlement  of  litigation.  A  non-employee  consultant  also agreed to
       accept  a warrant in lieu of approximately $51,000 in unpaid  consulting
       fees due.

   5)        During  2000  and  2001,  MDI  issued warrants and cash to pay the
       initial licensing fees, required under  agreement to exclusively license
       the  technology  underlying the "In-Cell HPV  Test".  During  2001,  MDI
       issued  warrants  under  an  agreement to acquire a thirty percent (30%)
       interest in Cell Solutions, Inc., a company assisting in the development
       of MDI's products.

   6)        In  September  2001,  MDI  completed  the acquisition  of  AccuMed
       International, Inc. by merging it into a wholly owned subsidiary of MDI.
       As a result, MDI assumed stock options and warrants  outstanding  on the
       records of AccuMed at the time of the acquisition. The remainder of  the
       options  that  were  assumed  in  the  acquisition are included in total
       options outstanding under the Equity Incentive Plan.

   7)        See Footnotes No. 10: Stockholders'  Equity  and  No.  13:  Equity
       Incentive  Plan  and  Employee  Stock  Purchase Plan to the Consolidated
       Financial Statements for additional specifics  on the Plans listed above
       and other issuances of equity for compensation.


ITEM 6.    SELECTED FINANCIAL DATA

      The selected  financial  data  shown  below  is  derived from the audited
Consolidated Financial Statements and notes included elsewhere  in  this Annual
Report on Form 10-K.


         FOR THE FISCAL YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
             (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER-SHARE DATA)

                                                     2002        2001        2000
                                                     ----        ----        ----
      STATEMENT OF OPERATIONS DATA:
        Net Sales............................      $  1,746    $    877     $ 1,094
        Operating loss.......................      $(10,503)   $(16,087)    $(6,688)
        Net loss allocable to common shareholders  $(13,972)   $(19,791)    $(6,611)

      PER SHARE DATA:
        Net loss.............................      $  (0.49)   $  (0.62)    $  (0.24)
        Weighted average shares outstanding..    28,204,245  32,019,531   27,869,274

      BALANCE SHEET DATA:
        Working deficit......................      $(12,929)   $ (4,472)    $ (3,301)
        Total assets.........................      $  9,659    $ 11,626     $  4,575
        Notes payable: current...............      $  4,650    $  1,424     $  1,105
        Notes payable: long-term.............      $      0    $      0     $      0
        Stockholders' equity (deficit).......      $ (4,579)   $  4,623     $   (125)

ITEM 7.    MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF FINANCIAL CONDITION  AND
RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

       OVERVIEW

       We  were incorporated in Delaware on December 15, 1998, as the successor
to Bell National Corporation, which was incorporated in California in 1958.

       On December 4, 1998, Bell National, then a shell corporation without any
business activity, acquired InPath, LLC, a development-stage company engaged in
the design and development of products used in screening for cervical and other
types of cancer.  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.  The  senior
executives of InPath assumed management control of the Company.

       For financial  reporting  and  accounting  purposes  the 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 SEC filing purposes  and  income  tax filing purposes, until
its  merger  into  Ampersand  in  May  1999.  Because  Bell  National   was   a
non-operating public shell company with nominal assets and InPath was a private
operating  company,  the  acquisition was recorded as the issuance of stock for
the net monetary assets of Bell National, accompanied by a recapitalization and
no  goodwill  or other intangible  assets  were  recorded  in  accordance  with
generally accepted accounting principles.

       On September 25,  2001,  the  Company  changed  its  corporate  name  to
"Molecular  Diagnostics,  Inc." in order to better represent its operations and
products. The name change was  affected  by  the  merger  of Ampersand's wholly
owned  subsidiary,  Molecular Diagnostics, Inc., with and into  Ampersand.  The
Company retained its Certificate of Incorporation, except as amended to reflect
its new name, bylaws and capitalization.

       The Company is  focused  on the design, development and marketing of the
InPath System of products. These  products  are  intended  to detect cancer and
cancer related diseases. These products may be used in a laboratory,  clinic or
doctor's office.

       The  Company  has  a  wholly owned subsidiary, Samba Technologies, Sarl.
Samba 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.  A significant portion of 2002  revenues  and  nearly  all
revenues reported for prior  periods,  since the inception of the Company, have
been generated by Samba. Since December  20,  2002 Samba has operated under the
protection  of the French Commercial Court in compliance  with  the  bankruptcy
laws of France.  Samba  continues  to  maintain  normal  operations  under  the
supervision of an Administrator appointed by the French Commercial Court. Samba
will  continue  under operating under the current format until a reorganization
and continuation  plan  is  approved  by  the Court, which must act by December
2003, unless an extension of time is granted.  We  anticipate  filing a plan of
reorganization and continuation for Samba during the third quarter of 2003.

       On September 17, 2001, the Company completed its acquisition  of AccuMed
pursuant to a merger. In consideration for the acquisition, the Company  issued
3,911,245,  shares of its common stock to holders of AccuMed common stock,  and
218,438 shares  of  its  Series A  convertible  preferred  stock  to holders of
AccuMed  Series A preferred stock. The value of the transaction, based  on  the
fair value  of  the  shares  of  common stock and preferred stock issued by the
Company, the value of options and  warrants  assumed,  the  direct  acquisition
costs  incurred,  and  the fair market value of tangible and intangible  assets
purchased,  as  determined   by  a  third-party  valuation,  was  approximately
$14,178,000.

       On October 11, 2001, MDI  obtained  a  30% investment in Cell Solutions,
LLC. Cell Solutions was formed for the purposes  of  developing  and  improving
slide  preparation  systems.  As  consideration,  MDI  provided  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 $127,000. MDI has included the value of these warrants as an
investment  at  December 31,  2001.  MDI  determined  the  fair  value  of  the
investment to be impaired at December 31, 2001. The investment was written down
to zero as a result of the uncertainty of future benefit or revenue stream.

       MDI is  contractually  committed  to issue a total of 1,549,086 warrants
with the same terms based upon delivery of  certain products by Cell Solutions.
As of December 31, 2002, Cell Solutions had not  delivered  these  products and
MDI was not liable for the issuance of the warrants.

       The  Company  has  incurred  a  significant  operating  loss  since  its
inception.  The  Company has raised approximately $27,336,000 since March 1998.
The Company expects  that  significant  on-going operating expenditures will be
necessary  to  successfully  implement  its  business   plan  and  to  develop,
manufacture  and  market  its products. These circumstances  raise  substantial
doubt  about  the  Company's  ability   to   continue   as   a  going  concern.
Implementation of the Company's plans and its ability to continue  as  a  going
concern   may   depend  upon  it  securing  substantial  additional  financing.
Management's plans  include  efforts to obtain additional capital. During 2002,
we  raised  approximately  $3,825,000   through   the  issuance  of  short-term
convertible debt. During 2003, through July 8, we raised $2,141,000 through the
issuance of additional short-term convertible debt.  There  can be no assurance
that  the  Company  will continue to be successful in raising capital.  If  the
Company is unable to  obtain  additional  capital  or generate profitable sales
revenues, the Company may be required to curtail its  product  development  and
other activities and may even be forced to cease operations.

       As mentioned in Item 1, for financial reporting and accounting purposes,
we treated the acquisition of InPath by Bell National as if InPath had acquired
Bell National. We recorded the issuance of common stock, combined the equity of
the  two  companies,  and did not record any goodwill. Information presented in
our Consolidated Financial  Statements  includes  the operations of InPath from
March 16,  1998  (inception) and the operations of the  combined  company  from
December 4, 1998.

SIGNIFICANT ACCOUNTING POLICIES

       Revenue Recognition.   Molecular  Diagnostics,  Inc.  recognizes revenue
upon  shipment  of  product  or  license to customers and no remaining  Company
obligations or contingencies exist,  or in the case of sales of software by its
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; the fee is
fixed or determinable; and collection is probable.

       Revenue from ongoing client maintenance is recognized  ratably  over the
post-contract  support  term,  which  is  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  number  of actual hours of service
rendered.  Implementation  and  installation services are  generally  completed
within 120 days.

       License,  Patents, and Technology.   Licenses,  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 begun 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.  The  Company  assesses  licenses,  patents,  &
technology quarterly for impairment.

       Stock   Compensation.   As  permitted  by  the  Statement  of  Financial
Accounting  Standards   No. 123,   Accounting   for   Stock-Based  Compensation
(SFAS 123),  Molecular  Diagnostics, Inc. 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, the Company has 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 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.

       REVENUE

       Revenues for the year  2002 were $1,746,000, an increase of $869,000, or
99%, over revenues for the year  2001. The 2002 revenue increase was the result
of increases of: $502,000 in revenues  from  sales  of AccuMed related products
and services; $297,500 in revenues realized from the  sale  by  MDI  of a Samba
software  and  software  technology  license  to  Ventana  in  2001; $12,500 in
revenues  from  initial sales of MDI products; and $77,000 in maintenance  fees
related  to installed  software  and  instruments.  Samba's  sales  to  outside
customers  declined approximately $20,000. Samba personnel spent a considerable
amount of billable  time  working  on  MDI products, the revenues for which are
eliminated in consolidation. The operations  of  Samba  are  conducted in local
currency,  the  Euro.  We  convert  the  local  currency into U.S. Dollars  for
consolidated reporting purposes. Approximately $40,000  of the Samba's revenues
are  the result of an increase in the value of the Euro compared  to  the  U.S.
Dollar.  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.

       Revenues  for  the  year  2001 were $877,000, a decrease of $217,000, or
19.8%, over revenues for the year  2000. The 2001 revenue decrease was a result
of a decrease in revenues at Samba of  $292,000,  offset by $75,000 of revenues
generated by MDI in the United States. Samba's revenue  declined primarily as a
result of the timing of completing contract deliverables  in  2001  compared to
2000  and a decline in the value of the Euro compared to the U.S. Dollar.  This
decline  in  the  value  of  the Euro reduced Samba's revenues by approximately
$44,000. MDI generated revenues  were comprised of $52,000 from the acquisition
of AccuMed's contracts and $23,000 from the re-sale of one AcCell Unit.

       All of our reported revenues  for  the year 2000 amounting to $1,094,000
were produced through sales of Samba products  and  services.  Revenues for the
year  2000  reflect  an increase of $54,000, or 5%, over 1999 revenues.  During
2000, the average exchange  rate  of  the  Euro  to the U.S. Dollar declined by
approximately  15%. This decline reduced the translated  U.S. Dollar  value  of
Samba's 2000 revenues by approximately $169,000.

       COSTS AND EXPENSES

       Cost of Goods Sold

       Cost of goods  sold  for  2002  amounted  to  $852,000,  an  increase of
$376,000, or 79%, over 2001 cost of goods sold. The increase was primarily  the
result  of  costs related to the sale of AcCell instruments, changes in Samba's
product mix, and the related increase in the translated value of Samba's costs.

       Cost of  goods  sold  for  2001  amounted  to  $476,000,  a  decrease of
$161,000,  or  25.3%  over  2000  cost of goods sold, resulting primarily  from
reductions of net sales and decreases  in  software  products  sold with higher
gross margins.

       Cost of goods sold for 2000 amounting to $637,000 relates  to  the Samba
revenues  and  represents  the cost of computer and imaging hardware, purchased
services and products and software  engineering labor and related expenses. The
increase in 2000 costs over 1999 costs  reflects  the  increase in the level of
business  as  well  as  a change in the product-mix components  of  sales.  The
hardware component of Samba  sales  generates a much higher level of cost and a
lower gross margin, than do the software  or service components of sales. Samba
may supply necessary hardware or the customer  may  supply  hardware  directly.
There is no set pattern in contract hardware and software components.

       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.

       In 2002,  our  R&D  expenses were $3,338,000, a decrease of $696,000, or
17%, over 2001 R&D expenses.  The  decrease was the result of reductions in R&D
staff and related payroll costs of $205,000 most of which came as the result of
the closing of the Cleveland laboratory in January of 2002, product development
costs of $446,000 because the majority  of product development was completed in
prior years, and in consulting costs of $176,000  primarily resulting from non-
cash  costs described below. These reductions were offset  by  an  increase  in
clinical trial related costs of $205,000. R&D expenses consist of costs related
to  specific   development   programs   with   scientists  and  researchers  at
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,
and payroll related costs for  in-house  engineering,  scientific,  laboratory,
software development; and research management staff.

       In  2001,  our R&D expenses were $4,034,000, an increase of $608,000, or
17.7% over 2000 R&D  expenses  a  result of increased product development costs
for the Cocktail CVX and HPV assays,  the AcCell 2500, and the Point-of-Service
(POS) product.

       In  2000,  our  R&D expenses were $3,426,000 compared to  $1,782,000  in
1999, an increase of 92%. During 2000, we incurred significant additional costs
of $160,000 to expand our  in-house  research  related staff; $170,000 to cover
additional medical and technical consultants, including  costs  related to full
year  engagements  for  those  added  in 1999; $260,000 to expand our  contract
research staffs and related laboratory  operations;  $110,000  to  cover  costs
related  to  clinical  trials  and  studies; and $700,000 in additional outside
design  and  development  costs related  to  instruments  and  disposable  test
products. These costs were  offset by a reduction in software development costs
related to Samba products of approximately $150,000.

       In order to reduce our  R&D expenses, a portion of the compensation paid
to  consultants  may  be in the form  of  awards  of  our  common  stock  (with
restrictions attached) or grants of options to purchase our common stock. Since
these awards and/or option  grants cover services to be performed over a future
time period, we are required to calculate their market value at the end of each
reporting period until the work  is complete. Included in the above R&D expense
amounts for 2002, 2001 and 2000 are non-cash expenses of  $92,000, of $215,000,
and $446,000 respectively, related to the calculated cost of these share awards
and options that were charged to expense in each period.

       SELLING, GENERAL AND ADMINISTRATIVE

       Significant components of SG&A  are  compensation  costs  for executive,
sales  and  administrative  personnel,  professional fees primarily related  to
legal or accounting services, travel costs,  fees  for  public  and/or investor
relations  services,  insurance  premiums, recruitment fees, marketing  related
costs, amortization and depreciation.

       In  2002, selling, general and  administrative  expenses  ("SG&A")  were
$8,059,000,  an increase of $1,712,000, or 27%, over similar expenses for 2001.
The increase includes: $780,000 in legal expenses related to various public and
private offerings as well as increased litigation costs related to the RVC loan
transaction; $406,000  in  financing  cost  primarily  related  to the RVC loan
transaction;  $597,000  in  printing,  accounting  and other professional  fees
related  to  the  aforementioned  offerings;  and  approximately   $450,000  in
additional amortization resulting from the AccuMed acquisition. These increases
were offset by  reductions of $250,000 reduction in investor relations expenses
and $250,000 in administrative related payroll expenses.

       In  2001,  SG&A expenses were $6,347,000, an increase of $2,628,000,  or
70.7%, over similar  expenses for the year 2000. This increase is primarily due
to increased salaries  and  wages and related payroll costs and other operating
expenses resulting from AccuMed merger operations integration.

       In 2000, SG&A expenses  were  $3,719,000 compared to $2,833,000 in 1999,
an  increase  of  31.3%.  The  increase in  SG&A  expenses  for  2000  included
additional costs of approximately  $210,000  for  staff and expenses related to
the newly established sales and marketing activity;  $100,000  in  legal  costs
primarily  related  to  litigation; and $200,000 in travel costs related to the
sales and marketing activity,  management of a broader operation, and continued
efforts to raise new equity.

       In 1989, we issued 450,000 stock appreciation rights ("SARs") to various
individuals. In 1990, Cadmus Corporation,  a  company  controlled  by Alexander
Milley, one of our directors and a significant stockholder, purchased  the SARs
from the individual holders. These SARs entitle the holder to receive a payment
equal to the amount by which the market price of our common stock, at the  time
of  exercise,  exceeds  $0.30  per share. We can make the payment in cash or by
issuing an equivalent number of  shares  of  common  stock. The SARs expired in
November 2001. We are required to charge an amount to  expense  at  the  end of
each  interim  reporting  period,  which  represents  the excess of the closing
market price of our common stock over the exercise price at that point in time,
until  the  SARs are exercised or expire. The charge to expense  is  cumulative
over the life  of  the SARs and increases or decreases from period to period in
conjunction with the  movement of our common stock price. Included in the above
SG&A expense amounts for  2001 and 2000 are non-cash expenses (or reductions of
expenses) of ($79,000), $91,000  respectively,  which  represent the calculated
cost of the SARs charged to expense in each period.

       In order to reduce our cash SG&A expenses, we may  issue  shares  of our
common  stock  (with  restrictions  attached)  or grant options, or warrants to
purchase  shares of our common stock in lieu of compensation  or  payments  for
financial advisory  work,  including  advice  on  deal  structure, finder fees,
investor  relations  and  introductory  services,  and  general  financial  and
investment advice. If the services are completed, we record an expense based on
the value of the services. If the services are to be completed  over  a  future
period  of  time,  we  are required to calculate a market value for the shares,
options, or warrants at the end of each reporting period until the services are
completed. Included in the  above  SG&A expense amounts for 2002, 2001 and 2000
are non-cash expenses of $1,078,000, $443,081 and $66,000 respectively, related
to the calculated cost of these share  awards, options and warrants, charged to
expense in each period.

       IMPAIRMENT LOSS

       Management  determined that there  was  no  further  impairment  of  our
intangible assets and  technology  as of December 31, 2002. Management utilized
the results of a valuation prepared  by  an independent third party to make its
determination.

       In 2001, MDI recorded impairment losses  aggregating  $6,107,000.  These
losses are comprised of $5,833,000 for the impairment of goodwill recognized in
MDI's  acquisition of AccuMed and $274,000 for the write-off of the full amount
of MDI's  pending patent portfolio. At December 31, 2001, management determined
several factors, principally that certain contracts being negotiated by AccuMed
failed to materialize,  indicating that the carrying value of goodwill from the
AccuMed acquisition was impaired.  Management  also  performed an assessment of
the  development  of  MDI's  pending  patent  portfolio. As  a  result  of  the
developmental nature of the portfolio and significant  uncertainty  surrounding
the ultimate issuance of the related patents, MDI recorded an impairment loss.

       OTHER INCOME AND EXPENSE

       Interest Income

       We had no interest income during 2002.

       During  2001,  we earned interest income on notes from Seaside Partners,
L.P., a related party,  and AccuMed of, $25,000, and $85,000, respectively. The
interest earned on the AccuMed  notes during 2001 and 2000 amounting to $95,000
was reclassified from accrued interest  receivable  to  inter-company  accounts
payable  in  accordance  with generally accepted accounting principles when  we
closed the acquisition of AccuMed in September 2001.

       During 2000, we earned  interest  income  on  the  notes receivable from
Seaside Partners, L.P. and AccuMed amounting to $73,000.

       Interest Expense

       In  2002, our interest expense amounted to $1,606,000,  an  increase  of
$1,080,000,  or  205%  over  2001  interest expense. The entire increase can be
attributed to the amortization of debt  discount  arising  from  the beneficial
conversion feature of Bridge I and Bridge II convertible promissory notes.

       In  2001,  our  interest  expense  amounted to $526,000, an increase  of
$291,000, or 123.8% over 2000 interest expense.  The increase reflects interest
on  a higher level of average outstanding debt during  the  current  year.  The
amount includes a non-cash expense of $226,000 representing the amortization of
debt  discount on two $500,000 convertible promissory notes issued in September
and November 2000 and an additional $500,000 convertible promissory note issued
in May of 2001 in exchange for cash under the same terms as the notes issued in
2000. The  conversion  price of the 2001 note was less than the market price of
our common stock at the  time  of  the transaction and the holders of this note
are also considered to have a beneficial  conversion  feature.  We recorded the
calculated value of the beneficial conversion feature amounting to  $50,000  as
debt  discount,  and  we  are  amortizing  the  discount as additional interest
expense over the life of the note. The 2001 amount  also includes an additional
non-cash  expense  of  $11,589  representing the value of  warrants  issued  as
additional consideration for a $470,000  note  issued to Azimuth Corporation in
February 2001, a $100,000 note issued to Azimuth  Corporation in August 2001, a
$100,000 note issued to Cadmus Corporation in July 2001,  and  a  $25,000  note
issued  to Northlea Partners, Ltd. in August 2001. Alexander Milley, one of our
directors  and  significant  stockholder,  has a controlling interest in and is
considered a control person of Azimuth Corporation  and Cadmus Corporation, and
John Abeles, M.D., also one of our directors, is the  managing  general partner
of  Northlea  Partners,  Ltd.  Lastly,  the 2001 amount includes the calculated
value of a warrant issued to Azimuth Corporation  in  exchange for their waiver
of the conversion feature of the September 2000 convertible promissory note and
the calculated value of a warrant issued to Monsun, SA  as  consideration for a
three month extension of the due date of the convertible promissory note issued
in November 2000.

       In 2000, our interest expense amounted to $235,000 compared  to  $86,000
in 1999, an increase of 173.3%. The increase reflects a higher rate of interest
paid on new borrowings issued during the year offset by elimination of interest
on  a  series  of  6%  convertible subordinated notes issued during 1999, which
automatically converted  into  common  stock on April 28, 2000. The 2000 amount
also includes a non-cash expense of $139,000 representing the amortization debt
discount.  We  issued two $500,000 convertible  promissory  notes,  to  Azimuth
Corporation in September 2000  and  to Monsun, SA in November 2000, in exchange
for cash. The notes provide the holder  with an option to convert the principal
of the note into our common stock at a conversion  price of $1.00 per share any
time  after 180 days from the original note issue date.  Since  the  conversion
price was  less  than  the  market price of our common stock at the time of the
transaction the holders are considered to have a beneficial conversion feature.
We are required to record the  calculated  value  of this beneficial conversion
feature, amounting to $250,000, as debt discount, and  to amortize the discount
as additional interest expense over the life of the note.

       Other Income and Expense, Net

       In January 2002, we received $150,000 as an out-of-court settlement of a
lawsuit.

       In 2001, we recorded a $127,000 expense for write-off of warrants earned
by Cell Solutions, LLP, a Virginia limited liability company,  as  a  result of
the uncertainty of future benefit or revenue stream.

       In  2000,  we  had  a  dispute  with  our  former  outside legal counsel
regarding  services and fees. We recorded the disputed fee expense  represented
by invoices  and a note payable in 2000 and 1999. In September 2000, we settled
the dispute for  approximately  $226,000, less than the existing liability, and
recorded the amount as other income.  To  be  consistent with 1999 consolidated
reporting we also treated $14,000 in refundable  income  taxes,  related  to an
R & D credit due to Samba under French taxation rules, as other income.

       NET LOSS

       Our net loss for 2002 was $11,960,000. Cumulative dividends for 2002  on
the  outstanding  Series  B  convertible  preferred stock, Series C convertible
preferred stock and Series D convertible preferred  stock  totaled  $2,012,000.
The  combined  total of the loss and the preferred dividends results in  a  net
loss applicable  to  common  stockholders of $13,972,000, or $0.49 per share on
28,704,245  weighted average shares  outstanding.  The  2002  weighted  average
shares outstanding  reflect additional shares issued during the year and shares
issued as the result  of  the  conversions  of  shares  of Series B convertible
preferred stock, Series C convertible preferred stock, and Series E convertible
preferred stock, and their related cumulative dividends into  our common stock.
They also reflect the issuance of 5,750,000 of our common stock  as  additional
collateral  on  the  RVC  loan. Although these shares are treated as issued and
outstanding at December 31,  2002,  they  were  returned  to MDI in 2003 and we
cancelled  them  in  April  of  2003.  If  we had not treated these  shares  as
outstanding at December 31, 2002 the net loss applicable to common stockholders
would have been $0.52 per share.

       Our  net  loss for 2001 was $16,630,000.  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 $562,000. Deemed dividends on the Series B and Series C
convertible preferred stock, resulting from the beneficial  conversion  feature
of  the  Series B  and Series C convertible preferred stock totaled $2,559,000.
The combined total of  the  loss  and  the preferred dividends results in a net
loss available to common stockholders of  $19,791,000,  or  $0.62 per  share on
32,019,531  weighted  average  shares  outstanding.  The  2001 weighted average
shares outstanding reflect additional shares of common stock  issued during the
year  and  the  exchange  of 10,859,688 shares of common stock into  shares  of
Series E convertible preferred stock in December 2001.

       Our net loss for 2000  was $6,611,000, or $0.24 per share, on 27,869,274
weighted average outstanding shares.  The  2000  weighted  average  outstanding
shares are 94% higher than the 1999 average. During the year we sold additional
shares of our common stock in a private offering and a series of 6% convertible
subordinated notes issued in 1999 that were automatically converted into shares
of common stock in 2000.

       We did not have any shares of preferred stock outstanding in 2000.

       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 limited numbers of U.S. and foreign accredited investors. We may  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 $4,227,000, $7,963,000 during  2002  and 2001, respectively, in
operating activities.

       We had severe liquidity problems during the second  half  of  2002. As a
result,  we were forced to stop our clinical trials, cut staff, and reduce  our
operations  to a minimum level. Officers refrained from drawing salaries during
part of the third  quarter  and  all  of the fourth quarter of 2002 in order to
reduce demands on our limited cash position. Officers continued to refrain from
drawing salaries through the first five  months  of 2003. We were able to raise
funds at the end of August 2002 under a loan from Round Valley Capital, LLC, as
described  below.   The  proceeds  of  the loan were used  to  satisfy  certain
obligations coming due at that time as well  as  current  operational expenses.
However, as a result of a dispute over the value of a portion of the collateral
for the loan, RVC declared the loan in default. We were forced  to  devote  our
energies  to  raising funds to repay the RVC loan and to defend our assets from
foreclosure. Nearly all of the funds raised during the last quarter of 2002 and
the first quarter of 2003 from the issuance of Bridge II convertible promissory
notes went to this  effort.  We reached a final settlement on with RVC April 2,
2003.

       At  December 31,  2002,  we  had  cash on hand of $42,000, a decrease of
$983,000 over cash on hand at December 31,  2001  of  $1,025,000. This decrease
results from our loss from operations and our inability to raise sufficient new
capital due to very unfavorable conditions in financing  markets,  both  public
and  private,  for  companies  in  general,  and  especially  for small biotech
companies  such  as ours. We were unable to raise sufficient funds  during  the
year to maintain adequate  cash  reserves  and  to meet the ongoing operational
needs of the business.

       Between February  7, 2000 and April 30, 2000 we sold 3,583,330 shares of
our  common  stock at a price  of  $1.50  per  share,  for  total  proceeds  of
$5,329,000, in  the  private  offering. Of the total shares of our common stock
sold in the private offering, we  sold  1,333,333 shares of our common stock to
Seaside Partners, L.P., a hedge fund, at $1.50 per share, for total proceeds of
$2,000,000. Dr. Denis M. O'Donnell, one of  our  directors,  is  a  member  and
manager  of  Seaside  Advisors,  L.L.C.,  which  provides investment management
services to Seaside Partners, L.P. In lieu of cash, we agreed to accept payment
in the form of a $2,000,000 promissory note due July 27, 2000, bearing interest
at the rate of 8% per year. We agreed to extend the  original  due  date of the
note until November 30, 2000. Seaside Partners, L.P. made payments against  the
principal  of  the  note  amounting  to  $1,550,000  during 2000. The remaining
principal  amount  of the note was repaid between June 2001  and  August  2001.
Accrued interest due  on  the  note amounting to $88,000 was paid in August and
December of 2001.

       In  July  1999, Samba negotiated  a  Revolving  Credit  Line  with  Banc
National de Paris  ("BNP").  In  January  2003  the  Revolving  Credit Line was
converted  to  an  overdraft  facility  capped  at 150,000 Euros, approximately
$158,000 U. S. Dollars. The terms of the overdraft  facility  require  Samba to
pay  interest at 8.8% on advances outstanding under the overdraft facility  and
grant  BNP a security interest in Samba accounts receivable. As of December 31,
2002, an  amount of $207,000 was outstanding against the revolver. The overdraw
facility continues in effect under Samba' current operating conditions.

       On September 22,  2000,  in  conjunction with the signing of a Letter of
Intent to merge with AccuMed we loaned AccuMed $300,000 in cash in exchange for
a promissory note bearing interest at 2.5% above the prime rate. On February 7,
2001, this note was cancelled and replaced by a new promissory note, secured by
AccuMed's inventory, issued in conjunction  with  the  signing  of a definitive
agreement under which we acquired AccuMed.

       On  December 28,  2000,  we  loaned  AccuMed  an  additional $30,000  in
conjunction  with  the  merger.  The  loan  was  included  in the  new  secured
promissory note signed on February 7, 2001.

       On  February 7,  2001,  we signed a definitive agreement  to  merge  our
subsidiary,  AccuMed  Acquisition,  Corp.,  with  AccuMed.  We  formed  AccuMed
Acquisition Corp. to acquire  AccuMed.  Under  the  terms of this agreement, we
exchanged  3,911,245 shares  of  our common stock for all  of  the  outstanding
common  stock  of AccuMed. In addition,  we  exchanged  218,438 shares  of  our
Series A convertible  preferred  stock  for  all of the outstanding convertible
preferred  stock of AccuMed. The 218,438 shares  of  our  Series A  convertible
preferred stock  are convertible into approximately 95,000 shares of our common
stock. On September 17,  2001  we  completed  the  acquisition of AccuMed. This
acquisition was recorded as a purchase business combination  in accordance with
Statement  of  Financial Accounting Standards No. 141, "Business  Combination".
The Company has consolidated the results of operations of AccuMed from the date
of acquisition.  Fair market value of tangible and intangible assets of AccuMed
was determined by  a third-party valuation, resulting in a total purchase price
of approximately $14,178,000.

       In  June  2000,  we entered into a License and Technology Agreement with
Invirion, a company controlled  by  Dr. Bruce  Patterson, granting us worldwide
exclusive rights to certain medical technology for  the  detection of oncogenic
(cancer causing) types of the HPV. This agreement provides for $500,000 in cash
payments  and  warrants to purchase 400,000 shares of our common  stock  at  an
exercise  price  of   $0.01,   based  on  technology  delivery  milestones.  On
September 12, 2000, we signed an  addendum to the agreement. The first addendum
provided that Invirion's ownership  and  patentability  of  the  technology was
established,  the  initial  HPV  probe was delivered, and the first development
milestone was met, and that the $250,000  in cash payments due would be paid in
equal installments over a period of ten months.  We  also  issued  warrants  to
purchase  250,000  shares of our common stock at an exercise price of $0.01 per
share in accordance with the terms of the agreement and first addendum. We used
the Black-Scholes valuation model to determine a fair value for the warrants of
$530,000 and recorded  the amount as capitalized license and additional paid in
capital. In January 2001,  we  signed the second addendum. This second addendum
provided that the second development  milestone  was  met  in December 2000 and
that  $150,000  cash  payment  due would be paid in equal installments  over  a
period  of  six months beginning in  January 2000.  The  second  addendum  also
amended the agreement  to more closely reflect Dr. Patterson's inventorship and
ownership of the technology.  In June 2001, we signed the third addendum to the
agreement. This third addendum provided that the final milestone would be split
into three parts and that the first  part  was  met in June 2001. The remaining
two parts of the final milestone have yet to be completed.  As  a result of the
completion  of  the  first  part  of the third milestone, we paid Dr. Patterson
$35,000 in cash and issued a warrant  to  purchase  50,000 shares of our common
stock  at  an  exercise  price  of $0.01 per share. We used  the  Black-Scholes
valuation model to determine the  fair  value  for  the warrants of $49,000 and
recorded  the  amount  as  capitalized  license costs and  additional  paid  in
capital.

       We  also  signed a Development Agreement with Invirion and Dr. Patterson
in June of 2000 to  complete the development and integration of the HPV product
with the InPath System.  We  paid  $100,000 in cash and continued to pay $5,000
monthly consulting fees, until March  2003,  to cover all costs to complete the
development project.

       On  September 22,  2000,  we  issued  a  convertible  promissory note to
Azimuth in exchange for $500,000 in cash. The note bears interest  at  the rate
of 15% per year and was due twelve months from the date of issue. The note  was
convertible  into  our common stock, any time after the expiration of the first
180 days of the loan  term, at a conversion price of $1.00 per share. Since the
conversion price was less than the market price of our common stock at the time
of the transaction the  holders  are considered to have a beneficial conversion
feature. We recorded a value of $125,000  to this beneficial conversion feature
as debt discount, reducing the carrying amount  of  the debt. The debt discount
is amortized as additional interest expense over the  life  of the note. During
2001   and   2000,   we  recorded  non-cash  charges  of  $91,000  and  $34,000
respectively, to interest  expense  to  reflect  the  amortized  amount of debt
discount.  In  August  2001,  we  issued Azimuth a warrant, which entitled  the
holder to purchase 500,000 shares of  our  common stock at an exercise price on
$1.00  per  share  in  exchange  for  Azimuth's  agreement  to  relinquish  the
conversion  feature  of  the  note  and  extend  the  due  date.  We  used  the
Black-Scholes  valuation  model to calculate a fair value  of  the  warrant  of
$25,000 and charged the amount  to interest expense. We repaid the note in full
in November 2001. We used $300,000  in  proceeds  from  this  note  to fund the
AccuMed  notes  described  above. The balance was used to fund license payments
and the initial payment of a  settlement  arrangement  with  our  former  legal
counsel.

       On  November 1, 2000, we issued a convertible promissory note to Monsun,
AS in exchange for $500,000 in cash. The note bears interest at the rate of 15%
per year and  was  due  twelve  months  from  the  date  of  issue. The note is
convertible into our common stock, any time after the expiration  of  the first
180 days of the loan term, at a conversion price of $1.00 per share. Since  the
conversion price was less than the market price of our common stock at the time
of  the  transaction the holders are considered to have a beneficial conversion
feature. We  recorded a value of $125,000 to this beneficial conversion feature
as debt discount,  reducing  the carrying amount of the debt. The debt discount
is amortized as additional interest  expense  over the life of the note. During
2001 and 2000, we recorded charges of $104,000  and $21,000 to interest expense
to reflect the amortized amount of debt discount. On October 31, 2001 we issued
a warrant to Monsun, AS entitling the holder to purchase  100,000 shares of our
common stock at an exercise price of $0.60 per share, a discount  of 20% to the
market  price  of  our common stock at the time, as consideration for  Monsun's
agreement to extend  the  maturity  date of the note until January 31, 2002. We
used the fair value interest rate method  to  determine  a  fair  value  of the
warrant  of  $25,000  and  charged  the  amount  to interest expense during the
period.  On  January 31, 2002, we issued a three-year  warrant  to  Monsun,  AS
entitling the  holder  to  purchase  200,000  shares  of our common stock at an
exercise price of $0.30 per share, a 70% discount to the  market  price  of our
common  stock  at  that  date,  as consideration for a further extension of the
maturity date of the note until April  1,  2002.  A  fair  value  of $4,110 was
calculated  for  the  warrant  using  the  fair value interest rate method.  We
recorded the amount as additional interest expense during the period. On April,
1, 2002, we issued a five-year warrant to Monsun,  AS  entitling  the holder to
purchase 200,000 shares of our common stock at an exercise price of  $0.70  per
share,  a 23% discount to the market price of our common stock on that date, as
consideration for another extension of the maturity date of the note until July
31, 2002.  A fair value of $8,287 was calculated for the warrant using the fair
value interest  rate  method  and  was  recorded as additional interest expense
during the period. In November 2002, we issued  200,000  shares  of  our common
stock  to Monsun, AS in lieu of a default penalty on the note. A fair value  of
$42,000  for  the  shares  was  calculated using the market price of our common
stock on the date the shares were  issued. We recorded this amount as financing
expenses  during  the period. We made  payments  against  the  note,  including
accrued interest, totaling  $117,000  during  2002.  The  note  is currently in
default  and  Monsun has brought suit against Peter Gombrich, our Chairman,  to
collect the unpaid  principal  and  accrued  interest  based  on Mr. Gombrich's
personal guaranty of the note. We are paying Mr. Gombrich's legal  expenses  to
defend the suit.

       On  December 4, 2000, we issued a promissory note to Azimuth in exchange
for $200,000  in  cash.  The note bore interest at the rate of 12% per year and
was due December 31, 2000.  As  additional consideration for the note we issued
Azimuth a warrant to purchase 50,000 shares  of  our common stock at a price of
$0.937 per share, the approximate market price of our common stock at the time.
Since the note was not repaid until February 20, 2001 we were required to pay a
3% increase in the rate of interest from January 1, 2001. We also were required
to  issue Azimuth two warrants, each to purchase 12,500 shares  of  our  common
stock, at an exercise price of $0.01 per share.

       On December 11, 2000, we issued a promissory note to Azimuth in exchange
for $100,000  in  cash.  The note bore interest at the rate of 12% per year and
was due 180 days from date  of  issue. As additional consideration for the note
we issued Azimuth a warrant to purchase 1,000,000 shares of our common stock at
a price of $1.25 per share, an approximate  15%  premium to the market price of
our  stock  at  the  time.  The  proceeds of this note were  used  to  repay  a
convertible promissory note to AccuMed  in  conjunction  with  negotiations  to
acquire AccuMed.

       On  February 1, 2001 and February 7, 2001, we issued promissory notes to
Azimuth in exchange  for  $25,000  and  $470,000,  respectively, in cash. Those
notes bore interest at the rate of 15% per annum. Those  notes were required to
be repaid from the proceeds of any new offering of debt or equity undertaken by
us  subsequent to the dates of the notes. As additional consideration  for  the
note  issued  on  February 7,  2001,  we  granted Azimuth a warrant to purchase
1,000,000 shares of common stock at an exercise  price  of  $0.25 per share, an
approximate 83% discount from the $1.50 market price of the common stock on the
date the warrant was issued. That warrant expires five years  from  the date of
the  grant.  We  determined  the value of the warrant to be $12,000, using  the
difference between the fair market  interest rate and the stated interest rate.
We used $470,000 to partially fund the  loan  to  AccuMed  made  on February 7,
2001,  in  connection  with  the  signing of a definitive agreement to  acquire
AccuMed. We repaid both notes and accrued  interest on February 20, 2001. Since
the  February 7,  2001 note was repaid on February 20,  2001,  we  charged  the
entire value of the  warrant,  issued as additional consideration for the note,
to  interest  expense  during February 2001.  We  also  repaid  two  additional
promissory notes, issued in December 2000, and accrued interest on February 20,
2001. The proceeds of the  February  2001  notes were used to fund a portion of
the  loan to AccuMed upon the signing of the  agreement  on  February 7,  2001,
pursuant to which AccuMed was merged into our subsidiary.

       In  February  2001,  we  sold  1,333,856  shares of Series B convertible
preferred stock to a limited number of U.S. and foreign accredited investors in
a  private  offering.  We  received  net cash proceeds  from  the  offering  of
$5,176,000, including $500,000 received  as  a  deposit  in  December  2000. On
February 20,  2001,  we  used  $809,000  of  the  proceeds  to  repay these two
additional  notes  issued  to Azimuth in December 2000, and all of the  related
accrued interest.

       Several advisory groups  that  assisted us in the February 2001 offering
were compensated through the payment of  $159,000  in  cash,  the  issuance  of
374,000 shares  of  common  stock  and  the  issuance  of  warrants to purchase
534,000 shares of common stock at an exercise price of $1.20 per share.

       On May 15, 2001, we completed the sale of the remaining  166,000  shares
of authorized Series B convertible preferred stock in the private offering.  We
received  net  cash proceeds of $664,000. An advisory group that assisted us in
finding investors  was compensated through the issuance of 66,400 shares of our
common stock. We determined  a  fair  value  of  approximately  $81,000 for the
common  stock  issued  to the advisory group. The fair value was based  on  the
closing price of our common stock on the date of the transaction.

       On May 15, 2001,  we  issued  a  convertible  promissory  note to NeoMed
Innovations  III, LP in exchange for $500,000 in cash. The note bears  interest
at the rate of  12%  per  year and is due twelve months from the date of issue.
The note is convertible into common stock, any time after the expiration of the
first 180 days of the loan  term  at a conversion price of $1.00 per share. The
conversion price of the note was less than the market price of the common stock
at the date of issuance and therefore,  the  holder  is  considered  to  have a
beneficial  conversion  feature.  We  determined  the  value of this beneficial
conversion feature to be $50,000. This value was recorded as a reduction to the
debt and will be amortized as additional interest expense  over the life of the
note.  During  the  period  from  May 15, 2001 through September 30,  2001,  we
recorded $31,000 to interest expense  to  reflect  the amortization of the debt
discount on this note. In March 2002, NeoMed Innovations  III,  L.P.  converted
the $500,000 principal amount of this note and $60,000 in accrued interest  due
thereon  into  a  Bridge  I  convertible  promissory  note  as  described  in a
succeeding paragraph.


       On  July 26,  2001,  we  issued  a promissory note to Cadmus Corporation
("Cadmus")  in exchange for $100,000 in cash.  Alexander  Milley,  one  of  our
directors and a significant stockholder, is also considered a control person of
Cadmus. On August 6,  2001,  we issued a promissory note to Azimuth in exchange
for $100,000 in cash. The notes,  which  were  due  on  September 22,  2001 and
subsequently  extended  to November 15, 2001, bore interest at the rate of  15%
per annum. As additional  consideration  for  the  notes,  we  issued five-year
warrants to Cadmus and Azimuth entitling each holder to purchase 250,000 shares
of the common stock at an exercise price of $1.00 per share. The closing market
prices  of  the  common  stock  on  the respective issue dates of the  warrants
entitling each holder to purchase 250,000 shares of common stock were $0.73 per
share. We determined using the fair value  interest rate method, the fair value
of  these warrants to be $1,400. This value was  charged  to  interest  expense
during the third quarter.

       In  August  2001,  we  agreed  to  issue a five-year warrant to Azimuth,
entitling the holder to purchase 500,000 shares  of  common  stock at $1.00 per
share.  In  conjunction  with the issuance of this warrant, Azimuth  agreed  to
relinquish the conversion  rights of a convertible promissory note issued by us
in September 2000, which entitled  Azimuth to convert the principal and accrued
interest due under the note into common  stock  at  a conversion price of $1.00
per  share.  The  September 2000  note  was  considered to  have  a  beneficial
conversion feature for which we had determined  a  fair  value  of  $125,000 in
2000.  This  fair  value  was recorded as a discount to the debt and was  being
amortized as additional interest expense over the term of the note. The closing
market price of the common  stock  on  the issue date of this warrant was $0.73
per share. We determined the fair value  of  the  warrant  to  be approximately
$25,000  based on the value of the unamortized debt discount at the  date  this
warrant was  issued and the conversion right on the note was waived. This value
was charged to interest expense during the third quarter.

       In November  2001,  we  received  $3,635,000  in  net  proceeds from the
private sale of 1,331,499 shares of Series C convertible preferred  stock  to a
limited  number  of  accredited  investors.  The Series C preferred stock has a
dividend rate of 10% and is convertible into common  stock at a conversion rate
equal to $0.60 per share.

       Also in November 2001, we received $1,750,000 in  proceeds from the sale
of 175,000 shares of Series D convertible preferred stock  in a private sale to
Ventana. The Series D convertible preferred stock has a dividend  rate  of  10%
and  is  convertible  into  the  common stock at a conversion rate of $1.00 per
share. We also issued a three-year  warrant  to Ventana entitling the holder to
purchase 1,750,000 shares of common stock at an  exercise  price  of  $1.15 per
share.

       In  December  2001,  we  completed a tender offer to exchange 1/25 of  a
share of Series E convertible preferred  stock, par value $0.001 per share, for
each outstanding share of our common stock, par value $0.001 per share, up to a
maximum of 20,000,000 shares of common stock,  or a maximum of 800,000 Series E
convertible preferred stock. Since the transaction  provided  no  liquidity  or
capital  resources,  further  discussion  is  not considered necessary for this
purpose.

       In  February  2002,  we issued a $118,500 promissory  note  to  Schwartz
Cooper  Greenberger & Krauss ("SCGK")  in  exchange  for  past  legal  services
regarding the settlement of litigation in which we were represented by SCGK. We
repaid the  note  in September of 2002. As part of the settlement related legal
services, we also issued  a  warrant  to  SCGK entitling the holder to purchase
750,000 shares of our common stock at an exercise  price of $0.01 per share. We
calculated  a  fair  value of $675,000 for the warrnt using  the  Black-Scholes
valuation method and recorded the amount as legal fees during 2002.

       Between March 22, 2002 and June 28, 2002, we issued $3,185,000 in series
Bridge I convertible promissory  notes to accredited investors. Included in the
total amount of Bridge I notes issued  is  a  note issued to NeoMed Innovations
III, which represents the conversion of an outstanding  convertible  promissory
note,  including  $60,000  in  accrued  interest  due thereon, into a Bridge  I
convertible promissory note. The notes are due December 31, 2002, bear interest
at the rate of 7% per annum and are convertible at  any  time  into  our common
stock  at  a  conversion  price  equal to 75% of the market price of our common
stock on the date of the conversion.  In  addition,  we issued a warrant, which
entitled  each  holder to purchase one share of common stock,  at  an  exercise
price of $0.25 per  share,  for  each  dollar  principal  amount  of  notes. We
calculated  a  fair  value  of  $99,950 for these warrants using the fair value
interest rate method and recorded  this  amount  as additional interest expense
during the 2002. At the time of conversion of the  note, the holder is entitled
to receive a Private Warrant to purchase one share of  common  stock  for  each
four  shares  of common stock into which the note converts at an exercise price
equal to 150% of  the  conversion  price.  Since  the measurement date of these
warrants was not determined as of December 31, 2002,  we  have not determined a
value  for these warrants as of that date. Since the conversion  price  of  the
notes is  at a 25% discount to the market price of our common stock, the holder
is considered  to have a beneficial conversion feature. We determined the value
of this beneficial conversion feature to be $1,049,808 and recorded this amount
as additional interest  expense  during  2002.  The  notes are in default as of
January 1, 2003 and we are working with the holders to  resolve  the situation.
In  February  2003,  NeoMed  Innovations  III converted $1,060,000 in principal
amount  of Bridge I convertible promissory notes  into  Bridge  II  convertible
promissory notes.

       In May 2002, we issued a warrant entitling the holder to purchase 51,493
shares of  our  common  stock at an exercise price of $0.01 per share to a non-
employee  consultant in lieu  of  payment  of  consulting  fees  due  for  past
services. We  calculated  a  fair value of $50,969 for the warrant based on the
value of the consulting fees due.   We  recorded  the  amount as a reduction of
accounts payable.

       In July 2002, we issued 113,832 shares of our common  stock  to a vendor
in  lieu  of  payment in cash for services. We calculated a fair value for  the
shares of $78,000  based  on  the value of the services and the market value of
our common stock at the time of  the transaction. We recorded the entire amount
as administrative expense during 2002.

       In July 2002, we settled a claim brought by Trek Diagnostic Systems, Inc
against AccuMed regarding breach of representations and warranties in a certain
agreement under which Trek purchased  the  microbiology  business of AccuMed in
2000. We issued a promissory note to Trek in the amount of  $80,000, payable in
two equal installments on September 1 and December 1, 2002. We  made  the first
payment  but  did  not make the second causing a default on the note. Trek  has
instituted legal against  to  obtain  payment  of the remaining amount due. The
unpaid portion of the note accrues interest at the rate of 8% per annum.

       In  August  2002,  we issued 60,182 shares of  our  common  stock  to  a
financial advisor as consideration  for services provided. We determined a fair
value of $30,000 for the shares based  on  the market value of our common stock
at  the  time  the  shares  were  issued.  We recorded  the  entire  amount  as
administrative expense during 2002.

       On August 30, 2002, we issued a promissory note to Round Valley Capital,
LLC  in  the  amount of $825,500 representing $650,000  in  cash  proceeds  and
$175,500 in unearned  interest.  The note bears a calculated effective interest
rate of 36% per annum and is due June  1,  2003.  The note is secured by all of
our assets. We issued a certificate representing 5,750,000 shares of our common
stock as additional collateral for the loan.  We paid  cash transaction fees of
$147,063. As additional non-cash transaction fees, we issued RVC 711,364 shares
of our common and one-year warrants to purchase 681,818  shares  of  our common
stock  at  an exercise price of $0.20 per share. We calculated affair value  of
$362,795 for  the  shares  of our common stock based on the market price of our
common stock on the date the  shares were issued. We calculated a fair value of
$156,000 for the warrant using  the  Black-Scholes  valuation method. The total
value  of  the  combined  cash and non-cash transaction fees  was  recorded  as
prepaid financing costs and will be amortized over the life of the note. During
2002, we made principal and interest payments on the note amounting to $350,000
and $59,500, respectively. We also recorded amortization of $377,638 in prepaid
financing costs through the  end  of  2002.  As  a result of a dispute over the
value of certain collateral, RVC declared the note  in default shortly after we
received the proceeds and began attempts to foreclose on the collateral and all
of our assets. We instituted legal action to prevent  the  foreclosure and sale
of  our assets. We reached a final settlement, as described under  the  heading
"Recent  Developments"  covered  earlier  in  this report, with RVC in April of
2003.

       Beginning  in October 2002, we began a issue  of  up  to  $4,000,000  in
series Bridge II convertible  promissory  notes  to accredited investors. As of
December 31, 2002, we had issued $550,000 in principal  amount  of notes in the
series,  the proceeds of which were primarily used to make payments  under  the
RVC loan described  above. The notes are due July 31, 2003 and bear interest at
the rate of 12% per annum,  payable  at  maturity  date  in kind in the form of
shares of our common stock. We granted the holders a junior  security  position
in all of our assets. The Bridge II notes are convertible at any time into  our
common  stock.  The conversion price of the note and the value of common shares
paid in kind as interest  for  the first $1,000,000 in principal amount of cash
subscriptions, determined on a "first  come  - first served" basis is $0.10 per
share.  The note conversion price and the value  of  shares  paid  in  kind  as
interest for the remaining $3,000,000 in principal amount of notes is $0.15 per
share. The  conversion  price  of the notes issued during the fourth quarter of
2002 was less than the market price  of  our common stock, therefore the holder
is considered to have a beneficial conversion  feature. We determined the value
of the beneficial conversion feature to be $330,000,  based  on  the difference
between  the  conversion  price  and  the market price of our common stock.  We
recorded  the amount as a discount to the  notes  and  we  are  amortizing  the
discount amount  as  additional interest expense over the life of the notes. We
recorded additional interest  expense  of  $71,800 during the fourth quarter of
2002 to reflect the amortization for the period.  When,  and  if,  we  complete
significant  additional financing plans, as outlined in the subscription,  each
holder of Bridge  II  notes  is  entitled  to receive a warrant to purchase one
share of our common stock for each four shares  of  our common stock into which
the  note  converts at an exercise price of $0.15 per share  for  notes  issued
within the first  $1,000,000 in principal amounts and $0.20 per share for notes
in the remaining $3,000,000 of the offering.

       In November  2002,  we  issued  400,000  shares of our common stock to a
former employee / consultant in settlement of litigation.  We calculated a fair
value for the shares of $84,000 based on the market price of  our  common stock
on  the date the shares were issued. We recorded the entire amount as  research
and development expense during 2002.

       In November 2002, we issued 225,001 shares of our common stock to a non-
employee  consultant as payment for past consulting services in accordance with
the provisions  of a contract we have with the consultant. We determined a fair
value of $180,000  for the shares based on the market price of our common stock
on the date the shares were issued. We recorded a reduction in accrued expenses
of $130,000 and we recorded  the  remaining  amount as research and development
expense during 2002.

       In November 2002, we issued a warrant entitling  the  holder to purchase
200,000 shares of our common stock at an exercise price of $0.16  per  share to
an  advisor  who  acted  as  a  finder  for  investors in Bridge II convertible
promissory notes. We calculated a fair value of  $44,000  for the warrant using
the Black-Scholes valuation method. We recorded the entire  amount as financing
costs during 2002.

       We  incurred approximately $88,000 and $542,000 in capital  expenditures
for  the  years   ended   December 31,  2002  and  2001  respectively.  Capital
expenditures are defined as  disbursements  for laboratory equipment, leasehold
improvements, software, and furniture/fixtures  with a purchase price in excess
of $1,000 per item and useful life in excess of one  year. The decrease in 2002
capital  expenditures  resulted  from  decreased purchases  of  laboratory  and
computer  equipment and software in support  of  our  product  development  and
research efforts and in support of our clinical trial network.

       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 inception  of the business.
We expect that significant on-going 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 and other activities and may be forced to cease operations.

ITEM 7A.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  December 31,  2002,  the  carrying  amount  of  our  debt
instruments approximated  their  fair  value.  In  addition, as of December 31,
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 local European currencies. At December 31, 2002,  we
have   recorded  a  negative  cumulative  translation  adjustment  of  $151,000
reflecting  the  valuation, using December 31, 2002 currency exchange rates, of
our investment in and current accounts with Samba and Oncometrics.

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

       Our  Consolidated  Financial Statements for the years ended December 31,
2002, 2001, and 2000, together  with  the  reports  of:  Altschuler Melvoin and
Glasser, LLP dated June 26, 2003 on the Consolidated Financial  Statements  for
the  year ended December 31, 2002; Auditeurs & Conseils Associes dated June 26,
2003 on  the Financial Statements of Samba Technologies SARL; and Ernst & Young
LLP dated April 8, 2002, on the Consolidated Financial Statements for the years
ended December  31,  2001 and 2000, are filed as part of this report commencing
on page F-1.

ITEM 9.    CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

       RESIGNATION OF PRIOR AUDITORS:

       Ernst & Young LLP resigned as our auditors effective February 25, 2003.

       The  reports  of  Ernst  &  Young  LLP  on  our  2000 and 2001 financial
statements,  respectively,  included  an  explanatory paragraph  regarding  our
ability to continue as a going concern. The reports of Ernst & Young LLP on our
consolidated financial statements for the past two fiscal years did not contain
an adverse opinion or a disclaimer of opinion  and,  other than as described in
the preceding sentence, were not qualified or modified as to uncertainty, audit
scope, or accounting principles.

       In connection with the audits  of  our  financial statements for each of
the two fiscal years ended December 31, 2000 and  2001,  and  in the subsequent
interim  period,  there  were no disagreements with Ernst & Young  LLP  on  any
matters of accounting principles  or practices, financial statement disclosure,
or auditing scope and procedures, which  if not resolved to the satisfaction of
Ernst & Young LLP, would have caused Ernst & Young LLP to make reference to the
matter in their report.

       In accordance with paragraph 304(a)(1)(v)A  of  Regulation S-K we report
that  a letter from Ernst & Young  LLP to our Audit Committee  dated  April  8,
2002 reported  material weaknesses related to the following matters, which were
also discussed directly between our Audit Committee and Ernst & Young LLP.

*      Ernst & Young  LLP  reported  that  the  financial oversight function to
monitor  and summarize appropriately the transactions  and  operations  of  the
Company was ineffective.

*      Ernst    &    Young    LLP    reported    that    significant    account
reconciliations/analyses were not performed on a timely basis and additionally,
in  cases  where reconciliations/analyses were prepared, reconciling items  had
not been investigated and reconciliations were not reviewed or approved.

       In a  meeting  with  our  Audit Committee on August 13, 2002, management
reported to the Committee that it  had  developed procedures, forms, checklists
and reporting packages to address these weaknesses  and  some progress had been
made to improve our system of internal controls.

       We authorized Ernst & Young LLP to respond fully to the inquiries of the
successor auditor regarding these matters.

       ENGAGEMENT OF NEW AUDITORS:

       The  Board  of  Directors  and  the  Audit  Committee,  after  reviewing
proposals from several firms, engaged Altschuler Melvoin and Glasser LLP as our
auditors  for  the  fiscal  year  ended  December 31, 2002. The engagement  was
effective April 30, 2003. During the two most  recent  fiscal years and through
April  30,  2003, we did not consult with Altschuler Melvoin  and  Glasser  LLP
regarding either  the  application  of  accounting  principles  to  a specified
transaction,  either completed or proposed; or, the type of audit opinion  that
might be rendered  on  our financial statements. Altschuler Melvoin and Glasser
LLP has not provided us  with  a  written  report or oral advice regarding such
principles or audit opinion.


                                   PART III

ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY


      NAME                       OFFICES AND POSITIONS, IF ANY, HELD WITH THE
      ----                       COMPANY; AGE
                                 ------------

      Peter P. Gombrich........  Chairman of the Board, Chief Executive Officer,
                                 Secretary and Director; Age 65
      Dennis L Bergquist.......  President and Chief Financial Officer; Age 43
      Alexander M. Milley......  Director; Age 49
      Robert C. Shaw...........  Director; Age 49
      John Abeles, M.D.........  Director; Age 58
      Denis M. O'Donnell, M.D..  Director; Age 49


       PETER  P.  GOMBRICH  has  been Chairman of the Board and Chief Executive
Officer of the Company and a director  since December 1998. Mr. Gombrich served
as  Chairman  of  the  Board  and Chief Executive  Officer  of  InPath,  L.L.C.
("InPath"), a bio-molecular medical testing company, since Mr. Gombrich founded
that company in March 1998. InPath  was  acquired  by  the  Company in December
1998.   In   1994,   Mr. Gombrich   founded  AccuMed  International,  Inc.,   a
cytopathology products company, and served  as  Chairman,  President  and Chief
Executive  Officer  of  AccuMed  until January 1998. From 1990 until he founded
AccuMed in 1994, Mr. Gombrich was a consultant in the cytology and microbiology
industries. From July 1985 until September 1989, Mr. Gombrich was President and
Chief Executive Officer, and from July 1985 until November 1990 was Chairman of
the Board of CliniCom Incorporated,  a  bedside  clinical  information  systems
company,  which  he founded. In 1976, Mr. Gombrich co-founded St. Jude Medical,
Inc., a life support  medical  device  company, in which he served as Executive
Vice President until 1980, when he became  President  of the pacemaker division
of  that  company,  serving  in  that position until 1982. Mr. Gombrich  has  a
Bachelor of Science degree in Electrical  Engineering  from  the  University of
Colorado  and  a  Masters  in  Business  Administration from the University  of
Denver.

       DENNIS L BERGQUIST was appointed President  and  Chief Financial Officer
on  June  1,  2003.  Mr. Bergquist is a principal and founder  of  Bergquist  &
Bergquist, a financial  consulting  firm,  established in 1990. The firm offers
services in finance, restructuring, tax, accounting,  operations, and executive
services of a Chief Financial Officer on a temporary or  permanent  basis.  Mr.
Bergquist  was  Chief  Financial Officer of DCNL Incorporated, a privately held
beauty supply manufacturer  and distributor from 1997 until its sale in 1998 to
Helen of Troy, Inc. As both a  consultant  and  Chief Financial Officer, he has
been involved in raising private equity and various  forms of secured and line-
of-credit financing. Mr. Bergquist has a Bachelor of Science degree in Business
Administration - Accounting from California State University  -  Fresno  and an
MBA  in  Finance from Cornell University. Mr. Bergquist is a licensed Certified
Public Accountnat in the State of California.

       ALEXANDER  M.  MILLEY  has  been  a  director of the Company since 1989.
Mr. Milley is President and Chairman of the Board  of  ELXSI  Corp.  a  holding
company  with  subsidiaries  operating  in  the  restaurant  and  environmental
inspection equipment industries. He is also President and Chairman of the Board
of  Azimuth,  a  holding company with subsidiaries operating in the trade  show
exhibit and retail  environment  design  and  the  distribution  of  electrical
components  and fasteners industries. Mr. Milley was Chairman of the Board  and
Chief Executive Officer of Bell National Corporation ("Bell"), a predecessor of
the Company until  December  1998  and  was  President of Bell from August 1990
until December 1998. Mr. Milley is the founder,  President,  sole  director and
majority  shareholder  of Milley Management, Inc. ("MMI"), a private investment
and management-consulting  firm.  Mr. Milley is also the President of Cadmus, a
private investment and management-consulting  firm.  Mr. Milley was Senior Vice
President-Acquisitions   from   December   1983   until   July  1986   of   the
Dyson-Kissner-Moran Corporation, a private investment company.

       DENIS  M.  O'DONNELL,  M.D.  has  been a director of the  Company  since
December 1998. Since 1997, he has been Managing  Director  of Seaside Advisors,
L.L.C., an investment advisor to Seaside Partners a fund specializing  in small
capitalization  private  placements. Prior to joining Seaside Advisors, L.L.C.,
Dr. O'Donnell was President  of Novavax, Inc. ("Novavax"), a company engaged in
the development of pharmaceutical products, from its inception in 1995 to 1997.
Dr. O'Donnell currently serves as a director and Chairman of Novavax. From 1991
to 1995, Dr. O'Donnell served as Corporate Vice President of Medical Affairs of
IGI, Inc., a clinical drug testing company. Prior to joining IGI, Inc. in 1991,
Dr. O'Donnell was Director of  the  Clinical  Research  Center  at MTRA, Inc. a
company  engaged  as  investigator in human clinical trails. Dr. O'Donnell  has
been a director of ELXSI  Corporation  since 1996 and of Columbia Laboratories,
Inc., a pharmaceutical company, since 1999.  Dr. O'Donnell  is  a Fellow of the
American College of Clinical Pharmacology and serves on the Scientific Advisory
Board of the Associates of Clinical Pharmacology.

       JOHN H. ABELES, M.D. has been a director of the Company since  May 1999.
Dr. Abeles is President of MedVest, Inc. a venture capital and consulting  firm
he  founded  in  1980.  He  is  also General Partner of Northlea Partners, Ltd.
("Northlea Partners"), a family investment partnership. Dr. Abeles was a senior
medical executive at Sterling Drug,  Pfizer,  and  Revlon  Healthcare, Inc. and
subsequently  was a medical analyst at Kidder, Peabody & Co.  Dr. Abeles  is  a
director of a number of companies operating in the medical device or healthcare
fields, including  I-Flow  Corporation,  Oryx  Technology Corp., Encore Medical
Corporation,  and DUSA Pharmaceuticals, Inc. Dr. Abeles  received  his  medical
degree and degree  in  pharmacology  at the University of Birmingham in England
and  is  currently  a  director at the Higuchi  BioSciences  Institute  at  the
University of Kansas.

       ROBERT C. SHAW has  been  a Director of the Company since November 1989.
Mr. Shaw is President of Contempo  Design,  Inc.,  a  firm  specializing in the
design  of  exhibits  and  retail  environments.  Mr. Shaw was Chief  Financial
Officer of Bell from November 20, 1989 to December  1998.  Mr. Shaw  has been a
Vice  President  of MMI since March 1989, an officer or director of Azimuth  or
certain of its subsidiaries  since  November  1990,  a director of Cadmus since
January 1992 and an officer or director of ELXSI since September 1989. Mr. Shaw
was  Vice  President  of  Berkeley  Softworks, Incorporated  ("Berkeley")  from
September 1987 to March 1989. From January  1987 to September 1987, he was Vice
President, and from July 1985 until January 1987,  he  was  Director of Finance
and  Operations,  at  Ansa Software, Incorporated ("Ansa"). Berkeley  and  Ansa
developed and produced personal computer software.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

       Section 16(a) of  the  Securities  Exchange  Act  of  1934,  as amended,
requires  the  Company's  executive  officers  and  directors, and persons  who
beneficially own more than 10% of the outstanding shares  of  the common stock,
to file reports of ownership and changes in ownership with the  Securities  and
Exchange  Commission and to furnish the Company with copies of all reports they
file.

       Based  solely  on  the Company's review of copies of such reports it has
received  and  of  written  representations   from  certain  reporting  persons
concerning their beneficial ownership of the common stock, the Company believes
that during 2002 all reports were timely filed.

ITEM 11.   EXECUTIVE COMPENSATION

                                 COMPENSATION

COMPENSATION OF DIRECTORS

       The  Company compensates its non-management directors through the annual
grant of options to purchase shares of common stock. The options are granted at
the first directors  meeting  following the annual meeting of stockholders. The
exercise price of the options is set at the fair market value determined by the
closing price of the common stock  as reported on the Over-the-Counter Bulletin
Board  on  the date of the grant. Non-Management  directors  were  not  granted
options for  the  year 2002. Non-management directors were each granted options
to purchase 219,000 shares,  and  50,000 shares  for  the years, 2001 and 2000,
respectively. The Company also reimburses directors for  expenses  incurred  in
connection with their attendance at meetings of the Board of Directors.


                          SUMMARY COMPENSATION TABLE

                                                                                                    LONG-TERM
                                                                                                   COMPENSATION
                                                                                                   ------------
                                                                                               RESTRICTED
                                                                      ANNUAL COMPENSATION        STOCK
NAME AND PRINCIPAL POSITION                   YEAR      SALARY       BONUS(1)    OTHER(2)(3)     AWARDS     OPTIONS
- ---------------------------                   ----      ------       --------    -----------     ------     -------
Peter P. Gombrich,........................    2002    $  200,000            0    $        0        0              0
   Chairman of the Board and..............    2001    $  247,000    $       0    $    9,000        0        150,000
   Chief Executive Officer, President,....    2000    $  227,000    $  50,000    $   35,153        0        200,000
   Acting Chief Financial Officer and
   Secretary
Leonard R. Prange(4)......................    2002    $        0            0    $        0        0              0
   President, Chief Operating, Chief          2001    $  177,000    $       0    $   18,307        0         50,000
   Financial Officer and..................    2000    $  162,500    $  25,000    $   24,270        0        100,000
   Secretary
Stephen G. Wasko(5).......................    2002    $   85,161    $  13,750    $        0        0              0
   President and Chief Operating Officer..    2001    $        0    $       0    $        0        0              0
      ....................................    2000    $        0    $       0    $        0        0              0

- -----------------------
(1)   The  employment  agreements  of  Mr.  Gombrich  and Mr. Prange, until his
resignation, provide that they are each entitled to receive  bonus compensation
at  the discretion of the Board of Directors. During February 2001,  the  Board
authorized  bonus payments for the year 2000, respectively, to Mr. Gombrich and
Mr. Prange.

(2)  Prior to  2002,  MDI  policy  provides  that  an employee may receive cash
compensation in lieu of unused vacation time or defer  unused vacation time for
use in future periods. Mr. Gombrich received cash compensation  of  $26,153  in
2000  and  Mr. Prange received cash compensation of $18,270 in 2000 and $12,307
in 2001 to offset portions of their respective unused vacation time.

(3)  The employment  agreements  of  Mr.  Gombrich  and  Mr.  Prange, until his
resignation, provide that they are to receive monthly automobile  allowances of
$750 and $500, respectively.

(4)  Mr. Prange resigned his executive officer positions effective December 31,
2001.

(5)  Mr. Wasko was appointed President and Chief Operating Officer  on June 10,
2002 and resigned those positions on January 22, 2003. Mr. Wasko did  not  draw
any  cash salary or cash bonus payments from September 1, 2002 through his date
of resignation  in  January 2003. Mr. Wasko has filed a claim with the Illinois
Department of Labor seeking unpaid compensation due to him for this period.

(6)  Mr.  Gombrich  did  not draw any cash salary, cash bonus payments, or cash
car allowance from September  1,  2002  through December 31, 2002. Mr. Gombrich
continued to refrain from drawing any cash  compensation  for  the  first  five
months  of  2003.  In conjunction with the proposed debt restructuring in 2003,
Mr. Gombrich has agreed  to  forgo $50,000 of unpaid compensation due to him at
December 31, 2002. He also agreed  to reduce his current salary to $225,000 and
to forgo any salary increases due under  his  employment  agreement, automobile
allowances, and incentive compensation for 2002 and 2003.

STOCK OPTIONS

                             OPTION GRANTS IN 2002

      There  were no options relating to common  stock  granted  to  the  named
executive officers during 2002.

      The following  table  sets forth information with respect to the value of
all stock options held at December 31,  2002  by  the  named current and former
executive officers. Mr. Prange exercised options to purchase  361,000 shares of
common stock during 2002



                      FISCAL YEAR END OPTION / SAR VALUES

                                       NUMBER OF SECURITIES          VALUE OF UNEXERCISED
                                      UNDERLYING UNEXERCISED             IN-THE-MONEY
                                           OPTIONS/SARS                  OPTIONS/SARS
                                       AT FISCAL YEAR ENDED          AT FISCAL YEAR ENDED
      NAME                          EXERCISABLE  UNEXERCISABLE   EXERCISABLE   UNEXERCISABLE
      ----                          -----------  -------------   -----------   -------------
      Peter P. Gombrich............   196,666       153,334           0            0(2)
      Leonard R. Prange(1).........         0             0           0            0

- -----------------------
(1)   On  May  27,  1999,  Mr. Prange was granted an option to purchase 400,000
shares of common stock at an  exercise  price  of  $0.3937  per share, the fair
market  value  as  of the date of the grant determined in accordance  with  the
provisions of the 1999 Equity Incentive Plan. One third of the option vested on
the date of grant, one  third  on May 27, 2000, and the remainder vested on May
27, 2001. Mr. Prange's options for  100,000 shares granted May 23, 2000 and for
50,000 shares granted February 22, 2001  were cancelled upon his resignation on
December 31, 2001. In January of 2002 Mr.  Prange exercised options to purchase
250,000 shares of common stock under the terms  of  his severance agreement. On
March  31,  2002  Mr. Prange exercised options to purchase  111,000  shares  of
common stock and surrendered  options to purchase 39,000 shares of common stock
in lieu of the exercise price.

(2)  Options granted to Mr. Gombrich  during  2000  vest at the rate of 20% per
year beginning on May 23, 2001, and have exercise prices  of  $2.75  per share.
Options  granted  to  Mr.  Gombrich during 2001 are options for 100,000 shares,
which vest at the rate of 33%  per  year  beginning  February  22, 2001 with an
exercise price of $1.6875 and options for 50,000 shares, which vested  on  July
25, 2001 with an exercise price of $1.01.


COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

       The  Company  does  not  have  a  compensation  committee.  The Board of
Directors  participates  in  deliberations  concerning  executive compensation.
Mr. Gombrich,  Chairman  of  the  Board  and Chief Executive Officer  does  not
participate   in  any  of  the  Board's  deliberations   concerning   his   own
compensation. Other  than  Mr. Gombrich  and  Messrs. Milley and Shaw, who were
officers and directors of Bell, a predecessor of  the Company, no member of the
Board of Directors is a current or former officer or employee of the Company or
any  of  the Company's subsidiaries. None of the Company's  executive  officers
have served  on  the board of directors or on the compensation committee of any
other entity that  had  an  executive officer serving on the Company's Board of
Directors.

EMPLOYMENT AGREEMENTS

       Mr. Gombrich  is  employed  as Chairman of the Board and Chief Executive
Officer  of  the Company pursuant to an  employment  agreement  (the  "Gombrich
Agreement") with  InPath  dated May 1, 1998. The Gombrich Agreement was amended
on December 4, 1998, to reflect changes related to the acquisition of InPath by
MDI. Under the Gombrich Agreement,  Mr. Gombrich  receives  annual compensation
consisting of a base salary, a bonus determined at the discretion  of the Board
of  Directors, and a monthly automobile allowance of $750. Mr. Gombrich's  base
salary  may  be increased at the discretion of the Board of Directors. His base
salary was $225,000  in 2000 and $250,000 in 2001 and 2002. In conjunction with
the Company's planned  restructuring in 2003, Mr. Gombrich agreed to reduce his
current  base  salary  to  $225,000   and  to  forgo  salary  increases,  bonus
compensation, and the monthly  automobile  allowance  for  2002  and  2003. Mr.
Gombrich also agreed to forgo $50,000 in accrued an unpaid compensation  due to
him  for  2002.  The  Gombrich  Agreement  had  an initial term of three years,
beginning  May 1,  1998  and ending April 30, 2001.  Thereafter,  the  Gombrich
Agreement automatically renews for consecutive terms of two years unless either
Mr. Gombrich or the Company  elects not to renew it. The Gombrich Agreement has
been renewed and is effective  through  April 30, 2005. For two years following
the termination of the Gombrich Agreement,  Mr. Gombrich may not participate in
a business that substantially and directly competes  with the Company. If there
is a change of control, as defined in the Gombrich Agreement,  and  the Company
thereafter  terminates  the  Gombrich  Agreement without cause, or Mr. Gombrich
terminates the agreement for good reason, as defined in the Gombrich Agreement,
Mr. Gombrich is entitled to a lump-sum severance  payment  equal to three times
the sum of his annual base salary, his annualized monthly automobile allowance,
and the highest incentive compensation paid to him in any of  the previous year
incentive compensation periods. If Mr. Gombrich is terminated without  cause or
resigns  for good reason, and no change of control has occurred, he is entitled
to a lump-sum  severance  payment  equal  to two times the sum of the foregoing
amounts.

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

                          PRINCIPAL STOCKHOLDERS AND
                       SECURITY OWNERSHIP OF MANAGEMENT

      The following table sets forth as  of  June  30, 2003 with respect to any
person who is known to the Company to be the beneficial  owner  of more than 5%
of the outstanding shares of common stock of the Company, the name  and address
of  such  owner,  the number of shares of common stock beneficially owned,  the
nature  of  such ownership,  and  the  percentage  such  ownership  is  of  the
outstanding shares of common stock:

                                                         NUMBER OF SHARES     PERCENT
      NAME AND ADDRESS OF BENEFICIAL OWNER              BENEFICIALLY OWNED   OF CLASS
      ------------------------------------              ------------------   --------

      Peter P. Gombrich...............................      15,162,821         31.8%
      414 N. Orleans, Suite 510
        Chicago, IL 60610(1)

      Alexander M. Milley.............................      11,553,559         24.2%
        Azimuth Corporation
        3600 Rio Vista Boulevard, Suite A
        Orlando, FL 32805(2)

      William J. Ritger...............................       8,805,208         21.3%
        Seaside Partners, L.P.
        623 Ocean Avenue
        Sea Girt, NJ 08750(3)

      Ventana Medical Systems, Inc....................       3,783,836          9.4%
        3865 N. Business Center Dr.
        Tucson, AZ 85705(4)

      RS Diversified Growth Fund......................       4,242,000         10.4%
        388 Market Street
        Suite 1700
        San Francisco, CA 94111(5)

      NeoMed Innovations, III, L.P....................      10,160,614         21.8%
        8 Queensway House, Queen Street
        St. Helier
        Jersey, JE2 4WD, Channel Islands(6)

- -----------------------

(1)    Includes:  (i)  1,021,327  shares of common stock held by Mr. Gombrich's
       wife as the result of the conversion  of  Series E convertible preferred
       stock, including cumulative dividends;  (ii)  1,000,000  shares issuable
       upon  exercise  of  a  warrant  granted by the Company to Mr. Gombrich's
       wife, which is exercisable within  sixty  days;  (iii) 10,000,000 shares
       issuable upon conversion of a convertible promissory  note  held  by Mr.
       Gombrich's  wife; and (iv) 270,000 shares subject to options granted  by
       the Company to  Mr. Gombrich  that  are  exercisable  within sixty days.
       Mr. Gombrich disclaims beneficial ownership of the aforesaid shares held
       by his wife.

(2)    Includes:  (i) 779,552  shares  issuable  upon  conversion  of  Series E
       convertible  preferred  stock,  including cumulative dividends, held  by
       Mr. Milley; (ii) 282,881 shares owned by Cadmus of which Mr. Milley is a
       director and executive officer, 1,522,038  shares  subject to conversion
       of Series E convertible preferred stock, including cumulative dividends,
       held by Cadmus, 250,000 shares issuable to Cadmus under warrants granted
       by  the  Company,  and  289,285  shares issuable to Cadmus  under  Stock
       Appreciation  Rights  granted  by  the   Company;  (iii) 638,495  shares
       issuable  upon  conversion  of  Series E  convertible  preferred  stock,
       including cumulative dividends, held by Azimuth,  of which Mr. Milley is
       a  director  and  executive  officer  and 2,875,000 shares  issuable  to
       Azimuth  under  warrants  granted  by the Company;  (iv) 634,819  shares
       issuable  upon  conversion  of  Series E  convertible  preferred  stock,
       including cumulative dividends, held  by  MMI,  of which Mr. Milley is a
       director  and  executive  officer;  (v) 187,489  shares   issuable  upon
       conversion of Series E convertible preferred stock, including cumulative
       dividends, held by Winchester National, Inc. ("Winchester National"), of
       which  Mr. Milley  is a director and executive officer; and (vi) 219,000
       shares subject to options  granted by the Company to Mr. Milley that are
       exercisable within 60 days.  In  July  of 2003, MDI agreed to cancel the
       outstanding warrants held by Azimuth and Cadmus and to issue a new five-
       year  warrant  entitling  the holders to purchase  6,500,000  shares  of
       common stock. MDI also agreed  to  issue  an  additional 120-day warrant
       entitling the holders to purchase 500,000 shares  of  common  stock. The
       number of shares beneficially held by Mr. Milley is adjusted to  reflect
       this  transaction.  (See  Item  13  Certain  Relationships  and  Related
       Transactions for additional details concerning this transaction.)

(3)    Includes:  (i) 290,548  shares  issuable  upon  conversion  of  Series C
       convertible  preferred  stock,  including shares issuable for cumulative
       dividends,  1,566,451  shares  issuable   upon  conversion  of  Series E
       convertible preferred stock, including shares  issuable  for  cumulative
       dividends,  and  3,000,000 shares issuable upon conversion of Bridge  II
       convertible promissory notes, all held by Mr. Ritger; (ii) 70,000 shares
       owned  by  The  Research   Works,  Inc.,  a  corporation  controlled  by
       Mr. Ritger; and (iii) 3,735,000  shares  owned by Seaside Partners, L.P.
       ("Seaside"), of which Mr. Ritger is the Managing Partner.

(4)    Includes   2,033,836  shares  issuable  upon  conversion   of   Series D
       convertible  preferred  stock,  including  cumulative dividends, held by
       Ventana and 1,750,000 shares issuable to Ventana  under warrants granted
       by the Company.

(5)    Includes   4,242,000  shares  issuable  upon  conversion   of   Series C
       convertible  preferred stock, including cumulative dividends, held by RS
       Diversified.

(6)    Includes: (i)  2,033,947  shares  issuable  upon  conversion of Series B
       convertible  preferred  stock,  including  cumulative  dividends;   (ii)
       7,066,667  shares  issuable  upon  conversion of a Bridge II convertible
       promissory note, which is convertible  at  any time; and (iii) 1,060,000
       shares issuable upon exercise of warrants granted  by  the  Company that
       are exercisable within 60 days.

       The following table sets forth as of June30, 2003, with respect  to  any
person  who  is known to the Company to be the beneficial owner of more than 5%
of the outstanding shares of Series A convertible preferred stock, the name and
address of such  owner,  the number of shares of Series A convertible preferred
stock beneficially owned, the nature of such ownership, and the percentage such
ownership is of the outstanding shares of Series A convertible preferred stock:


                                                         NUMBER OF SHARES     PERCENT
      NAME AND ADDRESS OF BENEFICIAL OWNER(1)           BENEFICIALLY OWNED   OF CLASS
      ---------------------------------------           ------------------   --------

      France Finance IV(2)............................        47,250           40.0%
        Societe de Bure Ferri
        51, rue Vivienne
        75002 Paris, FRANCE

      Mizbourne Investment Corp.(3)...................        11,812           10.0%
        c/o RNYS F/B/O
        1 Hanson Place, 8th Floor
        Brooklyn, NY 11243

      Fifth Third Bank of Western Ohio, Ttee(4).......        35,405           30.0%
        John Scarbrough Sr. IRA
        PO Box 703
        Piquah, OH 45356

      Vitali Maritime Corp.(5)........................        23,625           20.0%
        c/o RNYS F/B/O
        1 Hanson Place, 8th Floor
        Brooklyn, NY 11243

- -----------------------

(1)    No  executive  officer  or  director  beneficially  owns  any  shares of
Series A convertible preferred stock.

(2)    Convertible into 20,634 shares of common stock.

(3)    Convertible into 5,158 shares of common stock.

(4)    Convertible into 15,461 shares of common stock.

(5)    Convertible into 10,317 shares of common stock.

       The following table sets forth as of June 30, 2003, with respect  to any
person  who is known to the Company to be the beneficial owner of more than  5%
of the outstanding shares of Series B convertible preferred stock, the name and
address of  such  owner, the number of shares of Series B convertible preferred
stock beneficially owned, the nature of such ownership, and the percentage such
ownership is of the outstanding shares of Series B convertible preferred stock:


                                                         NUMBER OF SHARES     PERCENT
      NAME AND ADDRESS OF BENEFICIAL OWNER(1)           BENEFICIALLY OWNED   OF CLASS
      ---------------------------------------           ------------------   --------

      NeoMed Innovations III, L.P.(2).................       416,000           52.0%
        8 Queensway House, Queen Street
        St. Helier
        Jersey, JE2 4WD, Channel Islands

      Monsun, AS(3)...................................       125,000           15.6%
        Torvveien 12 C
        1383 Asker, Norway

      CAT Investment I, AS(4).........................        51,625            6.5%
        Postboks 1484 Vika
        0116 Oslo, Norway

      Violina, AS(4)..................................        51,625            6.5%
        Postboks 1484 Vika
        0116 Oslo, Norway

- -----------------------

(1)   No executive officer or director beneficially owns any shares of Series B
      convertible preferred stock.

(2)   Converts  into 2,033,947 shares, including shares issuable for cumulative
      dividends, of common stock.

(3)   Converts into  624,658  shares,  including shares issuable for cumulative
      dividends, of common stock.

(4)   Converts into 254,527 shares, including  shares  issuable  for cumulative
      dividends, of common stock.

       The  following table sets forth as of June 30, 2003, with respect to any
person who is  known  to the Company to be the beneficial owner of more than 5%
of the outstanding shares of Series C convertible preferred stock, the name and
address of such owner,  the  number of shares of Series C convertible preferred
stock beneficially owned, the nature of such ownership, and the percentage such
ownership is of the outstanding shares of Series C convertible preferred stock:

                                                         NUMBER OF SHARES     PERCENT
      NAME AND ADDRESS OF BENEFICIAL OWNER(1)           BENEFICIALLY OWNED   OF CLASS
      ---------------------------------------           ------------------   --------

      RS Diversified Growth Fund(2)...................       730,000           59.6%
        388 Market Street
        Suite 1700
        San Francisco, CA 94111

      The Paisley Fund, LP(3).........................       120,000            9.8%
        388 Market Street
        Suite 1700
        San Francisco, CA 94111

- -----------------------

(1)   No executive officer or director beneficially owns any shares of Series C
      convertible preferred stock.

(2)   Converts  into 4,242,000 shares, including shares issuable for cumulative
      dividends, of common stock.

(3)   Converts into  697,315  shares,  including shares issuable for cumulative
      dividends, of common stock.

      The following table sets forth as  of  June 30, 2003, with respect to any
person who is known to the Company to be the beneficial  owner  of more than 5%
of the outstanding shares of Series D convertible preferred stock, the name and
address  of such owner, the number of shares of Series D convertible  preferred
stock beneficially owned, the nature of such ownership, and the percentage such
ownership is of the outstanding shares of Series D convertible preferred stock:

                                                         NUMBER OF SHARES     PERCENT
      NAME AND ADDRESS OF BENEFICIAL OWNER(1)           BENEFICIALLY OWNED   OF CLASS
      ---------------------------------------           ------------------   --------

      Ventana Medical Systems, Inc.(2)................        175,000         100.0%
        3865 N. Business Center Dr.
        Tucson, AZ 85705

- -----------------------

(1)   No executive officer or director beneficially owns any shares of Series D
      convertible preferred.

(2)   Converts  into 2,033,836 shares, including shares issuable for cumulative
      dividends, of common stock.

      The following  table  sets  forth  as  of  June 30, 2003, with respect to
(1) any person who is known to the Company to be the  beneficial  owner of more
than  5%  of  the  outstanding shares of Series E convertible preferred  stock,
(2) each director, nominee,  or executive officer who owns Series E convertible
preferred stock, and (3) executive  officers and directors as a group, the name
and  address  of  such owner, the number  of  shares  of  Series E  convertible
preferred stock beneficially  owned,  the  nature  of  such  ownership, and the
percentage such ownership is of the outstanding shares of Series E  convertible
preferred stock:

                                                         NUMBER OF SHARES     PERCENT
      NAME AND ADDRESS OF BENEFICIAL OWNER              BENEFICIALLY OWNED   OF CLASS
      ------------------------------------              ------------------   --------

      Alexander M. Milley(1)..........................        119,324          45.7%
      William J. Ritger(2)............................         49,680          19.0%
      All directors and executive officers as a group(1)
        (6 persons)...................................        119,324          45.7%

- -----------------------

(1)   Includes: (i) 48,271 shares owned by Cadmus; (ii) 20,250 shares owned  by
      Azimuth; (iii) 20,133 shares owned by MMI; and (iv) 5,946 shares owned by
      Winchester  National.  Converts  into  3,762,393  shares of common stock,
      including shares issuable upon payment of cumulative dividends.

(2)   Converts into 1,566,451 shares, including shares issuable  for cumulative
      dividends, of common stock.


SECURITY OWNERSHIP OF MANAGEMENT

      The  following table sets forth as of June 30, 2003, certain  information
concerning the  ownership  of  common  stock  of  each  director,  nominee, and
executive officer named in the Summary Compensation Table hereof referred to as
the named executive officers, and all directors and executive officers  of  the
Company as a group.

                                                          AMOUNT AND NATURE
                                                            OF BENEFICIAL     PERCENT
      NAME OF BENEFICIAL OWNER                                OWNERSHIP      OF CLASS
      ------------------------                                ---------      --------
      Peter P. Gombrich (1)................................  15,162,821        31.8%
      Alexander M. Milley (2)..............................  11,553,559        24.2%
      Robert C. Shaw (3)...................................     719,417         2.0%
      John Abeles, M.D. (4)................................     598,116         1.6%
      Denis M. O'Donnell, M. D.(5).........................   1,003,901         2.7%
      Dennis L. Bergquist..................................      75,000          --%
      All directors and executive officers as a group
      (6 persons)..........................................  29,112,814        48.0%

- -----------------------

(1)    Includes:  (i) 1,021,327  shares  of common stock held by Mr. Gombrich's
       wife as the result of the conversion  of  Series E convertible preferred
       stock, including cumulative dividends; (ii)  1,000,000  shares  issuable
       upon  exercise  of  a  warrant granted to Mr. Gombrich's wife, which  is
       exercisable within sixty  days;  (iii)  10,000,000  shares issuable upon
       conversion of a convertible promissory note held by Mr. Gombrich's wife;
       and (iv) 270,000 shares issuable upon options granted  by the Company to
       Mr. Gombrich that are exercisable within 60 days. Mr. Gombrich disclaims
       beneficial ownership of the aforesaid shares held by his wife.

(2)    Includes:  (i) 779,552  shares  issuable  upon  conversion  of  Series E
       convertible  preferred  stock,  including cumulative dividends, held  by
       Mr. Milley; (ii) 282,881 shares owned by Cadmus of which Mr. Milley is a
       director and executive officer, 1,522,038  shares  subject to conversion
       of Series E convertible preferred stock, including cumulative dividends,
       held by Cadmus, 250,000 shares issuable to Cadmus under warrants granted
       by  the  Company,  and  289,285  shares issuable to Cadmus  under  Stock
       Appreciation  Rights  granted  by  the   Company;  (iii) 638,495  shares
       issuable  upon  conversion  of  Series E  convertible  preferred  stock,
       including cumulative dividends, held by Azimuth,  of which Mr. Milley is
       a  director  and  executive  officer  and 2,875,000 shares  issuable  to
       Azimuth  under  warrants  granted  by the Company;  (iv) 634,819  shares
       issuable  upon  conversion  of  Series E  convertible  preferred  stock,
       including cumulative dividends, held  by  MMI,  of which Mr. Milley is a
       director  and  executive  officer;  (v) 187,489  shares   issuable  upon
       conversion of Series E convertible preferred stock, including cumulative
       dividends, held by Winchester National, Inc. ("Winchester National"), of
       which  Mr. Milley  is a director and executive officer; and (vi) 219,000
       shares subject to options  granted by the Company to Mr. Milley that are
       exercisable within 60 days.  In  July  of 2003, MDI agreed to cancel the
       outstanding warrants held by Azimuth and Cadmus and to issue a new five-
       year  warrant  entitling  the holders to purchase  6,500,000  shares  of
       common stock. MDI also agreed  to  issue  an  additional 120-day warrant
       entitling the holders to purchase 500,000 shares  of  common  stock. The
       number of shares beneficially held by Mr. Milley is adjusted to  reflect
       this  transaction.  (See  Item  13  Certain  Relationships  and  Related
       Transactions for additional details concerning this transaction.)

(3)    Includes 219,000 shares  issuable upon options granted by the Company to
       Mr. Shaw that exercisable within 60 days.

(4)    Includes:  (i) 191,616 shares  owned  by  Northlea  Partners,  of  which
       Dr. Abeles  is  the  general  partner;  (ii)  87,500  shares  underlying
       warrants granted  by  the  Company  to  Northlea Partners; (iii) 100,000
       shares issuable upon conversion of a Bridge  II  convertible  promissory
       note  held  By Northlea Partners; and (iv) 219,000 shares issuable  upon
       exercise of options  granted  by  the  Company  to Dr. Abeles, which are
       exercisable within 60 days. Dr. Abeles disclaims beneficial ownership of
       all shares owned by, or issuable to, Northlea except 3,719 shares, which
       number  are  attributable  to  his  1% interest in Northlea  as  general
       partner.

(5)    Includes:  (i) 784,901 shares issuable  upon  warrants  granted  by  the
       Company to Dr. O'Donnell  and  (ii) 219,000 shares issuable upon options
       granted by the Company to Dr. O'Donnell.

ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

       In  2000  and  2001,  the Company sold  3,440,743 shares  in  a  private
placement of which 1,333,333 shares  of  common  stock  were  sold  to  Seaside
Partners,   L.P.   at  $1.50  per  share  for  total  proceeds  of  $2,000,000.
Dr. O'Donnell, a director, is a member and manager of Seaside Advisers, L.L.C.,
a firm, which provides investment management services to Seaside Partners, L.P.
The sale was made under  terms  similar  to other investors in the offering. In
lieu of cash, the Company agreed to accept  payment in the form of a $2,000,000
promissory note due July 27, 2000 that bore interest  at  the  rate  of  8% per
annum.  The  note provisions allowed for prepayment at anytime and the due date
could  be  extended  by  mutual  agreement.  The  Company  retained  the  stock
certificates  until  the  note principal and accrued interest was paid in full.
The Company agreed to extend  the due date of the note until November 30, 2000.
Seaside made principal payments  amounting  to  $1,550,000  during 2000 and the
remaining  $450,000 principal amount was repaid between June and  August  2001.
The accrued interest on the note was paid in August and December 2001.

       On September 22,  2000, the Company issued a convertible promissory note
to Azimuth, a company controlled  by  Mr. Milley,  a director and a significant
stockholder, in exchange for $500,000 in cash. The note  bore  interest  at the
rate of 15% per year and was due twelve months from the date of issue. The note
was  convertible  into common stock, any time after the expiration of the first
180 days of the loan  term, at a conversion price of $1.00 per share. Since the
conversion price was less  than the market price of common stock at the time of
the transaction, the holder  was  considered  to  have  a beneficial conversion
option. The Company is required to record the $125,000 calculated value of this
beneficial conversion option as debt discount, reducing the  carrying amount of
the  debt  and additional paid in capital. The debt discount was  amortized  as
additional interest  expense  over  the life of the note. During 2001 and 2000,
the Company recorded charges of $91,000  and $34,000, respectively, to interest
expense to reflect the amortized amount of debt discount in each period.

       The Company used $300,000 from the September 2000 note to fund a loan to
AccuMed International, Inc. in accordance  with the terms of an agreement under
which AccuMed was merged into a wholly-owned  subsidiary  of  the  Company. The
balance  was  used  to  fund  license  payments  and  the initial payment of  a
settlement arrangement with the Company's former legal counsel.

       On December 4, 2000, the Company issued a promissory  note to Azimuth in
exchange for $200,000 in cash. The note bore interest at the rate  of  12%  per
year  and  was due December 31, 2000. As additional consideration for the note,
the Company  issued  Azimuth  a  five-year warrant to purchase 50,000 shares of
common stock at a price of $0.937  per  share,  the approximate market price of
common stock at the time. The note was repaid on February 20, 2001. In that the
note was not repaid when due, the Company was obligated  by  the  terms  of the
note  to  pay  a 3% increase in the rate of interest from January 1, 2001 until
the date of payment.  The  Company  was  also  obligated  to  issue Azimuth two
warrants,  each to purchase 12,500 shares of our common stock, at  an  exercise
price of $0.01 per  share,  representing  a two month late payment penalty. The
Company determined a fair value of $1,184 for  these  warrants  and charged the
amount to interest expense during 2001. The proceeds of the note  were used for
general working capital and to pay license fees.

       On December 11, 2000, the Company issued a promissory note to Azimuth in
exchange  for  $100,000 in cash. The note bore interest at the rate of  12% per
year and was due  180 days  from date of issue. As additional consideration for
the  note,  the  Company  issued   Azimuth  a  five-year  warrant  to  purchase
1,000,000 shares of common stock at  a price of $1.25 per share, an approximate
15% premium over the market price of common  stock  on the date the warrant was
issued. The proceeds of this note were used to repay  a  convertible promissory
note to AccuMed due on March 29, 2001. The prepayment was  made  in conjunction
with ongoing negotiations to acquire AccuMed. The Company repaid the  note  and
accrued interest on February 20, 2001.

       On  February 1, 2001 and February 7, 2001, the Company received $495,000
in cash from Azimuth in exchange for two promissory notes that bore interest at
15% per year.  Of the cash received, $470,000 was used to partially fund a loan
to AccuMed made  on February 7, 2001, in connection with a definitive agreement
to acquire AccuMed.  As  additional  compensation  for these loans, the Company
issued Azimuth a five-year warrant to purchase 1,000,000 shares of common stock
at an exercise price of $0.25 per share, an approximate  83%  discount from the
$1.50 market price of our common stock on the date the warrant  was issued. The
Company determined the value of the warrant to be $12,000, using the difference
between  the  fair  market  interest  rate  and  the stated interest rate,  and
recorded the value as additional paid in capital and  also  charged  the entire
value  to  interest  expense  during  February 2001. On February 20, 2001,  the
Company used $809,000 of the proceeds from  a  private  placement  of  Series B
convertible  preferred  stock to repay these notes, two additional notes issued
to Azimuth in December 2000, and all of their related accrued interest.

       On July 26, 2001,  the  Company  issued  a  promissory note to Cadmus in
exchange  for  $100,000  in  cash.  On  August 6, 2001, the  Company  issued  a
promissory  note  to  Azimuth in exchange for  $100,000  in  cash.  Mr. Milley,
director and a significant  stockholder, is also considered a control person of
both Cadmus and Azimuth. The  notes,  which  were due on September 22, 2001 and
subsequently extended until November 15, 2001,  bore  interest  at  the rate of
15% per  annum.  As additional consideration for the notes, the Company  issued
five-year warrants to Cadmus and Azimuth entitling the holders to each purchase
250,000 shares of  common  stock  at  an exercise price of $1.00 per share. The
closing market prices of common stock on  the  respective  issue  dates  of the
warrants  entitling each holder to purchase 250,000 shares of common stock  was
$0.73 per share.  The Company determined the fair value of these warrants to be
$1,400 using the fair  value  interest  rate  method. This value was charged to
interest expense during the third quarter. The  notes  were  repaid in November
2001.

       In  August  2001,  the  Company agreed to issue a five-year  warrant  to
Azimuth entitling the holder to  purchase  500,000 shares of common stock at an
exercise price of $1.00 per share. In conjunction  with  the  issuance  of this
warrant, Azimuth agreed to relinquish the conversion rights granted to it under
the terms of the September 2000 convertible promissory note. The closing market
price of common stock on the issue date of the warrant was $.73 per share.  The
Company  determined  the  fair value of the warrant to be approximately $25,000
based on the value of the unamortized debt discount at the date the warrant was
issued and the conversion right  under  the  note  was  waived.  This value was
charged to interest expense during the third quarter of 2001.

       On  August 6,  2001,  the  Company issued a promissory note to  Northlea
Partners  in exchange for $25,000 in  cash.  Dr. Abeles,  a  director,  is  the
general partner of Northlea Partners. The terms of the note are the same as the
notes issued  to Cadmus and Azimuth. As additional consideration for this note,
the Company issued  a  five-year  warrant  to  Northlea  Partners entitling the
holder  to  purchase  62,500 shares  of  common stock at an exercise  price  of
$1.00 per share. The closing market price of the common stock on the issue date
of this warrant was $0.73 per share. The Company  determined  the fair value of
the warrant to be $1,400 using the fair value interest rate method.  This value
was  charged  to  interest  expense  during the third quarter. The note remains
outstanding as of the date of this report.

       On September 20, 2001, the Company  issued a promissory note to Northlea
Partners in exchange for $15,000 in cash. The note was due on December 20, 2001
and bears interest at the rate of 9% per annum. Also on September 20, 2001, the
Company  issued a promissory note to Mr. Shaw,  a  director,  in  exchange  for
$25,000 in  cash.  The  note was due December 20, 2001 and bore interest at the
rate of 9% per annum. The  notes  remain  outstanding  as  of  the date of this
report.

       In October 2001, Mr. Prange, the former President and COO/CFO, purchased
20,000 shares  of Series C convertible preferred stock at a purchase  price  of
$3.00 per share.  The purchase was made in conjunction with a private placement
of Series C convertible  preferred  stock and was made under the same terms and
conditions  as  other  investors  in the  offering.  The  Series C  convertible
preferred stock has a dividend of 10% and is convertible into common stock at a
conversion price of $0.60 per share.

       In  December  2001,  Mr. Gombrich,   the   CEO  and  Chairman,  tendered
2,631,625 shares  of  common stock in exchange for 105,265 shares  of  Series E
convertible preferred stock  and Mr. Gombrich's wife tendered 838,425 shares of
common stock in exchange for 33,537  shares  of  Series E convertible preferred
stock.   Also   in   December   of  2001,  Mr. Milley,  a  director,   tendered
616,486 shares  of  common stock in  exchange  for  24,659 shares  of  Series E
convertible preferred  stock..  Cadmus,  Azmiuth, Winchester National, and MMI,
companies  of  which  Mr. Milley is director  and  executive  officer  tendered
1,206,786, 533,522, 503,333,  and  148,655  shares of common stock respectively
for a total of 94,600 shares of Series E convertible preferred stock.

       During  2002,  Mr.  Gombrich repaid approximately $50,000 owed to MDI at
December 31, 2001 and loaned the Company an additional $127,000 in cash.

       In  January  of  2002,  Mr.  Prange,  the  former President and COO/CFO,
exercised options to purchase 250,000 shares of the  Company's  common stock at
$0.3937  per  share.  In  accordance  with  the terms of Mr. Prange's severance
agreement, the Company waived the $98,425 exercise  price  of  the  options. On
March 31, 2002, Mr. Prange exercised options to purchase 111,000 shares  of the
Company's common stock at $0.3937 per share and surrendered options to purchase
39,000 shares of common stock in lieu of payment of the exercise price.

       On July 18, 2003, Mr. Milley, a director, Azimuth Corporation and Cadmus
Corporation, agreed to cancel  seven  warrants  held by Azimuth and one warrant
held by Cadmus, which entitled the holders to purchase  a  total  of  3,125,000
shares  of common stock at various exercise prices between $0.01 and $1.25  per
share.  The  warrants,  issued between December 1999 and August 2001, contained
anti-dilution clauses which  required  MDI  to increase the number of shares of
common  stock  the  holders were entitled to purchase  under  the  warrants  by
approximately  1,500,000   shares  as  of  the  date  of  the  agreement,  with
commensurate adjustments in  individual  exercise prices so that gross proceeds
to the Company from exercise of the warrants  remained  the  same.  These anti-
dilution  provisions  could  have  required  the  Company  to  make  additional
adjustments  in shares and exercise prices in the future based on the Company's
issuance of debt  or  equity  instruments at prices below the adjusted exercise
prices of these warrants.  In consideration for the parties agreement to cancel
these  warrants, including their  individual  anti-dilution  clauses,  and  the
forgiveness  of  approximately  $120,000 currently owing to Azimuth and Cadmus,
MDI agreed to issue a new five-year  warrant  entitling the holders to purchase
6,500,000 shares of common stock at an exercise  price  of $0.30 per share. MDI
also  agreed  to  issue  a  120- day warrant entitling the holder  to  purchase
500,000 shares of common stock  at  an  exercise  price  of  $0.30.  Management
believes  that the Company will derive significant additional benefits  in  the
future as a  result  of  the elimination of the anti dilution provisions in the
original warrants.

ITEM 14.      CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

       Our  principal  executive  officer  and principal financial officer have
concluded, based upon their evaluation as of a date within 90 days prior to the
date of filing this Annual Report on Form 10-K, the our disclosure controls and
procedures are effective to ensure that information required to be disclosed by
MDI in the reports filed or submitted by us  under  the Securities Act of 1934,
as  amended, is recorded, processed, summarized and reported  within  the  time
periods  specified  in  the  SEC's  rules  and  forms.  Our  former independent
auditors, Ernst & Young, LLP, issued a report at the completion  of their audit
of our consolidated financial statements for the year ended December  31,  2001
detailing  certain  deficiencies in our internal control systems and procedures
(See Item 9 of this Annual  Report  on  Form  10-K).  During  2002, we hired an
independent  consultant,  Tatum  CFO  Partners,  LLP ("Tatum"), to address  the
issues raised by Ernst & Young, LLP. In August of  2002,  Tatum reported to the
Audit  Committee  that  it  had  assisted management in developing  procedures,
forms, checklists and reporting packages  to  address  these  deficiencies, and
that  progress  had  been  made  to  improve  our  system of internal controls.
Additional  progress  in  these area continued through  the  end  of  2002.  In
designing and evaluating the  controls  and  procedures,  management recognized
that any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired  control objectives,
and  management  was necessarily required to apply judgment in  evaluating  the
cost-benefit relationship of possible controls and procedures.

       There  have been no significant changes in our internal  controls,  with
the exception of  those  which  may  have temporarily arisen as a result of the
departure of accounting personnel during  the  first  half  of  2003  and which
reverted or will revert to their prior status as soon as new personnel  are  in
place,  or  in  other  factors  that  could  significantly  affect our internal
controls  subsequent  to  the date we completed our evaluation.  Our  principal
financial officer has only  recently  joined  MDI  and therefore his review was
somewhat  limited, and he was required to rely on our  books  and  records,  on
comments from  independent  auditors  regarding their recently completed audit,
and on review and discussions with independent  consultants who participated in
the  audit  and  the  preparation  of this report and  with  other  members  of
management.


                                    PART IV

ITEM 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 10-K

DOCUMENTS FILED AS PART OF REPORT

      (A)  1.  FINANCIAL STATEMENTS

                                                                         PAGE
                INDEX TO FINANCIAL STATEMENTS NUMBER                    NUMBER

Reports of Independent Auditors.....................................      F-1
Consolidated Balance Sheets at December 31, 2002 and 2001...........      F-2
Consolidated Statements of Operations for the three years ended
December 31, 2002, 2001, and 2000...................................      F-3
Consolidated Statements of Cash Flows for the three years ended
December 31, 2002, 2001, and 2000...................................      F-4
Consolidated Statement of Stockholder's Equity (Deficit) for the
three years ended December 31, 2002, 2001 and 2000..................      F-6
Notes to Consolidated Financial Statements..........................      F-9

           2.  FINANCIAL STATEMENT SCHEDULES........................      F-40

      The  following  financial  statement  schedule is filed as part  of  this
report as page F-40

           Schedule IX--Valuation and Qualifying Accounts.

      All other schedules are omitted because  they  are not applicable, or not
required, or because the required information is included  in  the Consolidated
Financial Statements or notes thereto.

             3.  EXHIBITS

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.)




EXHIBIT
NUMBER                                       DESCRIPTION

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)

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.)*

EXHIBIT
NUMBER                                          DESCRIPTION

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.)*



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.)

EXHIBIT
NUMBER                                          DESCRIPTION

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.)

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.)

EXHIBIT
NUMBER                                          DESCRIPTION

4.33    Form of Common Stock Purchase Warrant issued in connection with certain
        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.)

4.34    Common Stock Purchase Warrant issued to Richard Domanik on May 30, 2002
        representing  the  right  to  purchase  51,483 shares of common  stock.
        (Incorporated  by  reference  to  Exhibit 4.34  to  the  Company's  S-2
        Registration Statement, File No. 333-100150 filed September 27, 2002.)

4.35    Common Stock Purchase Warrant issued  to  Round  Valley Capital, LLC on
        September 4, 2002 representing the right to purchase  681,818 shares of
        common  stock.  (Incorporated  by  reference  to  Exhibit 4.35  to  the
        Company's  S-2  Registration  Statement, File No. 333-100150  filed  on
        September 27, 2002.)

4.36    Amendment  No.  1  to  the  Common Stock  Purchase  Warrant  issued  in
        connection with certain Bridge Financing dated August 20,2002.

4.37    Form of Common Stock Purchase  Warrant  to be issued in connection with
        certain Bridge II Financing beginning in October 2002.

4.38    Common Stock Purchase Warrant issued to Qwestar  Resources  on November
        1,  2002  representing  the right to purchase 200,000 shares of  common
        stock.

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.)*

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.)*

EXHIBIT
NUMBER                                          DESCRIPTION

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   Employment  Agreement  dated  June 1,  1999  between Mr. Prange and the
        Company.  (Incorporated  herein by reference to  Exhibit 10.11  of  the
        Company's  Annual  Report  on  Form 10-K  for  the  fiscal  year  ended
        December 31, 1999.)*

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.)

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.)*

EXHIBIT
NUMBER                                          DESCRIPTION


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.)*

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.)*

EXHIBIT
NUMBER                                          DESCRIPTION

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 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.)

10.41   $650,000  Promissory Note issued to Round Valley Capital, LLC on August
        30, 2002. (Incorporated  by reference to the Company's S-2 Registration
        Statement, File No. 333-100150 filed on September 27, 2002.)

10.42   Form of Convertible Promissory  Note  issued in connection with certain
        Bridge Financing beginning in March 2002.

10.43   Amendment No. 1 to Convertible Promissory  Note  issued  in  connection
        with certain Bridge Financing dated August 20, 2003.

10.44   Bridge  II  Convertible  Promissory  Note Indenture, including Form  of
        Convertible  Promissory  Note,  Form  of Security  Agreement,  Form  of
        Collateral Sharing Agreement, and For of  Warrant  issued in connection
        with certain Bridge II Financing beginning in October 2002.

21.1    Subsidiaries of the Company.

23.1     Consent of Ernst & Young, LLP

23.2     Consent of Altschuler Melvoin and Glasser, LLP

1.1      Section 906 Certification by principal executive officer.

1.2      Section 906 Certification by principal financial officer.


*  SEC File No. 0-935

       (a)   Reports on Form 8-K
             None

       (c)   See item 14 (a)3 above

       (d)   The  financial  statements  schedules  are  filed (as  a  separate
             section of this report)


                                  SIGNATURES

      Pursuant  to  the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has  duly caused this amended report to be
signed on its behalf by the undersigned, thereunto duly authorized.

                                             MOLECULAR DIAGNOSTICS, INC.

                                             By: /s/PETER P. GOMBRICH
                                                -------------------------------
                                                Peter P. Gombrich
                                                Chairman of the Board, and
                                                Chief Executive Officer

Date: July 18, 2003

      Pursuant to the requirements of the Securities and Exchange  Act of 1934,
this  report  has been signed below by the following persons on behalf  of  the
registrant and in the capacities and on the dates indicated.

         SIGNATURE                                 TITLE                              DATE
         ---------                                 -----                              ----

/S/   PETER P. GOMBRICH            Director, Chairman of the Board, and           July 18, 2003
- -------------------------------    Chief Executive Officer, (Principal Executive
      Peter P. Gombrich            Officer)(Principal Accounting Officer)

/S/   Dennis L. Bergquist          President and Chief Financial Officer          July 18, 2003
- -------------------------------    (Principal Accounting Officer)
      Dennis L. Bergquist

/S/   Alexander M. Milley
- -------------------------------                   Director                        July 18, 2003
      Alexander M. Milley

/S/      JOHN ABELES                              Director                        July 18, 2003
- -------------------------------
         John Abeles

/S/   DENIS M. O'DONNELL                          Director                        July 18, 2003
- -------------------------------
      Denis M. O'Donnell

/S/
- -------------------------------                   Director                        July ___, 2003
        Robert C. Shaw



                                CERTIFICATIONS

I, Peter P. Gombrich, Chief Executive Officer, certify that:

       1.  I have reviewed this annual report on Form 10-K of Molecular
Diagnostics, Inc.;

       2.  Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;

       3.  Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

       4.  The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

       a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;

       b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

       c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

       5.  The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

       a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

       b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and

       6.  The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date:  July 18, 2003


                                        /s/ Peter P. Gombrich
                                        ------------------------------------
                                        Peter P. Gombrich
                                        Chairman of the Board and Chief
                                        Executive Officer of
                                        Molecular Diagnostics, Inc.


I, Dennis L. Bergquist, Chief Financial Officer, certify that:

       1.  I have reviewed this annual report on Form 10-K of Molecular
Diagnostics, Inc.;

       2.  Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;

       3.  Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

       4.  The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

       a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;

       b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

       c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

       5.  The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

       a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

       b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and

       6.  The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date:  July 18, 2003


                                        /s/ Dennis L. Bergquist
                                        ------------------------------------
                                        Dennis L. Bergquist
                                        Chief Financial Officer of
                                        Molecular Diagnostics, Inc



                        REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders of
Molecular Diagnostics, Inc.

We  have  audited  the  accompanying  consolidated  balance  sheet of Molecular
Diagnostics,  Inc.  and Subsidiaries as of December 31, 2002, and  the  related
statements of operations,  changes  in  stockholders' equity (deficit) and cash
flows for the year then ended.  Our audit also included the financial statement
schedule  listed  in  the  index  at  item 15.   These  consolidated  financial
statements and schedule are the responsibility  of  the  Company's  management.
Our  responsibility is to express an opinion on these financial statements  and
schedule  based  on  our  audit.   We did not audit the financial statements of
Samba Technologies, SARL, a wholly owned  subsidiary,  which statements reflect
total assets of $612,000 at December 31, 2002, and total  revenue  of  $783,000
for the year then ended.  Those statements were audited by other auditors whose
report has been furnished to us, and our opinion, insofar as it relates  to the
amounts  included for Samba Technologies, SARL as of December 31, 2002 and  for
the year then ended, is based solely on the report of the other auditors.

We conducted our audit in accordance with auditing standards generally accepted
in the United  States.  Those  standards  require  that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining,  on  a  test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit  also  includes  assessing  accounting  principles  used  and significant
estimates  made  by  management,  as  well  as evaluating the overall financial
statement presentation.  We believe that our  audit  and  the  report  of other
auditors provide a reasonable basis for our opinion.

In  our  opinion,  based  on  our  audit  and the report of other auditors, the
consolidated financial statements referred  to  above  present  fairly,  in all
material  respects,  the  financial position of Molecular Diagnostics, Inc. and
Subsidiaries as of December 31,  2002  and  the results of their operations and
their  cash  flows  for  the  year then ended, in  conformity  with  accounting
principles generally accepted in  the United States.  Also, in our opinion, the
related financial statement schedule  when  considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.

The accompanying consolidated financial statements  have been prepared assuming
that the Company will continue as a going concern.  As  discussed  in Note 1 to
the financial statements, the Company has incurred substantial net losses  from
operations  and  has  limited  financial  resources.   These  conditions  raise
substantial  doubt  about the Company's ability to continue as a going concern.
Management's plans with  regard  to these matters are described in Note 1.  The
financial statements do not include  any  adjustments  to  reflect the possible
future  effects  on  the  recoverability  and classification of assets  or  the
amounts and classification of liabilities that  may  result from the outcome of
this uncertainty.


                                 /s/ ALTSCHULER, MELVOIN AND GLASSER LLP

Chicago, Illinois
June 26, 2003, except for Note 10, as to which the date is July 18, 2003


                        REPORT OF INDEPENDENT AUDITORS



To The Stockholders of
SARL Samba Technologies

In  our  opinion  the balance sheet, the income statement, and the statement of
changes in shareholder's  equity  of SARL Samba Technologies, after elimination
of the goodwill of 472,591 Euros, present a true and fair view of the Company's
financial position as at December 31,  2002 and of the result for the year then
ended  and  has  been  prepared  in accordance  with  U.S.  Generally  Accepted
Accounting  Principles  and  is suitable  for  inclusion  in  the  consolidated
accounts of Molecular Diagnostics, Inc.


                                        /s/ AUDITEURS & CONSEILS ASSOCIES


Paris, France
June 26, 2003



                        REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders of
Molecular Diagnostics, Inc. and Subsidiaries

       We have audited the accompanying consolidated balance sheet of Molecular
Diagnostics,  Inc. and Subsidiaries, formerly Ampersand Medical Corporation, as
of December 31,  2001,  and  the  related  statements of operations, changes in
stockholders' equity (deficit) and cash flows  for each of the two years in the
period  ended  December 31,  2001.  Our  audits  also  included  the  financial
statement schedule for 2001 and 2000 listed in the  index  at  item  15.  These
financial  statements  and  schedule  are  the  responsibility of the Company's
management.  Our  responsibility is to express an opinion  on  these  financial
statements and schedule based on our audits.

       We conducted  our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement.  An  audit  includes  examining,  on  a test
basis,  evidence  supporting  the  amounts  and  disclosures  in  the financial
statements.  An  audit also includes assessing accounting principles  used  and
significant estimates  made  by  management,  as well as evaluating the overall
financial  statement  presentation.  We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

       In  our  opinion,  the financial statements referred  to  above  present
fairly,  in  all  material  respects,   the  financial  position  of  Molecular
Diagnostics, Inc. and Subsidiaries as of  December 31,  2001 and the results of
their operations and their cash flows for each of the two  years  in the period
ended  December 31,  2001,  in  conformity with accounting principles generally
accepted in the United States. Also,  in  our  opinion,  the  related financial
statement   schedule  when  considered  in  relation  to  the  basic  financial
statements taken  as  a  whole,  presents  fairly  in all material respects the
information set forth therein.

       The accompanying consolidated financial statements  have  been  prepared
assuming  that  the  Company will continue as a going concern. As discussed  in
Note 1 to the financial  statements,  the  Company has incurred substantial net
losses from operations and has limited financial  resources.  These  conditions
raise  substantial  doubt  about  the  Company's ability to continue as a going
concern. Management's plans with regard  to these matters are described in Note
1.  The financial statements do not include  any  adjustments  to  reflect  the
possible  future  effects on the recoverability and classification of assets or
the amounts and classification  of liabilities that may result from the outcome
of this uncertainty.

                                              /s/ ERNST & YOUNG, LLP

Chicago, Illinois
April 8, 2002


                         PART I--FINANCIAL INFORMATION

                 MOLECULAR DIAGNOSTICS, INC. AND SUBSIDIARIES
                   (FORMERLY AMPERSAND MEDICAL CORPORATION)

                          CONSOLIDATED BALANCE SHEETS
               (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

                                                               DECEMBER 31,
                                                               ------------
                                                              2002      2001
                                                              ----      ----
                                    ASSETS
Current Assets:
   Cash and cash equivalents...............................  $   42    $1,025
   Accounts receivables, net of allowance for doubtful
    accounts of $145 and $ 4 at December 31, 2002 and 2001,
    respectively...........................................     307       463
   Inventories.............................................     427       533
   Refundable taxes........................................      56       116
   Due from stockholder....................................      --        50
   Prepaid financings costs................................     288        --
   Prepaid expenses and other current assets...............      69       141
                                                             ------   -------
        Total current assets...............................   1,189     2,328
Fixed Assets, net..........................................     666       835
Other Assets:
   License, patents, and technology, net of amortization...   7,521     8,180
   Goodwill, net of amortization...........................     283       283
                                                             ------   -------
        Total assets.......................................  $9,659   $11,626
                                                             ======   =======

                LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current Liabilities:
   Accounts payable........................................  $5,202    $2,502
   Customer and other deposits.............................      24        49
   Accrued payroll costs...................................   1,856       868
   Accrued expenses........................................   1,143     1,126
   Deferred revenue........................................     630       567
   Revolving line of credit................................     207       177
   Due to stockholder......................................     127        --
   Lease obligation........................................     279        87
   Notes payable--related party............................      65        65
   Notes payable...........................................   4,585     1,359
                                                             ------    ------
        Total current liabilities..........................  14,118     6,800
Lease obligation, less current portion.....................      --       203
Deferred revenue, less current portion.....................     120        --
                                                             ------    ------
        Total liabilities..................................  14,238     7,003
                                                             ------    ------
Stockholders' Equity (Deficit):
Preferred stock, $0.001 par value; shares authorized--
   10,000,000; shares issued and outstanding
   - 2,781,024 and - 3,493,078, at December 31, 2002
   and December 31, 2001, respectively.....................  16,958    21,089
Common stock, $0.001 par value; shares authorized--
   100,000,000; shares issued and outstanding-
   36,440,700 and 25,304,883, at December 31, 2002
   and December 31, 2001, respectively.....................      37        26
Additional paid-in capital.................................  19,557    12,212
Treasury stock; 192,088 shares at December 31, 2001........    (327)     (327)
Deferred compensation......................................     (11)      (61)
Accumulated deficit........................................ (40,642)  (28,289)
Accumulated comprehensive loss--
      Cumulative translation adjustment....................    (151)      (27)
                                                             ------    ------
        Total stockholders' equity (deficit)...............  (4,579)    4,623
                                                             ------    ------
        Total liabilities and stockholders' equity (deficit) $9,659   $11,626
                                                             ======   ========

The accompanying  notes  are  an  integral part of these consolidated financial
                                  statements.


                 MOLECULAR DIAGNOSTICS, INC. AND SUBSIDIARIES
                   (FORMERLY AMPERSAND MEDICAL CORPORATION)
                     CONSOLIDATED STATEMENTS OF OPERATIONS
               (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

                                                     YEAR ENDED DECEMBER 31,
                                                     -----------------------
                                                  2002        2001     2000
                                                  ----        ----     ----
Net Sales....................................   $  1,746   $   877   $  1,094
Costs and Expenses:
   Cost of goods sold........................        852       476        637
   Research and development..................      3,338     4,034      3,426
   Selling, general and administrative expenses    8,059     6,347      3,719
   Impairment loss...........................         --     6,107         --
                                                --------   --------  --------
        Total costs and expenses.............     12,249    16,964      7,782
                                                --------   --------  --------
Operating Loss                                   (10,503)  (16,087)    (6,688)
                                                --------   --------  --------
Other income (expense):
   Interest expense--related party...........         (9)     (230)      (155)
   Interest expense..........................     (1,597)     (296)       (80)
   Interest income, related party............         --        25         63
   Interest income...........................         --        85         10
   Other, net................................        149      (127)       239
                                                --------   --------  --------
                                                  (1,457)     (543)        77
                                                --------   --------  --------
Loss before income taxes.....................    (11,960)  (16,630)    (6,611)
                                                --------   --------  --------
Income taxes.................................         --        --         --
                                                --------   --------  --------
Net loss.....................................   $(11,960)  $(16,630) $ (6,611)
                                                ========   ========  ========
Preferred stock dividends....................     (2,012)      (562)       --
Deemed dividend upon issuance of convertible
  preferred stock............................         --     (2,599)       --
                                                --------   --------  --------
Total dividends                                   (2,012)    (3,161)       --
                                                --------   --------  --------
Net loss available for common shareholders...   $(13,972)  $(19,791) $ (6,611)
                                                ========   ========  ========
Basic and fully diluted net loss per common
  share......................................   $   (.49)  $   (.62) $   (.24)
                                                ========   ========  ========
Weighted average number of common shares
  outstanding................................ 28,704,245  32,019,531 27,869,274
                                              ==========  ========== ==========

The accompanying notes are an integral  part  of  these  consolidated financial
                                  statements.


                 MOLECULAR DIAGNOSTICS, INC. AND SUBSIDIARIES
                   (FORMERLY AMPERSAND MEDICAL CORPORATION)
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (DOLLARS IN THOUSANDS)

                                                         YEAR ENDED DECEMBER 31,
                                                         -----------------------
                                                       2002        2001       2000
                                                       ----        ----       ----
Operating Activities:
   Net loss.........................................  $(11,960)  $(16,630)  $(6,611)
   Adjustments to reconcile net loss to net cash
   used for operating activities:
      Forgiveness of amounts due to service
        providers recognized as expense in
        prior years.................................        --         --      (220)
      Amortization of debt discount.................     1,176        241       139
      Depreciation and amortization.................       967        683       428
      Loss on impairment of goodwill................        --      5,833        --
      Loss on write-off of Cell Solutions...........        --        127        --
      Loss on disposal of equipment.................        --         --        --
      Loss on impairment of patents.................        --        274        --
      Licensing fees recognized on preferred stock
        sale........................................      (298)        --        --
      Stock, warrants, and options issued to
        non-employees for services..................     1,284        416       559
      Compensation expense related to Stock
         Appreciation Rights........................        --        252        91
      Interest expense paid with stock..............        --         66        20
      Changes in assets and liabilities:
        Accounts receivable, net....................       257         12       (67)
        Inventories.................................        98         (9)     (186)
        Refundable taxes............................        73         (3)       12
        Due from stockholder........................       177        (50)       --
        Prepaid expenses and other current assets...        26         32      (166)
        Prepaid royalties...........................        --         36      (500)
        Accounts payable............................      2,742      (334)      680
        Deposits....................................       (31)         3         7
        Deferred revenue............................       139        135       127
        Lease obligation............................       (12)        --        --
        Accrued royalties...........................        --         --      (250)
        Accrued expenses............................     1,135        953        21
                                                        ------     ------     ------
Net cash used for operating activities..............    (4,227)    (7,963)   (5,916)
                                                        ------     ------     ------
Cash used in investing activities:
   Net cash acquired................................        --         43        --
   Expenditures for license, patents, and technology        (4)      (134)     (532)
   Capital purchases................................       (88)      (542)     (307)
   Issuances for notes receivable...................        --     (1,270)     (330)
                                                        ------     ------    ------
Net cash used for investing activities..............       (92)    (1,903)   (1,169)
                                                        ------     ------    ------
Cash flows from financing activities:
   Proceeds from issuance of convertible notes
     payable........................................     3,825         --       500
   Proceeds from issuance of convertible notes
     payable, related party.........................        --         --       500
   Proceeds from issuance of notes payable..........        80        600        --
   Proceeds from issuance of notes payable,
     related party..................................        --        810       300
   Proceeds from issuance of common stock, net of
     costs incurred.................................        --          6     5,484
   Proceeds from issuance of preferred stock, net
     of costs incurred..............................        --     10,452    10,452
   Proceeds from note payable from shareholder......        --        450        --
   Payment of notes payable.........................      (500)       (27)     (175)
   Payment of notes payable, related party..........        --     (1,545)      (26)
   Proceeds from revolving line of credit, net......        (2)        58        (7)
Deposit received for future purchase of stock.......        --         --       500
                                                        ------     ------    ------
Net cash provided by financing activities...........     3,403     10,804     7,076
                                                        ------     ------    ------


The  accompanying  notes  are an integral part of these consolidated  financial
                                  statements.

F-1

                 MOLECULAR DIAGNOSTICS, INC. AND SUBSIDIARIES
                   (FORMERLY AMPERSAND MEDICAL CORPORATION)
              CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
                            (DOLLARS IN THOUSANDS)



                                                       YEAR ENDED DECEMBER 31,
                                                       ------------------------
                                                       2002      2001      2000
                                                     --------  --------  --------
Effect of exchange rate changes on cash                   (67)       74       (14)
                                                     --------  --------  --------
Net increase (decrease) in cash and cash
 equivalents                                             (983)    1,012       (23)
Cash and cash equivalents at beginning of period        1,025        13        36
                                                     --------  --------  --------
Cash and cash equivalents at end of period           $     42  $  1,025  $     13
                                                     ========  ========  ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR:
Interest                                             $    179  $    135  $     13
Income taxes                                         $     --  $     --  $     --
NON-CASH TRANSACTION DURING THE PERIOD FOR:
Note receivable given to purchase Common Stock       $     --  $     --  $    450
Warrants issued for license                          $     --  $     49  $    530
Common stock issued for license                      $     --  $     --  $    450
Deferred financing costs                             $    519  $     --  $    334
Warrant issued for Cell Solutions Investment         $     --  $    127  $     --
Series E preferred stock issued in exchange for
 common stock                                        $     --  $  9,557  $     --
Preferred stock and cumulative dividends
 converted into common stock                         $  3,297  $    676  $     --

      See  Note 3  for non-cash  transaction  related  to  the  acquisition  of
AccuMed.




  The accompanying notes are an integral part of these financial statements.


                    MOLECULAR DIAGNOSTICS, INC. AND SUBSIDIARIES
                      (FORMERLY AMPERSAND MEDICAL CORPORATION)

             CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                               (DOLLARS IN THOUSANDS)

                                                                                                                Note
                                     Preferred Stock      Common Stock                          Additional   Receivable                                   Other            Total
                                     Par Value $0.001    Par Value $0.001     Treasury Stock     Paid-In        From       Deferred     Accumulated   Comprehensive    Stockholder's
                                     Shares    Amount    Shares     Amount    Shares   Amount    Capital     Stockholder  Compensation    Deficit         Loss        Equity (Deficit)
                                     ------    ------  ----------   ------    ------   ------    --------      -------      ------        -------        ------          --------

December 31, 1999                              $   --  19,027,570   $   19             $   --    $  3,039      $   --       $   --        $(5,015)       $  (83)         $ (2,040)
Comprehensive Loss:
   Net loss .......................                --                   --                 --          --          --           --        -(6,611)           --            (6,611)
   Foreign currency translation....                --                   --                 --          --          --           --             --           (14)              (14)
                                                                                                                                                                           ------
   Total comprehensive loss                                                                                                                                                (6,625)
Note receivable from
   stockholder.....................                --                   --                 --          --        (450)          --             --            --              (450)
Conversion of notes payable
   and accrued interest............                --   5,412,544        5                 --       1,077          --           --             --            --             1,082
Debt discount on convertible
   notes...........................                --          --       --                 --         250          --           --             --            --               250
Warrants issued as debt
   discount........................                --          --       --                 --          84          --           --             --            --                84
Warrants issued to purchase
   license.........................                --          --       --                 --         530          --           --             --            --               530
Warrants issued for services.......                --          --       --                 --          91          --           --             --            --                91
Exercise of warrants...............                --      70,000       --                 --          23          --           --             --            --                23
Sale of common stock...............                --   5,300,450        6                 --       5,883          --           --             --            --             5,889
Sale of common stock to
   employees.......................                --      21,989       --                 --          17          --           --             --            --                17
Common stock issued for
   royalty payment.................                --     128,571       --                 --         386          --           --             --            --               386
Common stock issued for
   services........................                --                   --                 --          60          --           --             --            --                60
Restricted stock issued for
   services........................                --     225,333       --                 --         202          --           --             --            --               202
Restricted stock issued for
   compensation....................                --      25,000       --                 --          15          --           --             --            --                15
Options issued to non-
   employees for services..........                --                   --                 --         270          --           --             --            --               270
Compensation expense related
   to SARs.........................                --                   --                             91          --                          --                              91
                                     ------    ------  ----------   ------    ------   ------    --------      -------      ------        -------        ------          --------
December 31, 2000..................      --        --  30,211,457   $   30        --       --    $ 12,018      $ (450)          --       $(11,626)       $  (97)            $(125)
Comprehensive Loss:
   Net loss........................      --        --          --       --        --                   --          --           --        (16,630)           --           (16,630)




                    MOLECULAR DIAGNOSTICS, INC. AND SUBSIDIARIES
                      (FORMERLY AMPERSAND MEDICAL CORPORATION)

             CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                               (DOLLARS IN THOUSANDS)

                                     Preferred Stock      Common Stock                          Additional   Receivable                                   Other            Total
                                     Par Value $0.001    Par Value $0.001     Treasury Stock     Paid-In        From       Deferred     Accumulated   Comprehensive    Stockholder's
                                     Shares    Amount    Shares     Amount    Shares   Amount    Capital     Stockholder  Compensation    Deficit         Loss        Equity (Deficit)
                                     ------    ------  ----------   ------    ------   ------    --------      -------      ------        -------        ------          --------

   Foreign currency translation....                --                   --                 --          --           --          --             --            70                70
                                                                                                                                                                         --------
   Total net comprehensive
   loss............................                --                   --                 --          --           --          --             --            --           (16,560)
Sale of Series B preferred
   stock, net of offering
   costs........................... 1,499,856   5,840                   --                 --          --           --          --             --            --             5,840
Series B preferred stock and
   cumulative dividends
   converted to common.............  (142,500)   (570)    604,592        1                 --         602           --          --            (33)           --                --
Series A preferred stock,
   common stock, options and
   warrants issued in
   AccuMed acquisition.............   218,438     983   3,911,245        4  (192,088)    (327)      8,423           --         (75)            --            --             9,008
Series A preferred stock
   converted to common.............   (23,603)   (106)     10,310       --                 --         106           --          --             --            --                --
Sale of Series C preferred
   stock, net of offering
   costs........................... 1,331,499   3,635                   --                 --          --           --          --             --            --             3,635
Sale of Series D preferred
   stock...........................   175,000   1,750                   --                 --          --           --          --             --            --             1,750
Common stock tendered for
   Series E preferred stock........   434,388   9,557 (10,859,688)     (11)                --      (9,546)          --          --             --            --                --
Equity issuance costs..............                --                   --                 --        (272)          --          --             --            --              (272)
Beneficial conversion feature
   on convertible notes............                --                   --                 --          50           --          --             --            --                50
Restricted stock issued for
   services........................                --                   --                 --          50           --          --             --            --                50
Warrants issued for services.......                --                   --                 --         249           --          --             --            --               249
Options issued to non-
   employees for services..........                --                   --                 --          52           --          --             --            --                52
Reversal of Compensation
   expense related to SARs.........                --                   --                 --         (79)          --          --             --            --               (79)
Sale of common stock to
   employees.......................                --       8,028       --                 --          11           --          --             --            --                11
Warrants issued with debt..........                                     --                 --          66           --          --             --            --                66



                    MOLECULAR DIAGNOSTICS, INC. AND SUBSIDIARIES
                      (FORMERLY AMPERSAND MEDICAL CORPORATION)

             CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                               (DOLLARS IN THOUSANDS)

                                     Preferred Stock      Common Stock                          Additional   Receivable                                   Other            Total
                                     Par Value $0.001    Par Value $0.001     Treasury Stock     Paid-In        From       Deferred     Accumulated   Comprehensive    Stockholder's
                                     Shares    Amount    Shares     Amount    Shares   Amount    Capital     Stockholder  Compensation    Deficit         Loss        Equity (Deficit)
                                     ------    ------  ----------   ------    ------   ------    --------      -------      ------        -------        ------          --------

Warrants issued for
   investment in Cell
   Solutions.......................                --                   --                 --         127           --          --             --            --               127
Deferred compensation
   expense for unvested
   options issued in
   acquisition.....................                --                   --                 --          --           --          14             --            --                14
Common stock issued on
   exercise of warrants............                --     840,247        1                 --          (1)          --          --             --            --                --
Common stock issued for
   services........................                --     510,692        1                 --          (1)          --          --             --            --                --
Common stock issued to
   employees.......................                --      51,334       --                 --          --           --          --             --            --                --
Exercise of options................                --      16,666       --                 --           5           --          --             --            --                 5
Options issued to former
   officer.........................                --                   --                 --         303           --          --             --            --               303
Payments received on
   stockholder note................                --                   --                 --          --          450          --             --            --               450
Warrants issued to purchase
   license.........................                --                   --                 --          49                       --             --            --                49
                                     ------    ------  ----------   ------    ------   ------    --------      -------      ------        -------        ------          --------
December 31, 2001..................3,493,078 $ 21,089  25,304,883   $   26  (192,088)  $ (327)   $ 12,212      $    --      $  (61)      $(28,289)       $  (27)         $  4,623
Comprehensive Loss:
   Net loss........................                --                   --                 --          --           --          --        (11,960)           --           (11,960)
   Foreign currency translation....                --                   --                 --          --           --          --             --          (124)             (124)
   Total net comprehensive.........                --                   --                 --          --           --          --             --            --           (12,084)
   Loss............................
Series A preferred stock
   converted to common.............  (76,743)    (345)     33,510       --                 --         345           --          --             --            --                --
Series B preferred stock and
   Cumulative dividends
   converted to common............. (557,500)  (2,230)  2,594,175        3                 --       2,590           --          --           (364)           --                --
Series C preferred stock
   And cumulative dividends
   converted to common.............  (72,666)    (218)    392,858       --                 --         235           --          --            (18)           --                --




                    MOLECULAR DIAGNOSTICS, INC. AND SUBSIDIARIES
                      (FORMERLY AMPERSAND MEDICAL CORPORATION)

             CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                               (DOLLARS IN THOUSANDS)

                                     Preferred Stock      Common Stock                          Additional   Receivable                                   Other            Total
                                     Par Value $0.001    Par Value $0.001     Treasury Stock     Paid-In        From       Deferred     Accumulated   Comprehensive    Stockholder's
                                     Shares    Amount    Shares     Amount    Shares   Amount    Capital     Stockholder  Compensation    Deficit         Loss        Equity (Deficit)
                                     ------    ------  ----------   ------    ------   ------    --------      -------      ------        -------        ------          --------

Series E preferred stock, conversion
   premium and cumulative
   dividends converted to common     (5,145)     (113)    155,180       --                 --         124           --          --            (11)           --                --
Transfer value of warrant and
   license related to Series D
   preferred stock.................            (1,225)                  --                 --         928           --          --             --            --              (297)
Deferred compensation expense for
   unvested options issued in
   acquisition.....................                --                   --                 --          --           --          50             --            --                50
Common stock issued to employees                           16,666       --        --       --          --           --          --             --            --                --
Common stock issued for services                   --     911,496        1                 --         354           --          --             --            --               354
Sale of common stock to
   Employees.......................                --       9,568       --                 --           1           --          --             --            --                 1
Common stock issued for loan
   transaction fees................                --     711,364        1                 --         363           --          --             --            --               363
Exercise of options................                --     361,000       --                 --          44           --          --             --            --                44
Common stock issued for
   financing fees..................                --     200,000       --                 --          44           --          --             --            --                44
Common stock issued for
   collateral......................                --   5,750,000        6                 --          (6)          --          --             --            --                --
Beneficial conversion feature
   on convertible notes............                --                   --                 --       1,372           --          --             --            --             1,372
Reversal of common stock
   issued as compensation..........                --                   --                 --          (4)          --          --             --            --                (4)
Reversal of restricted stock
   issued for services.............                --                   --                 --         (38)          --          --             --            --               (38)
Reversal of options issued to
   non-employees for
   compensation....................                --                   --                 --         (55)          --          --             --            --               (55)
Warrants issued for services.......                --                   --                 --         848           --          --             --            --               848
Warrants issued with debt..........                --                   --                 --         200           --          --             --            --               200
                                    --------- -------  ----------   ------   -------   ------    --------      -------      ------       --------        ------          --------
December 31, 2002.................. 2,781,024 $16,958  36,440,700   $   37   192,088   $ (327)   $ 19,557      $    --      $  (11)      $(40,642)       $ (151)         $ (4,579)
                                    ========= =======  ==========   ======   =======   ======    ========      =======      ======       ========        ======          ========

  The accompanying notes are an integral part of these financial statements.




                 MOLECULAR DIAGNOSTICS, INC. AND SUBSIDIARIES
                   (FORMERLY AMPERSAND MEDICAL CORPORATION)

         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2002

NOTE 1.      THE COMPANY AND BASIS OF PRESENTATION

       Molecular  Diagnostics,  Inc,  ("MDI")  was  incorporated  as  Ampersand
Medical Corporation in Delaware on December 15, 1998, as the successor  to Bell
National  Corporation  ("Bell  National").  Bell  National  was incorporated in
California in 1958.

       On  September 25,  2001,  the  Company  changed  its corporate  name  to
Molecular  Diagnostics, Inc. in order to better represent  its  operations  and
products. The  name  change  was  effected  by  a  merger  with  a wholly-owned
subsidiary.  Molecular  Diagnostics,  Inc.  has  retained  its  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, a development-stage company engaged in
the  design  and  development  of medical instruments and related tests. In the
acquisition, Bell National issued 4,288,790 shares of common stock and warrants
to purchase 3,175,850 shares of  common  stock  to  the  members  of  InPath in
exchange  for  their  units  of  membership  interest  in InPath and the senior
executives of InPath assumed management control of MDI.

       Based  upon  the  terms  of  the  acquisition agreement,  for  financial
reporting  and  accounting purposes the acquisition  was  accounted  for  as  a
reverse acquisition  whereby  InPath  is deemed to have acquired Bell National.
However, Bell National was the continuing  legal entity and registrant for both
Securities  and  Exchange  Commission filing purposes  and  income  tax  filing
purposes, until its merger into  MDI  in  May 1999. Because Bell National was a
non-operating public shell company with nominal assets and InPath was a private
operating company, the acquisition was recorded  as  the  issuance of stock for
the net monetary assets of Bell National, accompanied by a recapitalization and
no goodwill or other intangible assets were recorded.

       On   September 17,  2001,  Molecular  Diagnostics,  Inc.  completed   an
acquisition transaction  whereby  AccuMed International, Inc. was merged into a
wholly-owned subsidiary of MDI. The  value of the transaction was approximately
$14,178,000.  Accordingly,  the  consolidated  financial  statements  presented
hereunder include the operations of InPath from March 16, 1998 (inception), the
operations of Bell National and Molecular  Diagnostics,  Inc.  from December 4,
1998,  and  the  operations  of  AccuMed International, Inc. from September 17,
2001, the date of acquisition.

       Molecular Diagnostics, Inc.  is  focused  on the design, development and
marketing  of  the  InPath System, Samba software and  related  image  analysis
systems. 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.

       Molecular  Diagnostics, Inc. has another wholly owned subsidiary,  Samba
Technologies, Sarl  ("Samba").  MDI  acquired  all  of  the  assets of Samba in
January 1999 from Unilog Regions, SA for approximately $500,000  in cash. Samba
designs,  develops,  and markets web-enabled software based systems  for  image
analysis, image capture, and image transmission and management for clinical and
industrial applications.  Samba  is also developing software used in the InPath
System. A majority of reported revenues  prior  to  2002 and since inception of
Molecular Diagnostics, Inc. have been generated by Samba.  Since  December  20,
2002, Samba has operated under the protection of the French Commercial Court in
compliance  with  the  bankruptcy  laws  of France. Samba continues to maintain
normal operations under the supervision of  an  Administrator  appointed by the
French  Commercial  Court.  Samba  will  continue to operate under the  current
format  until a plan of reorganization and  continuation  is  approved  by  the
Court, which must act by December 2003, unless an extension of time is granted.
In consort with Samba managers, MDI anticipates filing a Continuation Plan with
the French Commercial Court during the third quarter of 2003.

       Molecular  Diagnostics,  Inc.  has incurred significant operating losses
since its inception. Management expects  that  significant  on-going  operating
expenditures  will  be necessary to successfully implement MDI's business  plan
and develop, manufacture  and  market  its  products. These circumstances raise
substantial  doubt  about  MDI's  ability  to  continue  as  a  going  concern.
Implementation  of its plans and its ability to continue  as  a  going  concern
depend upon its securing  substantial  additional financing. Management's plans
include  substantial  efforts  to  obtain  additional   capital.  If  Molecular
Diagnostics, Inc. is unable to obtain adequate additional financing or generate
profitable sales revenues, management may be required to  curtail  its  product
development and other activities and may be forced to cease operations.

NOTE 2.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

       Principles  of  Consolidation.   The  consolidated  financial statements
include  Molecular  Diagnostics,  Inc.  and its wholly owned subsidiaries.  All
intercompany balances and transactions have been eliminated.

       New Accounting Standards.

       Goodwill and Other Intangible Assets

       On   June 29,   2001,   the   Financial   Accounting   Standards   Board
(FASB) approved  its  proposed  Statements  of Financial  Accounting  Standards
No. 142  (FAS 142), Goodwill and Other Intangible  Assets.  FAS 142  supercedes
APB 17, Intangible  Assets. FAS 142 primarily addresses accounting for goodwill
and   intangible  assets   subsequent   to   their   acquisition   (i.e.,   the
post-acquisition  accounting). The most significant changes made by FAS 142 are
(1): goodwill  and  indefinite  lived  intangible  assets  will  no  longer  be
amortized, (2) goodwill  will be tested for impairment at least annually at the
reporting unit level, (3) intangible  assets  deemed to have an indefinite life
will  be  tested  for impairment at least annually,  and  (4) the  amortization
period of intangible  assets  with  finite  lives  will no longer be limited to
forty years.

       The  Company  adopted  FAS 142 effective January 1,  2002.  The  Company
completed its initial review of goodwill and intangible assets during the first
quarter of 2002. An additional  review  was conducted during the second quarter
of 2003. The results of these reviews indicated  that  there  was no additional
impairment  of  goodwill  or  intangible  assets  above that reflected  in  the
financial  statements for the year ended December 31,  2001.  The  adoption  of
FAS 142 in 2002  did not have a material effect on the financial statements for
the year ended December 31, 2002.

       Asset Retirement Obligations

       In July 2001,  the  FASB issued Statement No. 143, "Accounting for Asset
Retirement Obligations" ("FAS  143").  FAS  143  addresses  the  accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. FAS 143 became effective  for
MDI  in  the  first  quarter  of 2002. The provisions of FAS 143 did not have a
material impact on the Company's consolidated financial statements.

       Impairment or Disposal of Long-Lived Assets

       In August 2001, the FASB  issued  Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("FAS 144"). FAS 144 clarifies the
accounting for the impairment of long-lived assets and for long-lived assets to
be disposed of, including the disposal of  business segments and major lines of
business. FAS 144 became effective for MDI in  the  first  quarter of 2002. The
provisions  of  FAS 144  did  not  have  a  material  impact  on the  Company's
consolidated financial statements.

       Variable Interest Entities

       In   January   2003,   the   FASB  issued  FASB  Interpretation  No. 46,
"Consolidation  of  Variable  Interest  Entities"  ("FIN 46"),  which  requires
variable interest entities (commonly referred to as SPEs) to be consolidated by
the primary beneficiary of the entity if  certain  criteria  are met. FIN 46 is
effective  immediately  for  all  new  variable  interest  entities created  or
acquired  after  January 31,  2003. For variable interest entities  created  or
acquired prior to February 1, 2003,  the  provisions of FIN 46 become effective
for  the  Company  during  the third quarter of  2003.  For  variable  interest
entities acquired prior to February 1,  2003,  any  difference  between the net
amount  added to the balance sheet and the amount of any previously  recognized
interest  in  the  variable  interest entity will be recognized as a cumulative
effect of an accounting change.  The  provisions  of FASB Interpretation No. 46
will  not  have  a  material  impact  on  the Company's consolidated  financial
statements.

       Stock-Based Compensation

       In  December 2002, the FASB issued Statement  No. 148,  "Accounting  for
Stock-Based  Compensation,  Transition  and  Disclosure"  ("FAS  148"). FAS 148
provides alternative methods of transition for a voluntary change  to  the fair
value based method of accounting for stock-based employee compensation. FAS 148
also requires that disclosures of the pro forma effect of using the fair  value
method  of  accounting  for stock-based employee compensation be displayed more
prominently and in a tabular  format. Additionally, FAS 148 requires disclosure
of the pro forma effect in interim  financial  statements.  The  transition and
annual disclosure requirements of FAS 148 are effective for fiscal  years ended
after  December  15,  2002. The interim disclosure requirements of FAS 148  are
effective for interim periods  beginning  after December 15, 2002. The adoption
of  the  provisions  of  FAS  148  did  not have an  impact  on  the  Company's
consolidated  financial  statements, however,  the  Company  has  modified  its
disclosures as provided for in the new standard.

       Exit and Disposal Activities

       In July 2002, the FASB  issued  Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("FAS 146"). FAS 146 nullifies the
accounting for restructuring costs provided  in  EITF Issue No. 94-3 "Liability
Recognition for Certain Employee Termination Benefits  and  Other Costs to Exit
an  Activity  (including Certain Costs Incurred in a Restructuring)."  FAS  146
requires that a  liability  associated  with  an  exit  or disposal activity be
recognized and measured at fair value only when incurred. In addition, one-time
termination benefits should be recognized over the period employees will render
service, if the service period required is beyond a minimum  retention  period.
FAS   146  is  effective  for  exit  or  disposal  activities  initiated  after
December 31,  2002.  Management  does  not  expect  that the application of the
provisions of FAS 146 will have a material impact on the Company's consolidated
financial statements.

       Guarantees

       In  November 2002, the FASB issued Interpretation  No. 45,  "Guarantor's
Accounting and  Disclosure  Requirements  for  Guarantees,  Including  Indirect
Guarantees  of  Indebtedness  of  Others"  ("FIN  45").  FIN 45 requires that a
liability  be  recorded  in the guarantor's balance sheet upon  issuance  of  a
guarantee. In addition, FIN  45  requires disclosures about the guarantees that
an entity has issued, including a  reconciliation  of  changes  in the entity's
product  warranty liabilities. The initial recognition and initial  measurement
provisions of FIN 45 are applicable on a prospective basis to guarantees issued
or modified  after  December 31,  2002,  irrespective of the guarantor's fiscal
year-end. The initial recognition and initial  measurement provisions of FIN 45
are  not  expected  to  have  a material impact on the  Company's  consolidated
financial statements. The disclosure  requirements  of FIN 45 are effective for
financial  statements  of interim or annual periods ending  after  December 15,
2002;  therefore,  the Company  has  modified  its  disclosures  if  and  where
appropriate as required.

       Transfers and  Servicing  of  Financial  Assets  and  Extinguishments of
Liabilities

       In  September  2000, the FASB issued Statement No. 140, "Accounting  for
Transfers  and  Servicing   of   Financial   Assets   and   Extinguishments  of
Liabilities - a  Replacement  of FASB Statement No. 125" ("FAS 140").  FAS  140
revises the criteria for accounting  for securitizations and other transfers of
financial  assets  and  collateral.  In  addition,  FAS  140  requires  certain
additional disclosures. Except for the new  disclosure  provisions,  which were
effective for the year ended December 31, 2000, FAS 140 was effective  for  the
transfer  of financial assets occurring after March 31, 2001. The provisions of
FAS 140 did  not  have  a  material  impact  on  MDI's  consolidated  financial
statements.

       Use  of  Estimates.   The  preparation  of  the  financial statements in
conformity with accounting principles generally accepted  in  the United States
requires management to make estimates and assumptions that affect  the  amounts
reported  in  the  financial  statements and accompanying notes. Actual results
could differ from those estimates.

       Revenue Recognition.  Molecular  Diagnostics,  Inc.  recognizes  revenue
upon  shipment  of  product  or  license  to customers and no remaining Company
obligations or contingencies exist, or in the  case of sales of software by its
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; the fee is
fixed or determinable; and collection is probable.

       Revenue from ongoing client maintenance is recognized ratably  over  the
post-contract  support  term,  which  is  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. Revenue from prepayments  under
licenses is recognized over the license period.  Samba calculates percentage of
completion based on the estimated total number of  hours of service required to
complete an implementation project and the number of  actual  hours  of service
rendered.  Implementation  and  installation  services  are generally completed
within 120 days.

       Cash and Cash Equivalents.  Molecular Diagnostics,  Inc.  considers  all
highly  liquid  investments with a maturity of three months or less at the time
of purchase to be cash equivalents.

       Inventory  of  Instruments,  Component  Parts  and  Labor.  Inventory of
instruments  and component parts consists of AcCell instruments  and  component
parts necessary to manufacture AcCell instruments. The manufacturing process is
carried out in  the facilities of a third-party contractor. Inventory is stated
at the lower-of-cost-or-market;  cost  is  determined by the first-in-first-out
(FIFO) method. The Company has established a  policy for reserving obsolete and
excess  inventory,  any  non-usable,  damaged,  or  non-salable   inventory  or
inventory  with  little  or  no  demand for the product in excess of one  year.
Samba's inventory consists primarily  of  in-process  labor expended to date on
uncompleted contracts.

       Property and Equipment.  Property and equipment  are  stated at cost and
are  depreciated  using  the  straight-line  method over the assets'  estimated
useful lives. Principal useful lives are as follows:

           Furniture and fixtures...............   5 years
           Laboratory equipment.................   5 years
           Computer and communications equipment   3 years
           Leasehold improvements...............   Useful life or life of
                                                   lease, whichever is shorter

       Normal  maintenance  and  repairs  are  charged  to expense as incurred,
significant improvements are capitalized.

       License,  Patents,  and  Technology.   License, patents,  and  purchased
technology  are recorded at their acquisition cost.  Costs  to  prepare  patent
filings are expensed  when  incurred.  Costs  related  to abandoned patents are
written off at the time of abandonment. Amortization is begun 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.  The  Company
assesses licenses, patents, and technology quarterly for impairment.

       Goodwill.   Amortization  expense for 2001, 2000 related to goodwill was
approximately  $141,000  and  $146,000   respectively.   As  described  in  New
Accounting  Standards  above,  the  Company  has adopted FAS 141  and  FAS 142.
FAS 142 sets forth guidelines for discontinuing  periodic goodwill amortization
costs  in  results  of  operations  and  for establishing  an  annual  goodwill
impairment   review  and  related  net  realizable   value   asset   write-down
methodology.

       Research  and  Development  Costs.   Research  and development costs are
charged  to  operations  as incurred. Molecular Diagnostics,  Inc.  conducts  a
portion  of  its  research  activities   under  contractual  arrangements  with
scientists, researchers, universities, and other independent third parties.

       Foreign  Currency Translation.  The  functional  currency  of  Molecular
Diagnostics, Inc.'s  foreign operations is the local currency. Accordingly, all
assets and liabilities are translated into United States dollars using year-end
exchange rates, and all  revenues  and  expenses  are  translated using average
exchange rates during the year. The amount of foreign currency  translation  is
not  material  to  the  results  of  operations  and  the financial position of
Molecular Diagnostics, Inc.

       Other Comprehensive Income (Loss).  Translation  adjustments  related to
Molecular   Diagnostics,  Inc.'s  foreign  operations  are  included  in  other
comprehensive loss and reported separately in stockholders' equity (deficit).

       Loss Per  Share.   Basic  loss  per  share  is  calculated  based on the
weighted-average number of outstanding common shares. Diluted loss per share is
calculated  based  on the weighted-average number of outstanding common  shares
plus the effect of dilutive  potential  common  shares.  Molecular Diagnostics,
Inc.'s  calculation  of dilutive net loss per share excludes  potential  common
shares as the effect would  be antidilutive. Cumulative and deemed dividends on
convertible preferred shares totaled approximately $3,143,000 and $3,161,000 at
December 31, 2002 and 2001, respectively.  There were no preferred dividends in
2000. Loss per share applicable to common shareholders  as of December 31, 2002
is $0.49. The weighted average shares at December 31, 2002 include the weighted
average  effect  of  5,750,000 shares of common stock issued  to  Round  Valley
Capital, LLC in August of 2002. These shares of common stock were issued to RVC
additional collateral  for a loan made to the Company. The shares were returned
to the Company by RVC upon  final settlement of the loan in 2003. MDI cancelled
the shares in April of 2003.  If  we had not treated these shares as issued and
outstanding at December 31, 2002, the  loss  per  share  applicable  to  common
shareholders  would  have  been  $0.52.  Potential  common shares include stock
underlying convertible notes, convertible preferred stock, cumulative dividends
on preferred stock payable in common stock, stock options,  and  warrants.  The
weighted-average  number of options and warrants to purchase common stock using
the treasury stock  method  for  2002  and  2001  was 14,774,294 and 19,575,547
shares, respectively.

       Income Taxes.  MDI follows the liability method in accounting for income
taxes.  Under this method, deferred tax assets and liabilities  are  determined
based on  differences  between  financial reporting and tax bases of assets and
liabilities and are measured using  tax  rates and laws that are expected to be
in effect when the differences are expected  to  reverse.  Valuation allowances
are provided against deferred tax assets if it is more likely than not that the
deferred tax assets will not be realized.

       Stock  Compensation.   As  permitted  by  the  Statement  of   Financial
Accounting   Standards   No. 123,   Accounting   for  Stock-Based  Compensation
(SFAS 123),  Molecular  Diagnostics, Inc. uses the intrinsic  value  method  to
account for stock options  as  set forth in Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees (APB 25).

       Reclassification. Certain amounts reported in 2000 and 2001 consolidated
financial statements have been reclassified to conform with 2002 presentation.

       Impairment.  At each balance sheet date or whenever events or changes in
circumstances  indicate that the  carrying  amount  of  an  asset  may  not  be
recoverable, management of the Company evaluates recoverability of such assets.
An impairment loss  is  recognized  if the amount of undiscounted cash flows is
less than the carrying amount of the  asset  in which case the asset is written
down to fair value. The fair value of the asset  is  measured  by either quoted
market  prices  or  the present value of estimated expected future  cash  flows
using a discount rate commensurate with the risks involved.

NOTE 3.      ACQUISITION

       On September 17,  2001,  Molecular Diagnostics, Inc. acquired AccuMed by
issuing  3,911,245  shares  of its common  stock  to  holders  of  all  of  the
outstanding  common  stock of AccuMed,  and  218,438  shares  of  its  Series A
convertible preferred  stock  to  holders  of  all  of the outstanding Series A
convertible preferred stock of AccuMed.

       MDI made loans to AccuMed amounting to $1,270,000  and  $330,000 in 2001
and  2000  respectively,  prior  to  completion of the acquisition. The  notes,
including  accrued  interest  receivable   due   on   thereon,   amounting   to
approximately   $80,000   and   $10,000,  respectively,  were  reclassified  to
intercompany accounts and eliminated  in  the consolidated financial statements
as  of  December 31,  2001 and 2000 in accordance  with  accounting  principles
generally accepted in the United States.

       On June 9, 2000,  Molecular Diagnostics, Inc. executed an amendment to a
Patent and Technology License  Agreement  originally  dated  September 4, 1998,
between  InPath and AccuMed. The amendment assigned the Patent  and  Technology
License Agreement  directly  to  MDI,  eliminated  a  minimum  royalty  payment
required  by  the  original  License,  and  reduced  the royalty rate to 4%. As
consideration for this amendment, MDI paid $500,000 cash,  issued a convertible
note payable in the principal amount of $100,000 and issued  128,571  shares of
MDI  common  stock, with a fixed value of $450,000, to AccuMed. The convertible
note  was  paid   in   full  during  December  2000.  The  $1,050,000  combined
consideration paid to AccuMed  was  recorded  as  prepaid royalty and was being
charged to royalty expense based on the recognition  of  revenues  by MDI. As a
result  of  the  completion  of  the  merger  of  AccuMed  into  a wholly-owned
subsidiary  of  MDI,  the unamortized prepaid royalty amount was eliminated  in
purchase accounting. During  2001 and 2000, MDI recognized $36,000 and $44,000,
respectively, as royalty expense prior to the completion of the merger.

       As a result of the acquisition,  MDI  (1) assumed  AccuMed's outstanding
stock options and warrants, (2) forgave a note receivable,  as described above,
due from AccuMed, (3) wrote-off unamortized license fees and  prepaid royalties
previously  paid  under a licensing agreement with AccuMed, also  as  described
above, and, (4) received  192,088  shares  of its common stock that was held by
AccuMed.

       The  value  of  the transaction was approximately  $14,178,000  and  was
determined based on the market price of MDI's 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. Molecular Diagnostics, Inc. is consolidating the results
of AccuMed operations from the date of acquisition.

       A summary of the purchase price is as follows (in thousands):

      Fair value of 3,911,245 common shares issued..................  $ 6,649
      Fair value of 218,438 Series A preferred shared issued........      162
      Fair value of 1,128,198 AccuMed warrants assumed..............    1,918
      Fair value of 366,495 AccuMed stock options assumed...........      606
      Note receivable due from AccuMed, including accrued interest..    1,595
      Unamortized license fees and prepaid royalties previously
      paid to AccuMed...............................................    1,423
      Fair value of 192,088 MDI common shares held by AccuMed.......     (326)
      AccuMed liabilities assumed...................................    1,455
      Direct acquisition costs incurred by MDI......................      696
                                                                      -------
              Total purchase price..................................  $14,178
                                                                      =======

      The purchase price was allocated  to  AccuMed's  acquired assets based on
their respective fair market values, as follows (in thousands):

      Cash and cash equivalents.....................................  $    43
      Inventories...................................................      290
      Other current assets..........................................       49
      Fixed assets..................................................      115
      Deferred compensation.........................................       75
      Technology license agreements:
        MDI license agreement.......................................    7,230
        Dianon license agreement....................................      260
      Goodwill......................................................    6,116
                                                                      -------
              Total purchase price..................................  $14,178
                                                                      =======

       In allocating the purchase price, MDI obtained an appraisal to determine
the  fair  market  values  of  the  acquired  technology  license agreement and
inventories.  Acquired technology license agreements are being  amortized  over
the remaining life  of  the  respective agreements; seventeen years for the MDI
license agreement and two years for the Dianon license agreement.

       The following selected  unaudited  pro  forma  consolidated  results  of
operations are presented as if the acquisition had occurred on January 1, 2000.
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,  2000,  nor are they
necessarily   indicative   of   the   future  operating  results  of  Molecular
Diagnostics, Inc. The pro forma data does  not  give effect to any cost savings
or restructuring and integration costs that might  result  from the integration
of the companies' operations.

       Pro forma results for the fiscal years ended December 31 (in thousands):


                                                          2001       2000
                                                          ----       ----

      Revenues........................................  $  1,586   $  1,296
      Net loss available to common stockholders.......   (21,187)   (10,084)
      Basic and fully diluted net loss per share......  $  (0.59)  $  (0.32)

      At December 31, 2001, management determined several factors,  principally
that  certain  contracts  being  negotiated  by  AccuMed failed to materialize,
indicating  that  the  carrying  value  of  goodwill relating  to  the  AccuMed
acquisition  was  impaired.  Based  on  this  evaluation,   MDI  recognized  an
impairment charge of $5,833,000.

NOTE 4.    NOTES AND ACCOUNTS RECEIVABLE--RELATED PARTY

       On  April 28, 2000, Molecular Diagnostics, Inc. sold 1,333,333 shares of
common stock  to  Seaside  Partners,  LP,  a hedge fund, at $1.50 per share, or
total proceeds of $2,000,000. Dr. Denis M. O'Donnell,  a  director of MDI, is a
member  and  manager  of  Seaside  Advisors, L.L.C., which provides  investment
management services to Seaside Partners,  L.P. The sale was in conjunction with
the  private  offering  of  common stock of Molecular  Diagnostics,  Inc.  (See
Note 13). In lieu of cash, MDI  agreed  to  accept  payment  in  the  form of a
$2,000,000  promissory note due July 27, 2000 and bearing interest at the  rate
of 8% per annum.  The  note  provisions allow for prepayment at anytime and the
due date may be extended by mutual agreement. MDI agreed to extend the due date
of the note until November 30,  2000.  Seaside  Partners,  L.P.  made principal
payments  amounting  to  $1,550,000  during 2000 and the remaining $450,000  in
principal  was  repaid  during  2001  along   with  all  accrued  interest.  At
December 31,  2000  the  unpaid  principal  of the note  was  classified  as  a
reduction of stockholders equity.

       As of December 31, 2001, the Chairman  of  the Board and Chief Executive
Officer, Peter Gombrich, owed the Company approximately  $50,000.  The  Company
considered  this  receivable  to  be  collectible  in  the  ordinary  course of
business.  The  amount  was  repaid  during  2002  and  Mr.  Gombrich  advanced
additional  funds  to  the Company. At December 31, 2002, the Company owed  Mr.
Gombrich $126,911 for such  advances.  MDI has classified the amount due to Mr.
Gombrich under the current liabilities heading  "Due  to stockholder." In March
and  April of 2003, MDI borrowed $1,000,000 from an affiliate,  Mr.  Gombrich's
wife (See Footnote 17: Subsequent Events).


NOTE 5.      FIXED ASSETS

       Fixed assets consist of the following at December 31 (in thousands):


                                                             2002     2001
                                                             ----     ----

      Furniture and fixtures.............................   $  158   $  199
      Laboratory equipment...............................      786      671
      Computer and communications equipment..............      353      286
      Leasehold improvements.............................       34       34
                                                            ------   ------
                                                             1,331    1,190
      Less accumulated depreciation and amortization.....     (665)    (355)
                                                            ------   ------
              Total......................................   $  666   $  835
                                                            ======   ======

NOTE 6.    LICENSES, PATENTS, TECHNOLOGY AND GOODWILL

       Licenses,  patents,  technology  and  goodwill  include the following at
December 31 (in thousands):


                                                             2002      2001
                                                             ----      ----

      Licenses...........................................   $ 1,028  $ 1,022
      Patent costs.......................................       133      133
      MDI Technology Agreement...........................     7,230    7,230
      Dianon Technology Agreement........................       260      260
                                                            -------  -------
      Subtotal...........................................     8,651    8,645
      Less accumulated amortization......................    (1,130)    (465)
                                                            -------  -------
              Total......................................   $ 7,521  $ 8,180
                                                            =======  =======

      Goodwill...........................................   $   283  $   283
                                                            =======  =======

      Aggregate Amortization Expense

      For the year ended December 31, 2002 ......... $   665

      Estimated Amortization Expense
				                   Year Ended December 31,
                                      2003...............   $612
                                      2004...............   $525
                                      2005...............   $525
                                      2006...............   $525
                                      2007...............   $525

       INTANGIBLE ASSETS - ADOPTION OF STATEMENT 142
                                                      FOR THE YEAR ENDED DECEMBER 31,
                                                     2002          2001         2000
                                                     ----          ----         ----
                                                (in thousands except for per share amounts)

REPORTED NET LOSS APPLICABLE TO COMMON
SHAREHOLDERS                                       $(13,972)    $(19,791)     $(6,611)

   Add back: Goodwill amortization................ $     --     $    141      $   146
                                                   ---------    ---------     --------
ADJUSTED NET LOSS................................. $(13,972)    $(19,650)     $(6,465)
                                                   =========    =========     ========

BASIC AND DILUTED LOSS PER SHARE APPLICABLE
TO COMMON SHAREHOLDERS
Reported net loss................................. $   (.49)    $   (.62)     $  (.24)
   Goodwill amortization.......................... $     --     $     --      $   .01
                                                   ---------    ---------     --------
Adjusted net loss per share applicable to
common shareholders                                $   (.49)    $   (.62)     $  (.23)
                                                   =========    =========     ========

       During the fourth quarter of 2001, management performed an assessment of
the  development  of  MDI's  pending  patent  portfolio.  As  a  result  of the
developmental  nature  of the portfolio and significant uncertainty surrounding
the ultimate issuance of  the  related patents, MDI recorded an impairment loss
of $274,000 for the full amount  of  the  carrying  value of its pending patent
portfolio. During 2002, MDI recorded all costs related  to  the  prosecution of
patents as legal expenses.

NOTE 7.    ACCRUED EXPENSES

      Accrued expenses includes the following December 31 (in thousands):

                                                           2002      2001
                                                           ----      ----
      Accrued interest..................................  $  155    $   38
      Accrued interest--related party...................     111       103
      Accrued professional fees.........................     146       281
      Accrued taxes.....................................     412       334
      Reserve for warranty..............................      21        20
      Other accrued expenses............................     298       350
                                                          ------    ------
           Total........................................  $1,143    $1,126
                                                          ======    ======

       MDI is delinquent in filing certain Federal and State Income Tax returns
for  2002  and  2001. MDI is also delinquent in paying a portion of Federal and
State employee and  employer  payroll taxes for 2001. The Company owed $678,000
and  $549,000 as of December 31,  2002  and  2001,  respectively,  in  past-due
payroll  taxes,  including  $250,000  and $134,000 respectively in assessed and
estimated statutory penalties and interest.  MDI is currently in the process of
communicating through counsel with the Internal Revenue Service. The amount was
included in accrued payroll costs in the accompanying balance sheet.

NOTE 8.    NOTES PAYABLE--RELATED PARTIES

      Notes payable to related parties at December 31 consisted of:

                                                             2002    2001
                                                             ----    ----
      Northlea Partners, Ltd., $25,000 Promissory Note
        issued August 6, 2001; interest rate 15% per
        annum..............................................    25      25

      Northlea Partners, Ltd., $15,000 Promissory Note
        issued September 20, 2001; interest rate 9% per
        annum..............................................    15      15

      Robert Shaw, $25,000 Promissory Note issued
        September 20, 2001;  interest rate 9% per annum....    25      25
                                                             ----    ----
                                                             $ 65    $ 65
                                                             ====    ====

       On  August 6, 2001, Molecular Diagnostics, Inc. issued a promissory note
to Northlea  Partners,  Ltd.  in  exchange  for $25,000 in cash. John Abeles, a
director of MDI, is the general partner of Northlea Partners, Ltd. The note was
due on September 22, 2001 and bears interest  at  the rate of 15% per annum. As
additional  consideration  for this note, MDI issued  a  five-year  warrant  to
Northlea Partners, Ltd. entitling  the  holder  to  purchase  62,500  shares of
common stock at an exercise price of $1.00 per share. The closing market  price
of  the  common stock on the issue date of the warrant was $0.73 per share. MDI
determined  the  fair  value  of  the warrant to be $1,411 using the fair value
interest rate method. This value was  charged  to  interest  expense during the
third quarter of 2001. The note and related accrued interest remain outstanding
as of December 31, 2002.

       On September 20, 2001, Molecular Diagnostics, Inc. issued  a  promissory
note  to Northlea Partners, Ltd. in exchange for $15,000 in cash. The note  was
due on  December 20,  2001 and bears interest at the rate of 9% per annum. Also
on September 20, 2001 MDI  issued  a promissory note to Robert Shaw, a director
of MDI, in exchange for $25,000 in cash. The note was due December 20, 2001 and
bears interest at the rate of 9% per  annum. The notes remain outstanding as of
December 31, 2002.

       The carrying amount of notes payable - related parties approximates fair
value at December 31, 2002 and 2001.

NOTE 9.      NOTES PAYABLE

       Notes payable to unrelated parties at December 31 (in thousands)
consisted of:


                                                                       2002      2001
                                                                       ----      ----
      Bridge I Convertible Promissory Notes; due December 31,
        2002; interest rate  7%  per annum; convertible into
        common stock at 75% of the market price on  date  of
        conversion;  beneficial  conversion  feature  valued
        at $1,049,808; Bridge Warrants  at  an  exercise price
        of  $0.25  per share; Private Warrants at an exercise
        price equal to 150% of note conversion price................  $3,185     $
      Bridge II Convertible Promissory Notes; due July 31, 2003;
        interest rate 12% per annum; convertible into common
        stock at $0.10 per share; beneficial  conversion
        feature valued at $330,000 as of  December  31, 2002;
        Bridge II warrants at an exercise price of $0.10 per
        share.......................................................     293        --
      Round Valley Capital, LLC $825,000  Promissory  Note,
        including unearned interest dated  August  30, 2002;
        interest  rate 36% per annum; warrants at an exercise
        price of $0.20 per share; 711,364 shares of common stock....     300        --
      Monsun, AS, $500,000 Promissory Note issued  November 1,
        2000; interest rate 15% per annum, compounded into
        principal amount; beneficial conversion feature valued
        at $125,000;  1st  extension  of  maturity date for
        issuance of 100,000 warrants at an exercise price of $0.60
        per share;  2nd  extension of maturity date for the
        issuance of 200,000 warrants at an exercise price of $0.30
        per  share;  3rd extension of maturity date for the issuance
        of 200,000 warrants at an exercise price of $0.70 per share;
        stock issuance of 200,000 shares of common stock in lieu of
        default penalty..............................................    552       590
      Trek Diagnostic Systems $80,000 Promissory Note issued July
        31, 2002; due in equal Installments on September 1, 2002
        and December 1, 2002.........................................     40        --
      NeoMed Innovations III,  $500,000  Promissory  Note issued May
        15, 2001; interest rate 12% per annum; beneficial conversion
        feature valued at $50,000....................................     --       481
      Xillix Technologies Corporation, $361,000 Promissory Note
        issued June 26, 1998; interest rate  Canadian  Prime +  6%
        per  annum;  represents a debt  of  AccuMed International....     34        49
      Western Economic Diversification, $221,000 Promissory  Note
        issued  June 1989; no interest; represents a debt of
        Oncometrics..................................................    182       181
      Schwartz, Cooper, Greenberger & Krauss, $500,000 Promissory
        Note issued October 17, 2001; interest rate 12% per annum....     --        58
                                                                      ------    ------
                                                                      $4,585    $1,359
                                                                      ======    ======

       Between  March  22,  2002  and  June  28, 2002, MDI issued $3,185,000 in
series Bridge I Convertible Promissory Notes to accredited investors. The notes
bear interest at the rate of 7% per annum and  are convertible at any time into
the common stock of MDI at a conversion price equal  to 75% of the market price
of  the  common  stock  on the date of conversion. In addition,  MDI  issued  a
warrant, which entitled each  holder  to purchase one share of common stock, at
an  exercise price of $0.25 per share, for  each  dollar  principal  amount  of
notes. MDI calculated a fair value of $99,950 for these warrants using the fair
value  interest  rate  method  and  recorded this amount as additional interest
expense during 2002. At the time of conversion  of  the  note,  the  holder  is
entitled to receive a Private Warrant to purchase one share of common stock for
each  four  shares  of common stock into which the note converts at an exercise
price equal to 150% of the conversion price of the note. MDI has not determined
a value for the Private  warrants as of December 31, 2002. Since the conversion
price of the note is at a  25% discount to the market price of the common stock
of MDI, the holder is considered  to  have a beneficial conversion feature. MDI
determined the value of the beneficial  conversion feature to be $1,041,666 and
recorded this amount as additional interest  expense during 2002. The notes had
not been repaid as of June 30,2003. Subsequent  to  year  end,  a  note holder,
NeoMed  Innovations III, converted $1,060,000 in principal amount of  Bridge  I
notes into Bridge II notes. (See Footnote 17: Subsequent Events)

       Beginning  in  October  2002,  MDI began an issue of up to $4,000,000 in
series Bridge II Convertible Promissory  Notes  to  accredited  investors.  MDI
issued  $550,000  in  Bridge  II  notes as of December 31, 2002. The notes bear
interest at a rate of 12% per annum payable at the maturity date in kind in the
form of shares of common stock of MDI. The Company granted the holders a junior
security position in all of its assets.  The  notes are convertible at any time
into the common stock of MDI. The note conversion price and the value of common
shares paid in kind as interest for the first $1,000,000 in principal amount of
cash subscriptions, determined on a "first come - first served basis," is $0.10
per share. The note conversion price and the value  of  common  shares  paid in
kind  as interest for the remaining $3,000,000 of principal amount of notes  in
the series  is $0.15 per share. The conversion price of the notes issued during
2002 was less  than  the  market  price of the common stock when the notes were
issued; therefore, the holder is considered  to  have  a  beneficial conversion
feature. MDI determined the value of the beneficial conversion  feature  to  be
$330,000.  The  value  was  recorded  as  a  reduction  of the debt and will be
amortized  as  additional  interest  over  the life of the note.  MDI  recorded
additional interest expense of $71,800 to reflect  amortization of the discount
for the time the notes were outstanding during 2002.  At the time MDI completes
significant   additional  funding  plans,  as  outlined  in  the   subscription
agreement, each  holder  of Bridge II notes is entitled to receive a warrant to
purchase one share of the  common  stock of the Company for each four shares of
common stock into which the note is  convertible  at an exercise price of $0.15
per  share  for  notes  in  the  class pertaining to the  first  $1,000,000  in
subscriptions  and  $0.20  for  the  remaining  $3,000,000  in  note  principal
subscriptions. Subsequent to year-end,  MDI  issued  additional  notes  in  the
Bridge II series. (See Footnote 17: Subsequent Events)

       On  August  30,  2002,  MDI  issued  a  Promissory  note to Round Valley
Capital, LLC ("RVC") in the amount of $825,500 representing  $650,000  in  cash
received  by MDI and $175,500 in unearned interest. The note bears a calculated
effective interest  rate  of 36% per annum and is due June 1, 2003. The note is
secured by all of the assets  of  MDI.  MDI  issued  a certificate representing
5,750,000 shares of the common stock of the Company to  RVC  as  collateral for
the  loan  and  paid  transaction  fees  including:  cash payments of $147,063;
711,364 shares of common stock of MDI; and warrants to  purchase 681,818 shares
of common stock of MDI at an exercise price of $0.20 per  share.  MDI  recorded
the  note  at  a value, net of unearned interest, of $650,000. A fair value  of
$362,795 was calculated  for  the  shares  of common stock of MDI issued to RVC
using the market price of the common stock on  the date the shares were issued.
A  fair  value of $156,000 was calculated for the  warrants  using  the  Black-
Scholes valuation  method. The total value of the transaction fees was recorded
as prepaid financing  costs  and  is being amortized over the life of the note.
MDI  recorded  interest  expense  of $59,500  and  financing  costs,  including
amortization of prepaid financing costs,  of $377,638 during 2002. RVC declared
MDI to be in default under the terms of the  note  and the parties were engaged
in  litigation  as of December 31, 2002. Subsequent to  year-end  RVC  and  MDI
settled the litigation.  The  note,  including  default  penalties, was paid in
full. (See Footnote 17: Subsequent Events)

       In July 2002, MDI agreed to settle a claim brought  by  Trek  Diagnostic
Systems,  Inc. ("Trek") against AccuMed regarding breach of representation  and
warranties  in  a certain agreement under which Trek purchased the microbiology
business of AccuMed in 2000. MDI issued a promissory note to Trek in the amount
of $80,000, payable in two equal installments on September 1, 2002 and December
1, 2002. MDI made  the first payment due on September 1, 2002. MDI did not make
the second payment causing  a  default  on  the note. Trek has instituted legal
action  against MDI to obtain payment of the remaining  amount  due  under  the
note. The  unpaid  portion  of  the note accrues interest at the rate of 8% per
annum.

       On May 15, 2001, MDI issued  a  convertible  promissory  note  to NeoMed
Innovations  III  in exchange for $500,000 in cash. The note bears interest  at
the rate of 12% per  year  and is due twelve months from the date of issue. The
note is convertible into common  stock of MDI, any time after the expiration of
the first 180 days of the loan term,  at a conversion price of $1.00 per share.
The conversion price of the note was less  than  the market price of the common
stock of MDI at the date of issuance of the note and  therefore,  the holder is
considered to have a beneficial conversion feature. MDI determined the value of
this beneficial conversion feature to be $50,000. This value was recorded  as a
reduction to the debt and will be amortized as additional interest expense over
the life of the note. MDI recorded interest expense, including amortization  of
the  debt  discount,  of $59,569 and $31,000 in 2002 and 2001, respectively. On
June 12, 2002 NeoMed converted  the  note  principal  and  $60,000  in  accrued
interest  into  a  Bridge I Convertible Promissory Note under terms similar  to
those offered to other subscribers to the Bridge I notes.


       In conjunction  with  the  acquisition of AccuMed International, Inc. on
September 17, 2001, MDI assumed the  $76,516  unpaid  principal  amount  of  an
outstanding  Canadian  dollar  convertible  promissory  note  payable to Xillix
Technologies. The note is due on demand, bears interest at a rate  of  6%  over
the  Canadian prime rate, and is convertible into the common stock of MDI at  a
conversion  price  of $2.18 per share. Through December 31, 2001, MDI made cash
principal payments against the note amounting to $27,467. During 2002, MDI made
further cash principal payments against the note amounting to $14,610. MDI also
made  cash  interest  payments  of  $390  and  $2,533  during  2002  and  2001,
respectively.

       In conjunction with  the  acquisition  of AccuMed International, Inc. on
September 17, 2001, MDI assumed the $180,663 unpaid  principal  balance  of  an
outstanding   Canadian  dollar  loan  due  from  Oncometrics,  a  wholly  owned
subsidiary of AccuMed,  to  Western  Economic Diversification ("WED"). Payments
against the principal of the loan are due from a percentage of revenues derived
from the sales of products, which include  technology  licensed  to Oncometrics
under  WED  loan  agreement.  Oncometrics failed to make principal payments  as
required  by  the  terms  of the loan  causing  a  technical  default.  Neither
Oncometrics, nor MDI has received  formal  notification from WED of the default
as required under the terms of the loan. As  a  result of the technical default
MDI has classified the entire principal of the loan as current.

       On November 1, 2000, Molecular Diagnostics,  Inc.  issued  a convertible
promissory note to Monsun, AS in exchange for $500,000 in cash. The  note bears
interest at the rate of 15% per year and was due twelve months from the date of
issue. The note is convertible into common stock, any time after the expiration
of  the  first  180 days  of the loan term, at a conversion price of $1.00  per
share. The conversion price  of  the  note  was  less  than the market price of
common stock at the date of issuance of the note and therefore,  the  holder is
considered to have a beneficial conversion feature. MDI determined the value of
this beneficial conversion feature to be $125,000. This value was recorded as a
reduction to the debt and was amortized as additional interest expense over the
life  of  the  note.  During  2001 and 2000, MDI recorded $104,000 and $21,000,
respectively, to interest expense.

       On October 31, 2001 Monsun,  AS  and  MDI agreed to the 1st extension of
the maturity date of the convertible promissory note until January 31, 2002. As
consideration for the 1st extension agreement,  MDI issued a three-year warrant
to Monsun, entitling the holder to purchase 100,000  shares  of common stock of
MDI  at an exercise price of $0.60 per share. A fair value of $25,000  for  the
warrant  was  calculated  using  the  fair  value  interest rate method and was
recorded  as  additional  interest expense during 2001.  On  January  31,  2002
Monsun, AS and MDI agreed to the 2nd extension of the maturity date of the note
until March 31, 2002. As consideration  for  the  2nd  extension agreement, MDI
issued a three-year warrant to Monsun, entitling the holder to purchase 200,000
shares of common stock of MDI at an exercise price of $0.30  per  share. A fair
value  of  $4,110 for the warrant was calculated using the fair value  interest
rate method  and  was  recorded  as additional interest expense during 2002. On
April 1, 2002 Monsun, AS and MDI agreed  to  the  3rd extension of the maturity
date until July 31, 2002. As consideration for the 3rd extension agreement, MDI
issued a five-year warrant to Monsun, entitling the  holder to purchase 200,000
shares of common stock of MDI at an exercise price of  $0.70  per share. A fair
value  of  $8,287 for the warrant was calculated using the fair value  interest
rate method  and  was  recorded  as additional interest expense during 2002. In
November 2002, MDI issued 200,000  shares  of  common stock of MDI as a default
penalty  on the note. A fair value of $42,000 for  the  shares  was  calculated
using the  market  price of the common stock on the date the shares were issued
and was recorded as  financing  expenses during 2002. MDI made payments against
the principal of the note amounting  to $117,266 and recorded interest expense,
in addition to the amounts mentioned above,  of $80,200 during 2002. Monsun, AS
has initiated a legal action against Peter Gombrich, MDI's Chairman and CEO, as
a personal guarantor on the note, in an attempt to collect the unpaid principal
balance  of the note. The Board of Directors of  MDI  has  agreed  to  pay  Mr.
Gombrich's  legal  costs  to  defend himself against this action. The action is
pending as of the date of this report.

       In July 1999, Molecular  Diagnostics,  Inc.'s  wholly  owned subsidiary,
Samba, negotiated a Revolving Credit Line ("Revolver") with the  Banc  National
de  Paris  (BNP). The terms of the Revolver provided that Samba may borrow,  in
the form of  an advance on payment against monthly billings, up to a maximum of
137,204 Euros,  approximately  $144,000.  In  January  of 2003 the revolver was
converted  to a cash overdraw facility capped at 150,000  Euros,  approximately
$157,000. The interest rate on all overdraw balances is 8.8%. Samba has granted
BNP a security interest in its accounts receivable. As of December 31, 2002 and
2001 MDI recorded  approximately  $207,000  and  $177,000,  respectively in the
consolidated balance sheet as the current amount due under the  revolving  line
of credit.


       On  November 1,  2001  MDI  issued  a  Convertible  Promissory  Note  to
Schwartz,  Cooper,  Greenberger &  Krauss  ("SCGK") in exchange for $500,000 in
legal services. The Note bears interest at the  rate of 12% per year and is due
in five installments. The Note is convertible into  common  stock  of  MDI upon
issuance  of  the  Note  at  a conversion price equal to the stock price on the
conversion date.

       In accordance with Promissory  Note  provisions,  SCGK forgave the final
installment on the note, which was due February 28, 2002.  Therefore,  MDI  did
not include the final payment in its debt balance as of December 31, 2001.


       The  carrying  amounts  of  notes  payable  approximates  fair  value at
December 31, 2002 and 2001.

NOTE 10.     STOCKHOLDERS' EQUITY

       SALE OF EQUITY

       Summary   of   the   Company's  preferred  stock  capital  table  as  of
December 31, 2002 is as follows:

                                                                   SHARES ISSUED &
      OFFERING                                  SHARES AUTHORIZED    OUTSTANDING
      --------                                  -----------------    -----------

      Series A convertible......................      590,197          118,092
      Series B convertible, 10% cumulative......    1,500,000          799,856
      Series C convertible, 10% cumulative......    1,666,666        1,258,833
      Series D convertible, 10% cumulative......      300,000          175,000
      Series E convertible, 10% cumulative......      800,000          429,243
                                                    ---------        ---------
      Total Preferred Stock.....................    4,856,863        2,781,024
                                                    =========        =========

       In  September  2001,  MDI  issued 218,438 shares of Series A convertible
preferred stock to AccuMed in conjunction  with  the  acquisition.  In November
2001, a holder converted 23,603 shares of Series A convertible preferred  stock
into  10,310  shares  of common stock of the Company. During March and April of
2002, holders converted  a  total  of  76,743  shares  of  Series A convertible
preferred stock into 33,510 shares of common stock of the Company.

       In   October   2000,   the   Board  of  Directors  authorized  Molecular
Diagnostics, Inc. to raise additional  new equity to support current and future
operations. In February 2001, MDI sold 1,333,856 shares of Series B convertible
preferred stock to accredited investors  in  a  private  offering. The Series B
preferred stock has a stated value of $4.00 per share, an  annual dividend rate
of  10%, and is convertible into common stock at a conversion  price  equal  to
$1.00 per share. MDI received net cash proceeds from the February 2001 offering
of $5,176,000,  including $500,000 received during December 2000. Proceeds from
the offering were  used  to  complete  the  acquisition  of AccuMed, repay some
outstanding indebtedness, fund clinical studies and trials  of  MDI's products,
and general working capital. Upon issuance of the preferred stock,  the Company
determined  the  fair  value  of  its  Common Stock to be $1.35 per share.  The
$1,867,398 was considered a deemed dividend  for  loss  per  share purposes. As
commission  for soliciting sales of Series B convertible preferred  stock,  MDI
issued 374,000  shares of Common Stock and 533,542 warrants to advisors. Shares
of common stock were  recorded  at  par value per share of $0.0001 or $374. The
value of the shares, $572,000, and the  fair  value of the warrants of $817,000
were recorded as additional paid in capital. The  cash payment of $159,000 made
to advisors and the fair value of the Common Stock  and  warrants were recorded
as a debit to additional paid in capital to reflect the cost of raising equity.

       In  May  2001,  Molecular  Diagnostics, Inc. sold the remaining  166,000
authorized shares of Series B convertible  preferred  stock  to  an  accredited
foreign  investor  to complete the February 2001 private offering. MDI received
net cash proceeds of  $664,000.  Upon  issuance  of  the  preferred  stock, the
Company  determined  the fair value of its Common Stock on May 15, 2001  to  be
$1.10 per share. The $66,400  was  considered  a  deemed  dividend for loss per
share purposes. The 66,400 shares of Common Stock issued to  the advisory group
were recorded as Common Stock at the par value per share of $0.001, or $66. The
balance  of  the  value  determined  for  the shares, $81,000, was recorded  as
additional paid-in-capital to reflect the cost of raising equity.

       During  2001  several  holders converted  142,500  shares  of  Series  B
convertible preferred stock, including  cumulative  dividends due thereon, into
604,592 shares of common stock of MDI. During 2002, several  additional holders
converted  557,500  shares  of Series B convertible preferred stock,  including
cumulative dividends due thereon, into 2,594,175 shares of common stock of MDI

       In November 2001, the  Company  received $3,635,000 in net proceeds from
the private sale of 1,331,499 shares of  Series C  Convertible Preferred Stock,
to a limited number of accredited investors. The Series C preferred stock has a
dividend rate of 10% and is convertible into the Common Stock of the Company at
a conversion rate equal to $0.60 per share.

       During  2002,  several  holders  converted 72,666  shares  of  Series  C
convertible preferred stock, including cumulative  dividends  due thereon, into
392,858 shares of common stock of MDI.

       Also  in November 2001, the Company received $1,750,000 in proceeds from
the sale of 175,000 shares of Series D Convertible Preferred Stock in a private
sale to Ventana  Medical Systems, Inc ("Ventana"). The Series D preferred stock
has a dividend rate  of  10%  and  is  convertible  into  the Common Stock at a
conversion  rate  of  $1.00  per  share. The Company also issued  a  three-year
warrant to Ventana entitling the holder  to  purchase  1,750,000  shares of the
Common  Stock  of  the  Company  at  an  exercise price of $1.15 per share.  In
conjunction  with the purchase of the Series  D  Convertible  Preferred  Stock,
Ventana was also  granted  a  perpetual  license to Samba software.  During the
first quarter of 2002 the Company completed  the  delivery terms of the license
agreement and transferred $297,500 from preferred stock  to  license revenue to
reflect  the value of the license.  The Company also determined  a  measurement
date for the warrant during the first quarter of 2002. A fair value of $928,000
was calculated for the warrant using the Black-Scholes valuation method and the
Company transferred  this  amount  from  preferred  stock to additional paid in
capital.

       In December 2001, the Company completed  a tender offer to exchange 1/25
of a share of Series E convertible preferred stock, par value $0.001 per share,
for each common share of Molecular Diagnostics, par  value $0.001 per share, up
to a maximum of 20,000,000 shares of common, or a maximum  of  800,000 Series E
preferred  stock. As of December 31, 2001, 10,859,688 common shares  have  been
tendered for  434,388 preferred shares under the terms of this offering and are
valued at $9,557,000.

       During December 2002, several holders converted 5,145 shares of Series E
convertible preferred  stock,  including cumulative dividends due thereon, into
155,180 shares of common stock of MDI.

   ISSUES OF PREFERRED STOCK

SERIES A CONVERTIBLE PREFERRED STOCK
Liquidation Value:  $4.50 per share
Conversion Price:   $10.3034 per share
Conversion Rate:    0.4367--Liquidation   Value  divided  by  Conversion  Price
                    ($4.50/$10.3034)
Voting Rights:      None
Dividends:          None
Conversion Period:  Any time--3 years

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 March 31, 2001
Conversion Period:  Any time
Cumulative dividends in arrears at December 31, 2002 were $589,551

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 March 31, 2002
Conversion Period:  Any time
Cumulative dividends in arrears at December 31, 2002 were $440,763

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:  Any time--After April 1, 2002
Cumulative dividends in arrears at December 31, 2002 were $204,247

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:  Any time--After December 1, 2002
Cumulative dividends in arrears at December 31, 2002 were $954,685

       ISSUANCE OF RESTRICTED SHARES FOR SERVICES

       In August 1999, Molecular Diagnostics,  Inc.  awarded  50,000 restricted
shares  of  common  stock  to  a  non-employee  consultant  under  a three-year
agreement for consulting services. The restricted shares vested over  a twenty-
four  month  period.  During  2002,  a  determination was made to expense these
shares over the vesting period. A measurement  date  was  determined and a fair
value  for  these  shares  of  $23,600  was calculated using the  Black-Scholes
valuation model. During 2002 and 2001 MDI  recorded  a  reduction in expense of
$13,000 and expense of $13,000, respectively, as consulting  expense related to
these shares.


       During  2000,  Molecular Diagnostics, Inc. issued additional  awards  of
restricted shares of common stock to non-employee consultants for services. The
awards total 100,000 shares,  and  were  issued under agreements for consulting
services with terms similar to those outlined  in  the preceding paragraph. The
measurement  date of these shares had not been determined  as  of  December 31,
2002 and therefore  the value of these shares will be based on the market value
of common stock at the end of each interim period until the measurement date is
determined. A fair value  of  $16,000 was calculated at December 31, 2002 using
the  Black-Scholes valuation model.  During  2002  and  2001,  MDI  recorded  a
reduction  of  expense  of  $25,000  and  expense  of  $30,000 respectively, as
consulting expense.

       ISSUANCE OF STOCK OPTIONS TO NON-EMPLOYEES FOR SERVICES

       Molecular Diagnostics, Inc. issued options to purchase 200,000 shares of
common stock to non-employee consultants during 1999. The  options  vest over a
period of time, ranging from the date of grant to two years, and have  exercise
prices  of $0.394 and $0.406 per share. MDI issued these options to consultants
as consideration  for  consulting  services that commenced during 1999 and were
completed during 2002. Services provided  under  several  consulting agreements
ceased during 2001 and 2000, resulting in the cancellation of 45,000 and 46,666
options,  respectively. Based on the option-vesting schedule,  the  measurement
date of the  remaining outstanding options was determined at December 31, 2001.
A fair value of $95,000 was calculated for the remaining options outstanding at
December 31, 2001,  using  the  Black-Scholes valuation model. During 2001, MDI
recorded $16,000 as consulting expense  related  to  the  remaining outstanding
options.


       During  2000,  Molecular Diagnostics, Inc. issued an additional  270,000
options  to  purchase  common  stock  to  non-employees  under  agreements  for
consulting services. The options vest over a time period, ranging from the date
of grant to three years,  and  have  exercise  prices  from $1.75 to $2.875 per
share. MDI issued these options to consultants as consideration  for consulting
services that commenced during 2000 and will be completed through  2003. One of
the consulting agreements was terminated in 2002 and options to purchase 15,000
shares of common stock were cancelled. As the measurement date of these options
had  not  been  determined as of December 31, 2002, the value of these  options
will be determined at the end of each interim period until the measurement date
is determined. A  fair value of $11,200 was determined as of December 31, 2002,
using the Black-Scholes  valuation  model.  This value is charged to consulting
expense over the term of the 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 period. During 2002 and 2001, MDI recorded  a  reduction in expense
of $55,000 and expense of $37,000 respectively as consulting expense.


       ISSUANCE OF COMMON STOCK FOR SERVICES

       During 2000, Molecular Diagnostics, Inc. issued 40,000  shares of common
stock in exchange for medical consulting and financial advisory  services.  The
services had a fair value of $60,000. During 2001 and 2000, the Company charged
$4,000  and  $56,000 respectively, to medical consulting and investor-relations
expenses.


       In July  2002,  the  Company  issued 113,832 shares of common stock to a
vendor in lieu of payment in cash for services provided. The Company determined
a fair value for the shares of $61,000  based  on  the  invoiced  value  of the
services.  The  Company  recorded  the  entire  amount  as selling, general and
administrative expense in 2002.

       In August 2002, the Company issued 60,182 shares of  common  stock  to a
financial   advisor   as  consideration  for  services  provided.  The  Company
determined a fair value  for the shares of $30,000 based on the market value of
the stock at the time the  services  were  performed.  The Company recorded the
entire amount as selling, general and administrative expense in 2002.

       Also in August 2002, the Company issued 711,364 shares  of  common stock
to Round Valley Capital as part of the transactions fees related to  a $650,000
loan.  The Company determined a fair value for the shares of $362,795 based  on
the closing  market  price of the stock on the date the shares were issued. The
Company is amortizing  this  amount over the life of the loan. During 2002, the
Company amortized $161,000 as  selling  general  and administrative expenses to
reflect the time the loan was outstanding during the  year.  The  Company  also
issued  an  additional  5,750,000  shares of unregistered and restricted common
stock to be held as collateral against  the  note.  The  Company  recorded  the
$5,750  par value of these shares as common stock and a reduction of additional
paid in capital.  Because the shares were used only as collateral for the note,
no other value was calculated for the shares. In 2003, upon final settlement of
the loan, the 711,364  shares and the 5,750,000 shares were returned to MDI and
cancelled. (See Footnote 17: Subsequent Events).

       In November 2002, the Company issued 400,000 shares of common stock to a
former  employee  /  consultant   in  settlement  of  litigation.  The  Company
determined a fair value for the shares  of $84,000 based on the market price of
the stock on the date of issuance. The Company  recorded  the  entire amount as
research and development expenses in 2002.

       In November 2002, the Company issued 225,001 shares of common stock to a
non-employee  consultant as payment for consulting services performed  in  2000
and 2001, which were in addition to those services detailed in the consultant's
contract, and for  regular services under the contract for the first six months
of 2002. The Company  determined  a fair value for the shares of $180,000 based
on the market price of the stock on  the  date  of  issue  and  the unpaid fees
outstanding. The Company recorded a reduction in accrued expenses  of  $130,000
and  the remaining amount was recorded as research and development expenses  in
2002.

       ISSUANCE OF COMMON STOCK UNDER INCENTIVE PLANS

       In  January   2002,  a  former officer of MDI exercised stock options to
purchase 250,000 shares of common  stock  at  an  exercise price of $0.3937 per
share.  The  Company  recorded the $98,425 exercise price  of  the  options  as
compensation expense in  2001  in  accordance  with  the terms of the officer's
severance  agreement.  In March 2002, the former officer  exercised  additional
stock options  to  purchase 111,000 shares of common stock at an exercise price
of $0.3937 per share  and  surrendered  options  to  purchase  39,000 shares of
common stock in lieu of the exercise price.

       ISSUANCE OF WARRANTS FOR SERVICES

       In  November  2000,  Molecular  Diagnostics,  Inc.  issued  warrants  to
purchase  a  total  of 200,000 shares of common stock, at an exercise price  of
$1.00 per share, to non-employees  as compensation for financial services to be
provided under agreements covering a  one-year  period.  The warrants vested in
equal amounts each month over the period. MDI may terminate the agreements upon
thirty  days  written  notice,  and  any  unvested options as of  the  date  of
termination would be cancelled. The measurement  date  of  these  warrants  was
determined  as of December 31, 2001. A fair value of $75,000 for these warrants
was calculated  at  December 31, 2001, using the Black-Scholes valuation model.
During  2001 and 2000,  MDI  recorded  $59,000  and  $17,000  respectively,  as
selling, general, and administrative expense.

       In January 2001, Molecular Diagnostics, Inc. issued warrants to purchase
80,000 shares  of  common  stock,  at  an  exercise price of $1.00, and 100,000
shares of common stock, at an exercise price  of  $.50,  to  a  non employee as
compensation  for  financial services to be provided under agreements  covering
January through April,  2001  and  May  through December 2001 respectively. The
warrants vested in equal amounts each month.  The  agreements  were replaced on
October 1, 2001 with a new agreement covering a fifteen-month period  ending on
December 31, 2002. In accordance with the terms of the new agreement all of the
outstanding  warrants  were immediately vested and MDI issued a new warrant  to
purchase 150,000 shares  of common stock at an exercise price of $0.50. The new
warrant vests in equal amounts  each  month  as  services  are provided. A fair
value  of  $13,500  was  calculated  for  this  warrant using the Black-Scholes
valuation method as the services were completed and  vesting  took place during
2002. MDI recorded a reduction of expense of $10,500 and expense  of $24,000 as
selling, general, and administrative expense in 2002 and 2001, respectively, to
cover the vested warrants.

       In July 2001, the Company issued a warrant to purchase 150,000 shares of
common  stock  at an exercise price of $1.20 per share to an investment-banking
firm as compensation  for  services provided over a twelve-month period. As the
measurement date of this warrant  had  not  been  determined as of December 31,
2001,  the fair value of the warrant will be determined  at  the  end  of  each
interim period until the measurement date is determined. A measurement date was
determined  upon completion of services during 2002 and a fair value of $66,375
was calculated,  using the Black-Scholes valuation model. During 2002 and 2001,
the company recorded $10,875 and  $55,500,respectively, as selling, general and
administrative expense.

       During 2001, several  advisory  groups,  contracted  to assist Molecular
Diagnostics,  Inc.  in  completing the Private Placement Offering  of  Series B
Convertible Preferred Stock  in  2001  were  compensated through the payment of
$159,000  in cash, the issuance of 440,692 shares  of  common  stock,  and  the
issuance of  warrants to purchase 566,942 shares of common stock at an exercise
price of $1.20 per share.

       In January 2002, the Company issued a warrant to purchase 200,000 shares
of common stock  at  an  exercise  price  of $0.30 per share to the holder of a
convertible promissory note in consideration  for a ninety-day extension of the
note maturity date. A fair value of the warrant  of $4,110 was calculated using
the fair value interest method. In April 2002, the Company issued an additional
warrant to purchase 200,000 shares of common stock  at  an  exercise  price  of
$0.70 per share to the same note holder for another ninety-day extension of the
note maturity date. A fair value of this warrant of $8,287 was calculated using
the fair value interest method. The Company recorded both amounts as additional
interest expense in 2002.

       In  February  2002,  the  Company  issued  a warrant to purchase 750,000
shares of common stock at an exercise price of $0.01  per  share  to its former
legal counsel as compensation for legal services performed in regard to settled
litigation.  A fair value of the warrant of $675,000 was calculated  using  the
Black-Scholes  valuation  method.  The  Company  recorded  the  amount as legal
expenses during 2002.

       Between March 2002 and June 2002, the Company issued a series  of Bridge
I convertible promissory notes. As additional consideration for the notes,  the
company  issued  warrants  to  purchase  3,185,000 shares of common stock at an
exercise price of $0.25 per share to the note  holders.  A  fair  value  of the
warrants  of  $99,950 was calculated using the fair value interest method. This
amount was recorded as additional interest expense during 2002.

       On May 31,  2002, the Company issued a warrant to purchase 51,493 shares
of common stock at an  exercise  price  of  $0.01  per  share to a non-employee
consultant in lieu of payment of fees due to the consultant  for past services.
The Company recorded a fair value of $50,969, the value of the  consulting fees
due, as a reduction of accounts payable.

       In  September  2002,  the  Company issued a warrant to purchase  681,818
shares of common stock at an exercise  price  of  $0.20  per  share  to various
individuals related to Round Valley Capital, LLC as additional loan transaction
fees.  A fair value of the warrant of $156,000 was calculated using the  Black-
Scholes  valuation  method modified so that cash and non-cash transactions fees
did not exceed the loan  value. This fair value will be amortized as additional
financing costs over the life  of  the  loan.  The  Company recorded $69,333 as
financing costs to reflect the amount amortized during  2002.  As  part  of the
loan  settlement with Round Valley Capital, LLC, in April of 2003, warrants  to
purchase  481,818  shares  of  common  stock  were  returned to the Company and
cancelled.

       In  November  2002,  the Company issued a warrant  to  purchase  200,000
shares of common stock at an  exercise price of $0.16 per share as compensation
to an advisor who acted as a finder  for  investors  in  Bridge  II convertible
promissory notes. A fair value for the warrant of $44,000 was calculated  using
the  Black-Scholes  valuation  method.   The  Company  recorded  the  amount as
financing costs during 2002.

       ISSUANCE OF WARRANTS TO PURCHASE ASSETS

       In  June  2000,  the  Company  entered  into  a  License  and Technology
Agreement (the "Agreement") with Invirion and Dr. Bruce Patterson, M.D., Ph.D.,
its  principal,  granting  the  Company  exclusive  rights  to  certain medical
technology for the detection of oncogenic (cancer causing) types  of  the Human
Papilloma  Virus  ("HPV"). The Agreement provides for $500,000 in cash payments
and the issuance of  warrants to purchase 400,000 shares of our Common Stock at
an exercise price of $0.01,  based on the delivery of milestones. The first two
milestones were met in 2000, which  required  the  Company  to pay $400,000 and
issue 250,000 warrants. The third milestone was tentatively reached during 2001
and  the  Company  paid  $34,000  in  cash  and  issued 50,000 warrants.  Final
agreement on the completion of the third milestone  continues  to be subject to
verification  of  processes and procedures by an independent third  party.  The
Company used the Black-Scholes  valuation  model  to determine a fair value for
the warrants issued in 2001 and 2000 of $49,000 and $530,000, respectively, and
recorded the amount as license fees.

       APPLICATION OF BLACK-SCHOLES VALUATION MODEL

       In applying  the  Black-Scholes  valuation  model  for the year 2002 and
2001,  the  Company  has used an expected dividend yield of zero,  a  risk-free
interest rate of 6%, a  volatility  factor  of  90%,  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.

      WARRANTS

      At December 31, 2002, the Company had the following  outstanding warrants
to purchase shares of Common Stock:

                                                       WEIGHTED
                                                       AVERAGE
       TOTAL SHARES   EXERCISABLE   UNEXERCISABLE   EXERCISE PRICE   EXPIRATION DATE
       ------------   -----------   -------------   --------------   ---------------
          39,834        39,834            0            $15.060       Perpetual
          55,000        55,000            0            $0.264        January 3, 2003
          10,920        10,920            0            $6.870        February 3, 2003
          48,333        48,333            0            $1.500        May 23, 2003
         784,901       784,901            0            $0.010        May 24, 2003
         681,818       681,818            0            $0.200        September 3, 2003
         250,000       250,000            0            $0.010        September 11, 2003
          50,000        50,000            0            $0.010        July 15, 2004
         372,500       372,500            0            $1.090        August 29, 2004
         100,000       100,000            0            $0.600        October 31, 2004
       1,750,000     1,750,000            0            $1.150        November 2, 2004
          50,000        50,000            0            $0.330        December 10, 2004
         200,000       200,000            0            $0.300        January 31, 2005
       1,023,302     1,023,302            0            $6.870        March 23, 2005
         200,000       200,000            0            $1.000        November 22, 2005
          50,000        50,000            0            $0.937        December 1, 2005
       1,000,000     1,000,000            0            $1.250        December 8, 2005
         180,000       180,000            0            $0.720        January 8, 2006
          25,000        25,000            0            $0.010        February 1, 2006
       1,000,000     1,000,000            0            $0.250        February 7, 2006
         599,942       599,942            0            $1.200        February 28, 2006
         150,000       150,000            0            $1.200        July 10, 2006
         750,000       750,000            0            $1.000        July 26, 2006
         312,500       312,500            0            $1.000        August 6, 2006
         150,000       150,000            0            $0.500        October 1, 2006
         172,120       172,120            0            $0.820        October 11, 2006
         597,750       597,750            0            $1.000        November 30, 2006
         200,000       200,000            0            $0.700        March 31, 2007
          51,493        51,493            0            $0.010        May 31, 2007
       3,185,000     3,185,000            0            $0.250        July 31, 2007
         200,000       200,000            0            $0.160        November 1, 2007
         250,000       250,000            0            $0.330        July 14, 2009
         750,000             0      750,000            $0.001        February 12, 2012
      ----------    ----------      -------            ------
      15,240,413    14,490,413      750,000            $1.063
      ==========    ==========      =======            ======

         The  Company  is  obligated under the terms of subscription agreements
for Bridge I and Bridge II convertible  promissory  notes  to  issue additional
private warrants to the note holders based on certain events. If  and  when the
holder  of  a  Bridge  I  note elects to convert the principal of the note into
shares of MDI common stock,  the  holder  is  entitled  to receive a warrant to
purchase one share of MDI common stock for each four shares of MDI common stock
into which the note is converted at an exercise price equal to 150% of the note
conversion  price.  Since the Bridge I convertible promissory  note  conversion
price is set at 75% of  the  market price on the date of conversion, the number
of  warrants  to  be  issued and their  exercise  price  or  prices  cannot  be
determined until such time  as the notes are actually converted into the common
stock of MDI. If and when the  Company  completes additional financing plans as
outlined in the subscription agreements for  Bridge  II  notes, the holder of a
Bridge II note is entitled to receive a warrant to purchase  one share of stock
for each four shares into which the note is convertible. The exercise  price of
the warrants is $0.15 per share for Bridge II notes, which fall into the  class
of the first $1,000,000 in cash subscriptions and $0.20 for the holders of  the
remaining Bridge II notes.

         Certain  warrants  in  the  above table entitling the holders, Azimuth
Corporation and Cadmus Corporation, to  purchase a total of 3,125,000 shares of
common stock, include additional anti-dilution  provisions,  over and above the
standard anti-dilution provisions included in all warrants which cover dilution
caused  by  common  stock  dividends and stock splits or reverse stock  splits.
These additional provisions  consider other items as dilutive events, including
but not limited to the issuance  of  convertible  debt  or  equity  securities,
options,  warrants,  etc. A calculation of the dilutive effect of a convertible
security is required at the time the security is issued rather than if and when
actual conversion takes  place.  The  Company  calculated  that at December 31,
2002, these warrants were required to be adjusted to reflect  that  the holders
were  entitled to purchase and additional 519,000 shares of common stock.   The
exercise prices of the warrants would be adjusted so that the total proceeds to
the Company  from  an  exercise  of  these  warrants would remain the same. The
Company  also  calculated that as of the beginning  of  July  2003,  additional
adjustments were  required  to reflect that holders were entitled to purchase a
further 897,000 additional shares  with  commensurate  adjustments in per share
exercise prices. On July 18, 2003, the Company negotiated an agreement with the
holders  of  these  warrants.  The holders agreed to cancel  the  warrants  and
forgive approximately $120,000 owing to the holders by MDI as of that date. The
Company agreed to issue a new warrant to the holders entitling them to purchase
6,500,000 shares of common  stock  at an exercise price of $0.30 per share. The
Company  also  agreed  to issue a 120-day  warrant  entitling  the  holders  to
purchase 500,000 shares  of  common  stock at $0.30 per share. The new warrants
will only contain the standard anti-dilution  provisions  included in all other
warrants.


         STOCK APPRECIATION RIGHTS


       At December 31, 2002 and 2001, MDI had 450,000 stock appreciation rights
(SARs) outstanding. These SARs, issued in 1989, have an exercise price of $0.30
and  could  be  exercised  through  November 20,  2001.  These  SARs are deemed
automatically  exercised on November 20, 2001 if not done so at the  option  of
the holder. 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 MDI prior to the exercise date. In
lieu  of  making  cash payments, MDI may elect and intends, to issue shares  of
Common Stock. MDI recorded  compensation  expense of $91,395 for the year ended
December 31, 2000, and a reversal of compensation  expense  of $79,020 in 2001,
to  reflect  the  difference between the closing market price of  MDI's  common
stock at November 20,  2001 and December 31, 2000 and the exercise price of the
SARs. Since the SARs were  deemed exercised at November 20, 2001, no additional
entries were required for 2002.


       SHARES OF COMMON STOCK

       As  a  result  of  the  issuance  of  numerous  convertible  securities,
including the Bridge I and Bridge  II  convertible promissory notes and related
warrants, MDI does not have sufficient shares  of  common  stock  authorized to
issue upon exercise of all of the currently outstanding convertible securities,
warrants  and options. The Board of Directors has approved an increase  in  the
number  of authorized  shares  of  common  stock  from  100,000,000  shares  to
175,000,000 shares, but such action requires a vote of MDI's stockholders. This
issue will  be  placed  on  the  agenda  at  the  next  annual meeting of MDI's
stockholders or at a special meeting to be called for this purpose. The failure
to have a sufficient number of authorized shares may constitute a breach of one
or more of the agreements governing issuance of such securities.

NOTE 11.     LEASES

       As  of  December  31,  2002, the Company currently leases  approximately
5,700 square feet of space for its Chicago, Illinois corporate headquarters and
research laboratory and offices  under an operating lease expiring in 2006. The
Company's   wholly   owned  subsidiary,   Samba   Technologies   SARL,   leases
approximately 300 square meters of office space in a suburb of Grenoble, France
under an operating lease  expiring  in  2008. Samba has the option to terminate
the lease at May 31, 2006. Total rental expense,  including expenses related to
the Company's previous headquarters location, Samba's previous temporary office
space, and AccuMed's leased facilities prior to vacating  the  leased  facility
during  the years ended December 31, 2002, 2001 and 2000 was $179,000, $231,000
and $90,000, respectively.

       Future   minimum   annual  lease  payments  under  these  leases  as  of
December 31, 2002 are (in thousands):

                                                                   ACCUMED
                                                        OPERATING   LEASE
        YEAR                                             LEASES   OBLIGATION
        ----                                             -------  ----------
        2003...........................................    $148     $ 327
        2004...........................................    $153     $  --
        2005...........................................    $158
        2006...........................................    $ 33
                                                           ----     -----
        Total lease payments...........................    $492     $ 327
                                                           ----     -----

        Amount of interest included in the minimum
        lease payments.................................             $ (48)
                                                                    -----

        Carrying value of lease obligation.............             $ 279

       Following completion of MDI's merger with AccuMed, management decided to
vacate  AccuMed's  leased  facility  and  consolidate its operations into MDI's
headquarters facility. During 2002, AccuMed's  landlord  brought  suit  against
AccuMed  for unpaid rent and obtained a judgment in the amount of approximately
$157,000.  The  landlord,  under  a  court  order, was able to obtain a $12,500
payment  against  the  judgment,  from  the  bank account  of  MDI.  Since  the
obligation  under  the  lease  is  AccuMed,  MDI is  currently  contesting  the
landlord's right to enforce the judgment against  MDI. Because the judgment has
not been paid as of December 31, 2002, MDI continues  to  carry  the  remaining
$279,000  of the lease obligation as a current liability as originally recorded
in accounting  for  the AccuMed merger based on the present value of the future
lease payments.

NOTE 12.     INCOME TAXES

       Significant components of deferred income taxes consist of the following
at December 31 (in thousands):

                                                            2002      2001
                                                            ----      ----
        Deferred tax assets related to:
        Net operating loss carryforwards................   $27,833   $23,128
        Research and Development Credit.................       656       657
        Writedown of patents............................       110       110
        Accrued expenses................................       367     1,054
                                                           -------   -------
                                                            28,966    25,019
              Less valuation reserve....................    28,966    25,019
                                                           -------   -------
      Net deferred tax asset                               $    --   $    --
                                                           =======   =======

       At  December 31,  2002,  the  Company  had  domestic  net operating loss
carryforwards  aggregating  approximately $69,600,000. For financial  reporting
purposes, this entire amount  of deferred tax assets related principally to the
net operating loss carryforwards  has  been offset by a valuation allowance due
to  uncertainty  regarding  the  realizations  of  the  assets.  The  valuation
allowance increased by approximately  $3,947,000  and  $21,048,000 for the year
ended December 31, 2002 and 2001, respectively.

       The net operating loss carryforwards and Research and Development credit
carryforwards may not be available to offset future taxable  income  of MDI due
to  statutory limitations based on the changes of ownership and other statutory
restrictions.

       The  net  operating  loss  carryforwards  begin  to  expire in 2006. The
Research and Development credit carryforwards expire from 2003 to 2014.

NOTE 13.     EQUITY INCENTIVE PLAN AND EMPLOYEE STOCK PURCHASE PLAN

       On  May 25,  1999,  stockholders  approved the establishment of the 1999
Equity Incentive Plan effective as of June 1,  1999. The Plan provides that the
Board may grant various forms of equity incentives to directors, employees, and
consultants,   including   but   not  limited  to  Incentive   Stock   Options,
Non-Qualified Stock Options, Stock  Appreciation  Rights,  and Restricted Stock
Awards. Grants under the Plan are exercisable at fair market  value  determined
as  of the date of grant in accordance with the terms of the Plan. Grants  vest
to recipients  immediately  or  ratably  over  periods ranging from two to five
years, and expire five to ten years from the date of grant.

       On  May 23,  2000,  stockholders  approved  Amendment No. 1 to the Plan,
which increased the number of shares of common stock  allocated  for use in the
Plan from 2,000,000 shares to 3,000,000 shares. On June 21, 2002,  stockholders
approved  an  Amendment  to  the  Plan,  which  increased  the number of shares
allocated for use in the Plan from 3,000,000 shares to 5,500,000 shares.

       The Board of Directors has also granted options to purchase common stock
of MDI, which are not covered by the terms of the Plan.

       MDI applies APB Opinion No. 25 and related interpretations in accounting
for  options  granted  to  employees  under  the  Equity  Incentive   Plan.  No
compensation cost was recorded during 2002, 2001 or 2000 for options granted to
employees  as  the exercise price approximated the fair value of the underlying
common stock on  the  date  of  the grant. Had stock options been accounted for
under the fair value method recommended  by  FAS 123,  the  Company's  net loss
allocated  to  common  shareholders  would  have  been changed to the pro forma
amounts indicated below:

                                                                    FOR THE YEAR ENDED DECEMBER 31,
                                                                    2002         2001         2000
                                                            (in thousands except for per share amounts)

   NET LOSS APPLICABLE TO COMMON SHAREHOLDERS AS REPORTED......   $(13,972)   $(19,791)    $ (6,611)
   Deduct: Total stock-based compensation expense determined
       under the fair value based method for all awards, net
       of related taxes........................................       (345)     (1,159)      (1,028)
                                                                  ---------   ---------    ---------
   PRO FORMA NET LOSS APPLICABLE TO COMMON SHAREHOLDERS........   $(14,317)   $(20,950)    $ (7,639)
                                                                  =========   =========    =========
   Basic loss per share applicable to common
       shareholders - as reported..............................   $   (.49)   $   (.62)    $   (.24)
                                                                  =========   =========    =========
   Basic and diluted loss per share applicable to common
       shareholders - pro forma................................   $   (.50)   $   (.65)    $   (.27)
                                                                  =========   =========    =========

       The  fair value for these options was estimated at the date of the grant
using a Black-Scholes  option pricing model with the following weighted average
assumptions:  risk-free  interest   rates  of  6%;  dividend  yields  of  zero;
volatility factors of the expected market  price  of the Company's common stock
of 90% for both years and a weighted average expected  life  of  the options of
2.5 - 5 years.


       A   summary   of  the  Company's  stock  option  activity,  and  related
information follows:

                                                                   WEIGHTED
                                                                    AVERAGE
                                                                   EXERCISE
                                                         OPTIONS     PRICE
                                                         -------     -----
      OUTSTANDING AT DECEMBER 31, 1999....              1,020,000   $0.3964
      Granted.............................              1,510,000   $2.5258
      Forfeited...........................              (274,166)   $2.4177
                                                        ---------   -------
      OUTSTANDING AT DECEMBER 31, 2000....              2,255,834
                                                        =========
      Granted.............................              1,676,000   $1.1772
      Assumed in acquisition..............               366,495    $12.1040
      Exercised...........................              (16,666)    $0.4063
      Forfeited...........................              (489,167)   $1.9206
                                                        ---------
      OUTSTANDING AT DECEMBER 31, 2001....              3,792,496
                                                        =========
      Granted.............................                686,833   $0.4104
      Exercised...........................               (361,000)  $0.3937
      Forfeited - assumed in acquisition..               (321,812)   6.7961
      Forfeited...........................               (289,000)  $1.0702
                                                        ---------
      OUTSTANDING AT DECEMBER 31, 2002....              3,507,517
                                                        =========
      EXERCISABLE AT DECEMBER 31, 2002....              2,592,682   $1.2629
                                                        =========
      Weighted average fair value of options
      granted in 2002.....................                          $0.3943

       At  the  Annual  Meeting on May 25, 1999, the stockholders also approved
the Employee Stock Purchase  Plan. The Plan offers employees the opportunity to
purchase shares of common stock of MDI through a payroll deduction plan, at 85%
of the fair market value of such  shares  at  specified  enrollment measurement
dates. The aggregate number of shares available for purchase  under the Plan is
200,000.

NOTE 14.     COMMITMENTS AND CONTINGENCIES

       At December 31, 2002, MDI was contractually committed to pay $320,000 to
scientists, researchers, universities, and other independent third  parties for
services  to  be  performed  during  2003.  MDI  may  unilaterally cancel these
contracts with thirty days written notice or for non-performance.

       On October 11, 2001, MDI obtained a 30% investment  in  Cell  Solutions,
LLC.  Cell  Solutions  was  formed for the purposes of developing and improving
slide  preparation  systems. As  consideration,  MDI  provided  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 $127,000. MDI has included the value of these warrants as an
investment at December 31, 2002 and 2001.  MDI determined the fair value of the
investment to be impaired at December 31, 2001. The investment was written down
to zero as a result of the uncertainty of future benefit or revenue stream.

       MDI is contractually committed to issue  a  total  of 1,549,086 warrants
with the same terms based upon delivery of certain products  by Cell Solutions.
As  of December 31, 2002, Cell Solutions had not delivered these  products  and
MDI was not liable for the issuance of the warrants.

NOTE 15      LEGAL PROCEEDINGS

       SETTLED DURING 2002

       On  October 20,  2000,  MDI  filed suit in Circuit Court of Cook County,
Illinois (Case No. 00 CH 15652), against  SpectRx, Inc.  and  Welch Allyn, Inc.
The  suits  sought  injunctive  relief  and  damages  from SpectRx based  on  a
complaint of fraud and breach of certain confidentiality agreements with regard
to  MDI's business plans, marketing plans, and technology  related  to  in-vivo
diagnostic   devices.   MDI's  claim  arose  from  disclosure  of  confidential
information to SpectRx in  the  course  of  negotiations  contemplating a joint
venture  to  develop  new  medical  products.  The  information covered  cancer
detection systems relying on fluorescence technologies as well as bio-molecular
marking agents for use in applications within and outside of the body. MDI also
provided  SpectRx  with  marketing  plans,  revenue,  income   and   cash  flow
projections,  product  development  and  launch plans, and product distribution
strategies.  In  addition,  MDI  provided  SpectRx  with  certain  confidential
technical information regarding patent applications,  measurement technologies,
design   specifications,   quantitative   analyses,  optimization   techniques,
positional   information   for   cellular   mapping,    and   other   technical
specifications. Subsequent to the disclosure of MDI's information  to  SpectRx,
they  entered  into a business arrangement with Welch Allyn to develop products
of  a  similar nature  to  MDI's.  The  suit  also  charged  SpectRx  and  with
misappropriation  of  MDI's  trade  secrets  in violation of the Illinois Trade
Secrets Act.

       MDI's  suit was filed in response to a suit  filed  by  SpectRx  in  the
Superior Court  of  Gwinnett  County,  Georgia  (Civil Action NO. 00-A-7604 1),
seeking a declaratory judgment (but no monetary damages  or  other relief) that
SpectRx did not breach the confidentiality agreements as charged in MDI's suit.
On  July 5,  2001, MDI filed counterclaims, similar to the claims  outlined  in
MDI's Illinois suit, to the SpectRx action in Georgia.

       On February 1,  2002,  MDI  reached  an  out-of-  court  settlement with
SpectRx.  Under the terms of the settlement, SpectRx paid a $150,000  lump  sum
cash payment  to  MDI,  and MDI granted SpectRx an option to license certain of
MDI's technology. Additional  terms  of  the settlement are confidential. Under
the  terms  of  the  settlement,  neither  party   admitted  any  liability  or
wrongdoing. Welch Allyn also was a party to the settlement agreement.


       In 2001, Dawn H. Grohs, a former employee / consultant  to  the Company,
filed suit against the Company and certain affiliated companies, as well as two
of the Company's senior officers (C.A. No. 02-C-1010 (U.S. District  Court  for
the   Northern   District   of  Illinois).  Ms. Grohs'  claimed  fraud,  unjust
enrichment, misrepresentation,  breach of contract and quantum merit related to
her assertions that the defendants allegedly failed to provide her with equity;
tortuous interference with contractual  relations  and intentional interference
with contractual relations based on alleged encouragement  of  changes  to  the
business  relationship with Ms. Grohs; breach of the covenant of good faith and
fair dealing,  negligent  infliction  of  emotional  distress  and  intentional
infliction  of  emotional distress based on defendants' treatment of Ms. Grohs;
and violation of  state law for alleged unfair and deceptive acts by defendants
for the purpose of  inducing  Ms. Grohs to continue to provide services without
compensation. Ms. Grohs sought  $85,000  in  wages, $40,250 in expenses, equity
for contributions and efforts during the formation  of certain of the Company's
affiliates, payment of a sum to be determined by the  court for the intentional
and/or negligent infliction of emotional distress, a finding  that  the actions
of  defendants constitute unfair and deceptive acts, and that the court  treble
the damages  awarded.  In addition to the specific relief described above, each
count seeks an award of  attorneys'  fees  and costs and such other and further
relief the court deems just and appropriate.  In  October  2002, MDI reached an
out-of-court settlement with Ms. Grohs. Under the terms of the  settlement, MDI
paid Ms. Grohs $5,000 in cash and issued 400,000 unregistered shares  of  MDI's
common  stock to her. MDI calculated a fair value of $84,000 for the shares  of
its common  stock.  MDI  also  granted  Ms. Grohs an option to purchase 400,000
shares of MDI's common stock at an exercise price of $0.20 per share. One third
of the option vested immediately and the  remaining  two  thirds  vest in equal
amounts on the first and second annual anniversary dates of the grant.

       PENDING AT DECEMBER 31, 2002 AND AS OF DATE OF REPORT

       Prior to MDI's acquisition of AccuMed, Garrett Realty, Inc.  filed  suit
against AccuMed for unpaid rent and related expenses under a lease for premises
located  at 900 and 920 N. Franklin in Chicago, Illinois (Circuit Court of Cook
County (Case  No. 01  M1  725821)).  Garrett  originally  claimed approximately
$50,000  was  due them. Following completion of MDI's acquisition  of  AccuMed,
management vacated  AccuMed's  leased  facility and consolidated its operations
into MDI's headquarters facility. However,  Garrett  continued to claim ongoing
rent  and  amended  its  complaint in 2002 claiming approximately  $148,000  in
unpaid rent and related legal  costs  through  July  2002.  On  July  18, 2002,
judgment  was entered in favor of Garrett and against AccuMed in the amount  of
approximately $157,000. On December 20, 2002, pursuant to a court order, Garret
seized approximately  $12,500  from  an  MDI bank account, as a partial payment
against the judgment amount. The unpaid remainder of the judgment will continue
to  accrue  interest  until  paid  in  full. Since  AccuMed  had  a  continuing
obligation  for  the minimum lease payments,  MDI  recorded  a  $290,000  lease
obligation in accounting  for  the AccuMed merger based on the present value of
the  future  payments.  MDI  is contesting  the  right  of  Garrett  to  pursue
collection of the judgment against  the assets of MDI. Management believes that
the amount of the accrued lease obligation  recorded as of December 31, 2002 is
sufficient to cover any remaining expenses of  this  litigation and the related
judgment.

       On May 22, 2001, a judgment in the amount of $312,000  plus interest was
entered against AccuMed (Circuit Court of Cook County (Case N0.  97 L 7158)) in
favor of Merrill Corporation. The judgment was the result of the settlement  of
an  action  brought  by  Merrill  claiming  unpaid  fees for financial printing
services,  provided to AccuMed in 1996, and related interest  and  legal  costs
totaling in  excess  of $400,000. Under terms of the settlement and the related
judgment, AccuMed was  required  to  make 12 monthly payments of $26,000, and a
final payment to include all interest  accrued  on  declining unpaid balance of
the judgment over the term of payment. AccuMed made 7  payments  in  accordance
with the terms of the settlement and ceased to make any additional payments. In
May of 2002, Merrill asserted its rights under the original judgment and  filed
a  citation  to discover assets of AccuMed and obtain the remaining amount due.
On October 17,  2002, MDI reached an agreement with Merrill whereby MDI assumed
responsibility for  the  remaining  unpaid  amount  of the judgment and related
costs totaling $145,000 and agreed to pay such amount  no  later  than November
15,  2002.  MDI  failed  to make the required payment on November 15, 2002  and
Merrill instituted an action  against  MDI  to  discover  assets  and to obtain
payment  of  the  $145,000.  As of June 30, 2003, this litigation has not  been
resolved. At December 31, 2002  MDI  had  accrued the entire $145,000 amount of
the  judgment on the records of AccuMed. Management  is  currently  negotiating
with Merrill representatives to resolve this action.

       PENDING AS OF DATE OF REPORT

       On  July  31,  2002,  MDI  entered  into a settlement and mutual release
agreement with Trek Diagnostic Systems, Inc.  ("Trek")  related  to  a claim of
breach  of representations and warranties included in an agreement under  which
AccuMed sold  its  microbiology  business  and  related assets to Trek in 1999.
Under  the  settlement agreement, MDI executed an $80,000  promissory  note  in
favor of Trek.  The  note  required  principal  payments  of  $40,000  each  on
September  1  and December 1, 2002. MDI made the initial payment and Trek filed
suit against MDI  (Court  of Common Pleas Cuyahoga County, Ohio (Case No. CV 03
492582)) on January 23, 2003  to collect the remaining $40,000 plus interest at
8% per annum and legal and other  costs.  At December 31, 2002, MDI accrued the
remaining amount due on the note. On April  18th,  2003,  judgment  was entered
against  MDI  in  the  amount of $40,000 plus interest. Management is currently
negotiating with Trek representatives to resolve this matter.

       On March 28, 2003 The Cleveland Clinic Foundation filed suit against MDI
(United States District  Court  for  the  Northern  District  of  Ohio,  Easter
Division,  (Case  No. 1:03CV0561)) seeking approximately $315,000 plus interest
and attorney fees and  costs.  The sum in question pertains to remaining unpaid
fees  for  certain  clinical trial  work  conducted  by  The  Cleveland  Clinic
Foundation in the Peoples  Republic  of China on behalf of MDI. At December 31,
2002, MDI has recorded the full amount owing to The Cleveland Clinic Foundation
as  a  liability  in  its  accounts. MDI is  currently  engaged  in  settlement
discussions with The Cleveland Clinic Foundation.

       On January 2, 2003, Bowne  of  Chicago, Inc.("Bowne") filed suit against
MDI (Circuit Court of Cook County, County  Department-Law Division (Case No. 03
L 000009)) claiming approximately $342,000, plus interest and attorney fees and
costs, related to financial printing service  fees  provided  to  MDI  by Bowne
during  the  period  October  25,  2001  through November 7, 2002. While MDI is
actively defending itself against the suit  claiming  the  charges for printing
services provided during the period mentioned above were excessive,  management
has  taken a conservative position and recorded the entire amount of the  Bowne
invoices  as outstanding accounts payable on the records of MDI. As of December
31, 2002 and  June 30, 2003, management and its counsel are unable to determine
the outcome of this litigation.

       On January  9,  2003,  Monsun,  AS  ("Monsun")  filed suit against Peter
Gombrich,  MDI's  Chairman  and  CEO,  (United States District  Court  for  the
Northern District of Illinois Eastern Division  (Case  No.  03C 0184)) claiming
$500,000 plus consequential damages for failure to make payment  in  compliance
with  the  terms  of a personal guaranty signed by Mr. Gombrich in relation  to
Monsun's grant of an extension in the maturity date of a convertible promissory
note in the principal amount of $500,000 issued by MDI on November 1, 2000. The
note had an original  maturity  date  of November 1, 2001. The maturity date of
the note was initially extended until January  31,  2002  and  subsequently  to
April  1,  2002  and finally to July 31, 2002. Monsun granted the maturity date
extensions in exchange  for various warrants issued by MDI entitling the holder
to purchase shares of MDI's  common  stock at various prices. In November 2002,
the Board of Directors approved the issuance  of 200,000 shares of MDI's common
stock to Monsun to satisfy a default penalty clause  in the guaranty. The terms
of the guaranty required that Monsun receive registered  shares of MDI's common
stock, however, in order to comply with securities laws, MDI  issued the shares
of  its  common  stock to Monsun with a restrictive legend which permits  their
sale only in compliance  with  Rule 144 of the Securities Exchange Act. MDI has
recorded the principal amount of  the  note plus accrued and unpaid interest to
December  31,  2002  as a note payable on its  records.  Since  Mr.  Gombrich's
potential liability under the suit, including the failure to deliver registered
shares of MDI's common  stock,  is  the result of the failure of MDI to pay the
principal amount of its convertible promissory  note  when  due,  the  Board of
Directors  has  agreed  that  MDI will assume responsibility for Mr. Gombrich's
obligations under the guaranty,  including  legal costs. Management and counsel
are unable to determine the result of this pending  litigation  as  of June 30,
2003.

       MDI  is  a  defendant  in  several lawsuits brought by current or former
unsecured creditors to collect past due amounts for goods and services. MDI has
recorded the amounts due in its records and is attempting to settle these suits
and unfiled claims.

       MDI is a defendant in several  legal actions brought by former employees
seeking to collect amounts due for unpaid  wages.  MDI has recorded the amounts
due in its records and is attempting to settle these actions

       In  May  2003,  the  Company,  together  with its subsidiaries,  AccuMed
International,   Inc.   ("AccuMed")   and   Oncometrics   Imaging   Corporation
("Oncometrics"), filed suit against MonoGen, Inc. and Norman Pressman (Case No.
03 CH 08532 (Circuit Court of Cook County, Illinois)). The  suit  arises out of
two  license  agreements  between  AccuMed,  Oncometrics  and MonoGen in  which
certain intellectual property was transferred from AccuMed  and  Oncometrics to
MonoGen  for  $500,000  (the "Agreements"). At the time of the Agreements,  the
Company had not yet acquired AccuMed and Oncometrics. The technology, which was
the subject of the Agreements,  had been licensed to Oncometrics by the British
Columbia  Cancer  Agency ("BCCA") pursuant  to  a  written  license  agreement.
Pressman was the President  of AccuMed and Oncometrics when the Agreements were
negotiated and executed. As soon as the Agreements were signed, Pressman took a
position with MonoGen. The Complaint  alleges  that  that  the  technology  was
transferred  at  a  below market price. The Complaint also asserts that AccuMed
and Oncometrics may not  have  obtained  the  requisite  approval  from BCCA to
transfer the technology to MonoGen pursuant to the Agreements.

       The  Complaint contains claims against Pressman for breach of  fiduciary
duty and fraud.  To  the  extent  that the requisite approval from BCCA was not
obtained, Pressman breached his fiduciary  duty  to  AccuMed and Oncometrics by
failing to obtain that approval, and falsely representing  that  he had in fact
obtained  the requisite approval. Pressman breached his fiduciary duty  further
by failing  to negotiate an arms length transaction with MonoGen. The Complaint
also asserts claims against MonoGen for aiding and abetting Pressman's breaches
of fiduciary  duty  to  AccuMed  and  Oncometrics,  fraud in the inducement and
tortuous interference with prospective economic advantage.

       The  Company's  claims  against MonoGen have been  dismissed  from  this
action  and consolidated in a separate  arbitration  proceeding  involving  the
Company and  MonoGen.   The Company's claims against Pressman remain pending in
this action. In June 2003,  the  Court  dismissed  the  Company's request for a
preliminary injunction. The denial of preliminary injunctive  relief  does  not
affect  the  Company's  rights  to  pursue  permanent  injunctive relief at the
conclusion of the case, if such relief is warranted. The  Company is attempting
to negotiate a global settlement of the claims in this action,  the arbitration
proceeding  with  MonoGen  and  any  threatened but unasserted claims  by  BCCA
relating to the Agreements. The failure  to  negotiate  a  favorable settlement
could have a material adverse effect on MDI's business.

       On  April 14, 2003, we received a notification from the attorney for the
licensor, Dr.  Bruce  Patterson,  M.D., Ph.D, under the License and Development
Agreement covering certain HPV technology,  which  forms  the basis for our In-
Cell HPV test, indicating that the licensor intended to terminate  the  license
in  accordance with a specific clause of the license, which permits termination
in the  event  the  Company makes an assignment for the benefit of creditors or
bankruptcy, or otherwise  relinquishes  or  loses control of all its assets. On
April 15, 2003, we informed the attorney that the facts used by the licensor to
invoke the termination right were incorrect and that we are still in control of
all  of  our assets and that such assets are pledged  as  security  under  debt
instruments  and  that  such  pledges are not included under events which would
permit the licensor to terminate the license. We, and our counsel, believe that
the MDI would prevail should the  licensor  attempt  to  pursue  a  termination
action.  We are also engaged in a dispute with the licensor over completion  of
the third  milestone of the license under which completion requires process and
procedure  verification  by  an  independent  third  party.  This  verification
requirement has not been satisfied as yet.

NOTE 16.     QUARTERLY DATA (UNAUDITED)

       The following table represents unaudited quarterly operating results for
the  two  years  ended  December 31, 2002 and 2001. The Company  prepared  this
information  on  a  basis  consistent  with  the  Company's  audited  financial
statements. In management's  opinion,  the  quarterly operating results include
all adjustments necessary (which are of a normal  and recurring nature) for the
fair presentation of the results of the interim periods  presented.  Basic loss
per  share  for  each quarter is computed using the weighted-average number  of
shares outstanding  during that quarter. Basic loss per share for the full year
is computed using the  weighted-average number of shares outstanding during the
year. Thus, the sum of the  four  quarters'  basic loss per share may not equal
the  full-year  basic loss per share. In addition,  due  to  rounding  of  each
quarters' operating  results,  the full-year operating results disclosed in the
consolidated financial statements  may  not  equal  the  sum  of each quarters'
operating results shown below.


                                        2002                                           2001
                                        ----                                           ----
                                   QUARTER ENDED                                  QUARTER ENDED
                                   -------------                                  -------------
                    MAR. 31     JUNE 30    SEPT. 30    DEC. 31    MAR. 31    JUNE 30    SEPT. 30    DEC. 31
                    -------     -------    --------    -------    -------    -------    --------    -------
                                            (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Total revenues      $   656     $   502    $    295    $   293    $   409    $   288    $    174    $     6
Gross profit            461         215         133         85        131         79          65        126
Net loss available
 for common
 shareholders        (2,932)     (4,493)     (3,638)    (2,909)    (4,640)    (2,217)     (2,344)   (10,590)
Basic loss per
 share              $ (0.11)    $ (0.17)   $  (0.14)   $ (0.08)   $ (0.15)   $ (0.07)   $  (0.07)   $ (0.30)
Weighted average
 number of shares
 outstanding         25,561      25,747      26,551     34,795     30,269     30,468      31,846     35,440

NOTE 16.   SUBSEQUENT EVENTS

       BRIDGE II FINANCING

       Beginning  in  October  2002,  MDI began an issue of up to $4,000,000 in
series Bridge II Convertible Promissory  Notes  to  accredited  investors.  The
notes  bear  interest at 12 % per annum payable at maturity date in kind in the
form of shares  of  common  stock  and  are  due  July  31, 2003. The notes are
convertible at any time into the common stock of MDI. The note conversion price
and  the  value  of  common  shares  paid  in  kind as interest for  the  first
$1,000,000 in cash subscriptions, determined on  a  "first  come - first served
basis," is $0.10 per share. The note conversion price and the  value  of common
shares  paid  in  kind  as  interest  for the remaining $3,000,000 of principal
amount of notes in the series is $0.15  per share. MDI granted each note holder
the right to receive a private warrant to  purchase  one  share  of  the common
stock  of  MDI for each dollar of principal amount of notes held at an exercise
price of $0.15  per share. The warrants are not issuable until such time as MDI
completes significant additional financing plans. MDI granted a junior security
position in all of  the  Company's  assets  to  the  holders  of  the Bridge II
convertible  promissory  notes.  Through  December  31,  2002,  MDI  had issued
$550,000  in  principal  amount  of  Bridge II convertible promissory notes  in
exchange for cash. Between February 17,  2003  and  July 8, 2003, MDI issued an
additional  $1,141,000  principal  amount  of Bridge II convertible  promissory
notes in exchange for cash.

       OTHER FINANCING

       On April 2, 2003, MDI issued a $1,000,000 Convertible Promissory Note to
an affiliate, Suzanne M. Gombrich, the wife  of  Peter Gombrich, MDI's Chairman
and CEO, in exchange for cash. The note bears interest  at  the rate of 12% per
annum and is convertible into the common stock of MDI at a conversion  price of
$0.10  per share. As additional consideration, MDI granted the holder a warrant
to purchase 1,000,000 shares of the common stock of MDI at an exercise price of
$0.15 per share. MDI also granted the holder a first priority security interest
in all of the Company's assets. MDI used all of the cash proceeds from the note
to fund  the  $100,000  cost  of an option to repurchase all of its assets from
Round Valley Capital, LLC and to make the $900,000 payment required to exercise
the purchase option in conjunction  with  the final settlement of the loan with
Round Valley Capital, LLC.

       SETTLEMENT OF ROUND VALLEY CAPITAL, LLC LOAN AND RELATED LITIGATION

       On  August  30,  2002,  MDI issued a promissory  note  to  Round  Valley
Capital, LLC ("RVC") in the amount  of  $825,500  representing $650,000 in cash
received in exchange for the note and $175,500 in unearned  interest.  The note
was  due  June 1, 2003 and bore interest at a calculated rate of 36% per annum.
The note was  secured by all of the Company's assets. MDI paid transaction fees
in cash of $147,063,  issued  RVC 711,364 shares of the common stock of MDI and
warrants to purchase 681,818 shares  of  the common stock of MDI at an exercise
price of $0.20 per share. MDI also issued  a certificate representing 5,750,000
shares of the common stock of MDI as additional  collateral for the loan. As of
December  31, 2002, MDI had made principal and interest  payments  against  the
note of $350,000  and  $59,500,  respectively.  As  a result of issues over the
value of collateral, RVC declared the note to be in default  under the terms of
the note and attempted to foreclose on the Company's assets and  sell  them  at
auction.  MDI  instituted legal action against RVC, halting the foreclosure and
asset sale, and  immediately  entered  into  settlement  negotiations. In early
December of 2002, MDI reached a settlement agreement with  RVC  under which the
Company  was  required to pay the remaining $300,000 principal balance  of  the
note plus an additional amount of $115,000, representing the remaining unearned
interest on the  note,  by  January 4, 2003. The agreement provided that if the
payment due on January 4, 2003  was  not  made  in  a  timely manner, a default
penalty would be assessed each week payment was not made  until a final payment
amounting to $950,000 would be due on February 19, 2003. MDI  was  not  able to
make  the  payment  due  on  January 4, 2003 and made no further payments until
February 17, 2003, when MDI paid  RVC  $250,000 leaving a remaining balance due
under  the  settlement  agreement of $700,000.  At  the  end  of  February  RVC
proceeded with foreclosure  against  the  Company's  assets.  At  that time MDI
agreed to pay RVC $100,000 for an option to repurchase the Company's  assets at
any  time prior to the close of business on April 2, 2003. The option prevented
RVC from  selling  the assets to any party other than MDI before that date. MDI
used the proceeds of Bridge II convertible promissory notes issued in February,
as described above,  to make the $250,000 payment to RVC. On April 2, 2003, MDI
paid RVC $900,000 to exercise  the  purchase  option  to  reacquire  all of the
Company's assets. MDI used the proceeds of a convertible promissory note issued
to  an  affiliate,  as  described  above,  to make the payment for the purchase
option and the final payment to RVC. In conjunction  with  this  final payment,
RVC returned 5,750,000 shares of the common stock of MDI issued as  collateral,
711,364  shares  of  the  common  stock of MDI and warrants to purchase 481,818
shares of the common stock of MDI issued  to  RVC  as  payment  for transaction
fees. MDI cancelled the shares of common stock and warrants.


       RESIGNATION OF OFFICER

       On January 22, 2003 Stephen G. Wasko tendered his resignation  from  his
position  as  President  and  Chief Operating Officer, a position he held since
June 10, 2002. In February 2003  Mr.  Wasko  filed  a  claim  with the Illinois
Department of Labor seeking approximately $84,000 in salary and bonuses due him
at   the   time  of  his  resignation  and  severance  payments  amounting   to
approximately  $180,000.  MDI is contesting the portion of the claim related to
severance payments. The Board  of  Directors  reappointed  Peter  P.  Gombrich,
Chairman  and  CEO,  to  temporarily  fill the positions of President and Chief
Operating Officer. In June 2003, the Board  of  Directors  appointed  Dennis L.
Bergquist to be President and Chief Financial Officer of MDI.

       BANKRUPTCY FILING OF SAMBA TECHNOLOGIES, SARL

       In  late  December  of 2002, the General Managers of Samba Technologies,
Sarl, a wholly-owned subsidiary  of  the  Company,  based  in  France,  filed a
petition  with  the French Commercial Court for protection under the Bankruptcy
Laws of France. The  Court  approved  the  petition  to cover all activities of
Samba  prior  to  December  20,  2002.  Samba was unable to  meet  its  current
obligations primarily as a result of MDI's  cash  flow problems and its related
failure to pay 262,000 Euros due to Samba for work  performed  on behalf of the
Company's  U.S.  operations.  During  2003,  Samba  has  maintained its  normal
operations under the protection of the French Commercial Court and its managers
have been supervised by a Court appointed Administrator. Samba will continue to
operate   under  the  current  format  until  a  plan  of  reorganization   and
continuation  is  approved  by  the  Court, which must act by December of 2003,
unless an extension of time is granted. In consort with the Samba managers, MDI
anticipates filing a Continuation Plan  with the French Commercial Court during
the third quarter. The Plan will include  a  payment  structure  for  the  U.S.
operations  debt, direct participation in Samba's equity by the Samba managers,
and additional  participation  in Samba's equity by a strategic partner, with a
portion of the investment used to  fund  working  capital. Upon approval of the
Plan, Samba will resume normal operations.

       INSURANCE

       Due to MDI's liquidity problems, the Company was unable to pay insurance
premiums  for  policies  covering  Directors  and  Officers  Liability,  Public
liability, Property Damage and Workers Employment Compensation.  These policies
were all cancelled retroactive to October 29, 2002.  MDI  is  currently working
with insurance providers to reinstate the aforementioned insurance coverage.



Schedule IX--Valuation and Qualifying Accounts


                                                ADDITIONS
                                                 CHARGED                           BALANCE
                                    BALANCE AT  TO COSTS                           AT END
                                     BEGINNING     AND                    OTHER      OF
DESCRIPTION                          OF PERIOD  EXPENSES   RETIREMENTS   CHANGES   PERIOD
- -----------                          ---------  --------   -----------   -------   -------
RESERVES AND ALLOWANCES
 DEDUCTED FROM ASSET ACCOUNTS......
ALLOWANCE FOR UNCOLLECTABLE
 ACCOUNTS RECEIVABLE...............
Year ended December 31, 2000.......  $      20  $      0    $     16     $     0   $     4
Year ended December 31, 2001.......  $       4  $      0    $      0     $     0   $     4
Year ended December 31, 2002.......  $       4  $    141    $      0     $     0   $   145
RESERVES AND ALLOWANCES WHICH
 SUPPORT BALANCE SHEET CAPTION
 RESERVES
WARRANTY RESERVES
Year ended December 31, 2000.......  $      28  $      0    $      7     $     0    $   21
Year ended December 31, 2001.......  $      21  $      0    $      1     $     0    $   20
Year ended December 31, 2002.......  $      20  $      1    $      0     $     0    $   21
INVENTORY RESERVES
Year ended December 31, 2000.......  $       2  $      0    $      0     $     0    $    2
Year ended December 31, 2001.......  $       2  $      0    $      0     $     0    $    2
Year ended December 31, 2002.......  $       2  $      0    $      0     $     0    $    2



                                 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.)



EXHIBIT
NUMBER                             DESCRIPTION

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)

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.)*



EXHIBIT
NUMBER                             DESCRIPTION

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.)*

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.)*



EXHIBIT
NUMBER                             DESCRIPTION

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.)

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.)



EXHIBIT
NUMBER                             DESCRIPTION

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 certain
      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.)

4.34  Common Stock Purchase  Warrant  issued to Richard Domanik on May 20, 2002
      representing  the  right  to purchase  51,483  shares  of  common  stock.
      (Incorporated by reference  to Exhibit 4.34 of the Company's Registration
      Statement, File No. 333-100150 filed September 27, 2002.)

4.35  Common Stock Purchase Warrant  issued  to  Round  Valley  Capital, LLC on
      September  4, 2002 representing the right to purchase 681,818  shares  of
      common  stock.   (Incorporated   by   reference   to  the  Company's  S-2
      Registration Statement, File No. 333-100150 filed September 27, 2002.)


4.36  Amendment No. 1 to the Common Stock Purchase Warrant issued in connection
      with certain Bridge Financing dated August 20, 2002.

4.37  Form  of Common Stock Purchase Warrant to be issued  in  connection  with
      certain Bridge II Financing beginning in October 2002.


EXHIBIT
NUMBER                             DESCRIPTION

4.38  Common  Stock Purchase Warrant issued to Qwestar resources on November 1,
      2002 representing the right to purchase 200,000 shares of common stock.

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.)*

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 Employment  Agreement  dated  June 1,  1999  between  Mr. Prange  and the
      Company.  (Incorporated  herein  by  reference  to  Exhibit 10.11  of the
      Company's   Annual   Report  on  Form 10-K  for  the  fiscal  year  ended
      December 31, 1999.)*

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.)*


EXHIBIT
NUMBER                             DESCRIPTION

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.)

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.)*


EXHIBIT
NUMBER                             DESCRIPTION

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.)*

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.)


EXHIBIT
NUMBER                             DESCRIPTION

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.)

99.1  $118,500 Promissory Note  issued to Schwartz Cooper Greenberger & Krauss,
      Chartered of February 13, 2002.  (Incorporated  by  reference  to Exhibit
      10.40  to  the  Company's  S-2 Registration Statement, File No. 333-83578
      filed June 27, 2002.)

10.41 $650,000 Promissory Note issued  to  Round  Valley Capital, LLC on August
      30,  2002. (Incorporated by reference to the Company's  S-2  Registration
      Statement, File No. 333-100150 filed on September 27, 2002.)

10.42 Form of  Convertible  Promissory  Note  issued in connection with certain
      Bridge Financing beginning in March 2002.

10.43 Amendment No. 1 to Convertible Promissory  Note issued in connection with
      certain Bridge Financing dated August 20, 2002.

10.44 Bridge  II  Convertible  Promissory  Note Indenture,  including  Form  of
      Convertible  Promissory  Note,  Form  Of  Security   Agreement,  Form  of
      Collateral  Sharing Agreement, and Form of Warrant issued  in  connection
      with certain Bridge II Financing beginning in October 2002.

21.1  Subsidiaries of the Company.

23.1  Consent of Ernst & Young, LLP

23.2  Consent of Altschuler Melvoin and Glasser, LLP

0.1   Section 906 Certification by principal executive officer

99.2  Section 906 Certification by principal financial officer.

*  SEC File NO. 0-935



                                 EXHIBIT 21.1

                  SUBSIDIARIES OF MOLECULAR DIAGNOSTICS, INC.

1.     Bell Savings  and  Loan  Association,  a  savings  and  loan association
       chartered in the state of California.

2.     Pacific Coast Holdings Insurance Company, an insurance company organized
       under the laws of the state of California.

3.     PFI National Corporation, a Delaware corporation.

4.     InPath, LLC, a Delaware limited liability company.

5.     Samba  Technologies,  SARL, a limited liability company organized  under
       the laws of France.

6.     AccuMed International Inc., a Delaware corporation

7.     Oncometrics Imaging Corp, a Canadian company registered in the Yukon
       territory

EX-4.36

                                                                  Exhibit 4.36

                        AMENDMENT NO. 1 TO THE WARRANT

       This  Amendment  No. 1, dated as of August 19, 2002 (this "Amendment No.
1"), is to the Warrant, dated  as  of  July  30,  2002, (the "Warrant") between
Molecular Diagnostics, Inc., a Delaware corporation  (the  "Company"),  and the
holders of the Warrants (the "Investors").

                                  WITNESSETH:

       WHEREAS,  the  Investors  purchased  the  Warrants  in connection with a
bridge financing that closed June 30, 2002;

       WHEREAS, the Investors have agreed to amend the maturity date of certain
Promissory Notes purchased in the bridge financing; and

       WHEREAS, pursuant to and in compliance with the provisions of Section 21
of the Warrants, the Company and the Investors desire to amend  the Warrants as
hereinafter set forth.

       NOW,  THEREFORE, in consideration of the premises and agreements  herein
contained, the Company and the Investors agree as follows:

       1.    The  Exercise  Price  of  the  Warrants is adjusted from $0.65 per
share to $0.25 per share.

       2.    Capitalized terms not defined herein shall have the meanings given
them in the Warrants.

       3.    This Amendment No. 1 may be executed in any number of counterparts
and  each  of  such counterparts shall for all purposes  be  deemed  to  be  an
original, and all  such  counterparts shall together constitute but one and the
same instrument.






IN WITNESS WHEREOF, the parties have caused this Amendment No. 1 to be duly
executed and attested as of the ____ day of August, 2002.


                                        MOLECULAR DIAGNOSTICS, INC.


                                        By:   _________________________________
                                              Name:  Peter P. Gombrich
                                              Title: Chief Executive Officer
                                                     and President



                                 INVESTOR:



                                        By:   _________________________________

EX-4.37

                                                                   Exhibit 4.37

THIS  WARRANT  AND  THE  UNDERLYING  SHARES OF COMMON STOCK REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER  THE  SECURITIES  ACT  OF  1933 (THE
"ACT"),  AND  ARE  "RESTRICTED SECURITIES" AS THAT TERM IS DEFINED IN RULE  144
UNDER THE ACT.  THE  SECURITIES  MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN  EFFECTIVE  REGISTRATION  STATEMENT UNDER THE
ACT,  OR  PURSUANT  TO  AN  EXEMPTION  FROM  REGISTRATION  UNDER THE  ACT,  THE
AVAILABILITY  OF  WHICH IS TO BE ESTABLISHED TO THE SATISFACTION  OF  MOLECULAR
DIAGNOSTICS, INC.

                                                       Warrant No. 200__- [   ]


                   WARRANT TO PURCHASE SHARES OF COMMON STOCK

                       WARRANT TO PURCHASE _______ SHARES
                   (SUBJECT TO ADJUSTMENT AS SET FORTH HEREIN)

[For cash subscriptions for the first One Million Dollars ($1,000,000)
principal amount of Notes being offered (determined on a "first come - first
served" basis):

                         EXERCISE PRICE $0.15 PER SHARE
                   (SUBJECT TO ADJUSTMENT AS SET FORTH HEREIN)]

[For subscribers who subscribe after cash subscriptions for the first One
Million Dollars ($1,000,000) principal amount of Notes have been received by
the Company (determined on a "first come - first served" basis):

                         EXERCISE PRICE $0.20 PER SHARE
                   (SUBJECT TO ADJUSTMENT AS SET FORTH HEREIN)]

                                   ISSUE DATE:
       VOID AFTER 3:00 P.M., CENTRAL TIME, ON THE FIFTH ANNIVERSARY OF THE
                                   ISSUE DATE

      THIS  CERTIFIES   THAT  ,  ,  is  entitled  to  purchase  from  Molecular
Diagnostics, Inc., a Delaware  corporation  (hereinafter  called the "Company")
with  its  principal  office  located at 414 North Orleans Street,  Suite  510,
Chicago, Illinois 60610, at any  time  after  the  Exercise  Date  (as  defined
below),  but before 3:00 P.M., Central Time, on the Expiration Date (as defined
below), at  the  Exercise  Price  (as defined below), the number of shares (the
"Warrant Shares") of the Company's  common  stock,  par  value $0.001 per share
(the  "Common Stock") set forth above.  The number of Shares  purchasable  upon
exercise  of  this Warrant and the Exercise Price per Share shall be subject to
adjustment from time to time as set forth in Section 4 below.


      SECTION 1.  DEFINITIONS

      The following  terms  used  in  this  Warrant  shall  have  the following
meanings (unless otherwise expressly provided herein):

      The "Act."  The Securities Act of 1933, as amended.

      The "Commission."  The Securities and Exchange Commission.

      The "Company."  Molecular Diagnostics, Inc.

      "Common Stock."  The Company's Common Stock, par value $0.001 per share.

      "Current Market Price."  The Current Market Price shall be determined  as
follows:

            (a)   if  the  security at issue is listed on a national securities
      exchange or admitted to  unlisted  trading privileges on such an exchange
      or quoted on either the National Market System or the Small Cap Market of
      the automated quotation service operated by The Nasdaq Stock Market, Inc.
      ("Nasdaq"), the current value shall  be  the  last reported sale price of
      that security on such exchange or system on the day for which the Current
      Market Price is to be determined or, if no such sale is made on such day,
      the average of the highest closing bid and lowest  asked  price  for such
      day on such exchange or system; or

            (b)   if  the  security  at  issue  is  not  so listed or quoted or
      admitted to unlisted trading privileges, the Current  Market  Value shall
      be  the average of the last reported highest bid and lowest asked  prices
      quoted  on  the  Nasdaq  Electronic Bulletin Board, or, if not so quoted,
      then by the National Quotation  Bureau,  Inc.  on  the  last business day
      prior to the day for which the Current Market Price is to  be determined;
      or

            (c)   if  the  security  at  issue  is  not so listed or quoted  or
      admitted to unlisted trading privileges and bid  and asked prices are not
      reported, the current market value shall be determined in such reasonable
      manner as may be prescribed from time to time by the  Board  of Directors
      of   the   Company,  subject  to  the  objection  procedures  hereinafter
      described.

      "Exercise Date."  July 31, 2003.

      "Exercise Price."  [$0.15] or [$0.20] per Share, as modified from time to
time in accordance with the provisions of this Warrant.

      "Expiration  Date."  The fifth anniversary of the Issue Date indicated on
the first page of this Warrant.

      "Holder" or "Warrantholder."   The  person to whom this Warrant is issued
and any valid transferee thereof pursuant to Section 3.1 below.

      "NASD."  The National Association of Securities Dealers, Inc.

      "Nasdaq."  The automated quotation system  operated  by  the Nasdaq Stock
Market, Inc.

      "Termination  of  Business."   Any  sale,  lease or exchange of  all,  or
substantially  all,  of the Company's assets or business  or  any  dissolution,
liquidation or winding up of the Company.

      "Warrant."  This  Warrant  and  any other warrants issued in substitution
for  or replacement thereof, including those  evidenced  by  a  certificate  or
certificates  originally issued or issued upon division, exchange, substitution
or transfer pursuant to this Warrant.

      "Warrant  Shares."   The  Common  Stock purchasable upon exercise of this
Warrant  including the Common Stock underlying  unexercised  portions  of  this
Warrant.

      SECTION 2.  TERM OF WARRANTS; EXERCISE OF WARRANT

      2.1.  Exercise of Warrant.

            (a)   Subject  to  the terms of this Warrant, the Holder shall have
      the right, at any time beginning  on  the Exercise Date but prior to 3:00
      p.m., Central Time, on the Expiration Date,  to purchase from the Company
      up to the number of fully paid and nonassessable  Warrant Shares to which
      the  Holder  may  at the time be entitled to purchase  pursuant  to  this
      Warrant, upon surrender  to  the Company, at its principal office, of the
      Warrant to be exercised, together  with  the purchase form on the reverse
      thereof, duly filled in and signed, and upon  payment  to  the Company of
      the Exercise Price for the number of Warrant Shares in respect  of  which
      the  Warrant is then exercised, but in no event for less than 100 Warrant
      Shares  (unless  fewer  than  an aggregate of 100 Warrant Shares are then
      purchasable under all outstanding Warrants held by a Holder).

            (b)   In lieu of payment  of  the  Exercise  Price,  the Holder may
      require  the Company to convert this Warrant into shares of Common  Stock
      (the "Conversion  Right")  as  provided for in this Section 2.1(b).  Upon
      exercise of the Conversion Right, the Company shall deliver to the Holder
      (without payment by the Holder of  any of the Exercise Price) that number
      of shares of Common Stock equal to the  quotient obtained by dividing (x)
      the value of the Warrant at the time the  Conversion  Right  is exercised
      (determined  by  subtracting  the  aggregate  Exercise  Price  in  effect
      immediately  prior  to  the  exercise  of  the  Conversion Right from the
      aggregate Current Market Price for the Common Stock  immediately prior to
      the exercise of the Conversion Right by (y) the Current  Market  Price of
      the Common Stock.

      2.2.  Payment of Exercise Price.  Payment of the aggregate Exercise Price
may be made in cash or by check, or any combination thereof.

      2.3.  Issuance of Shares.  Upon surrender of this Warrant and payment  of
the  applicable  Exercise  Price,  the  Company  shall  issue  and  cause to be
delivered  with  all  reasonable  dispatch to or upon the written order of  the
Holder and in the name or names the  Holder  may  designate,  a  certificate or
certificates  for  the  number  of  full  Warrant Shares so purchased upon  the
exercise of this Warrant, together with cash, as provided in Section 12 hereof,
in respect of any fraction of a Warrant Share  that  would  otherwise have been
issuable upon exercise of this Warrant.

      2.4.  Status as Holder of Shares.  Upon receipt of this  Warrant  by  the
company  following any exercise by the Holder, the Holder shall be deemed to be
the  holder   of   record   of  the  Warrant  Shares  issuable  upon  exercise,
notwithstanding that the transfer  books  of  the Company may then be closed or
that certificates representing the Warrant Shares may not have been prepared or
actually delivered to the Holder.

      SECTION 3.  TRANSFERABILITY AND FORM OF WARRANT

      3.1.  Limitation on Transfer.  Any assignment or transfer of this Warrant
shall  be  made by presentation and surrender hereof  to  the  Company  at  its
principal office  or the office of its transfer agent, if any, accompanied by a
duly executed Assignment  Form.   Upon  the presentation and surrender of these
items  to the Company, the Company, at its  sole  expense,  shall  execute  and
deliver  to  the  transferee  or  transferees  of this Warrant a new Warrant or
Warrants, in the name of the transferee or transferees  named in the Assignment
Form, and this Warrant shall at that time be canceled.

      3.2.  Exchange of Certificate.  This Warrant may be exchanged for another
Warrant or Warrants entitling the Warrantholder to purchase  a  like  aggregate
number  of  Warrant Shares as the Warrant or Warrants surrendered then entitled
the Warrantholder  to  purchase.   Any  Warrantholder  desiring  to  exchange a
Warrant  shall  make  a request in writing delivered to the Company, and  shall
surrender, properly endorsed,  with  signatures  guaranteed,  the Warrant to be
exchanged.   Thereupon,  the  Company shall execute and deliver to  the  person
entitled thereto a new Warrant as requested.

      3.3.  Mutilated, Lost, Stolen,  or  Destroyed  Certificate.   In case the
certificate  evidencing  this  Warrant  shall  be  mutilated,  lost, stolen  or
destroyed,  the Company shall, at the request of the Warrantholder,  issue  and
deliver in exchange and substitution for and upon cancellation of the mutilated
certificate, or in lieu of and substitution for the certificate lost, stolen or
destroyed, a  new  Warrant  of  like  tenor representing an equivalent right or
interest, but only upon receipt of evidence  satisfactory to the Company of the
loss,  theft  or  destruction  of  the Warrant and  a  bond  of  indemnity,  if
requested, also satisfactory in form  and  amount,  at  the  applicant's  cost.
Applicants  for substitute Warrants shall also comply with any other reasonable
regulations and pay any other reasonable charges the Company may request.

      SECTION 4.  ADJUSTMENT OF NUMBER OF SHARES

      The number  and  kind of securities purchasable upon the exercise of this
Warrant and the Exercise Price payable shall be subject to adjustment from time
to time upon the happening of certain events, as follows:

      4.1.  Adjustments.   The  number  of  Warrant Shares purchasable upon the
exercise of this Warrant and the Exercise Price shall be subject to adjustments
as follows:

            (a)   In case the Company shall (i)  pay a dividend in Common Stock
      or  make  a  distribution  to  its  stockholders in  Common  Stock,  (ii)
      subdivide its outstanding Common Stock,  (iii)  combine  its  outstanding
      Common  Stock  into  a smaller number of shares of Common Stock, or  (iv)
      issue by classification  of  its  Common  Stock  other  securities of the
      Company, then in any of the foregoing cases, the number of Warrant Shares
      purchasable upon exercise of the Warrant immediately prior  thereto shall
      be  adjusted  so that the Warrantholder shall be entitled to receive  the
      kind and number of Warrant Shares or other securities of the Company that
      it would have owned  or  would  have been entitled to receive immediately
      after the happening of any of the events described above, had the Warrant
      been exercised immediately prior  to  the  happening  of the event or any
      record date with respect thereto.  Any adjustment made  pursuant  to this
      subsection  4.1(a) shall become effective immediately after the effective
      date of the event retroactive to the record date, if any, for the event.

            (b)   If  the  Company  shall  issue  rights, options, warrants, or
      convertible securities to all or substantially  all holders of its Common
      Stock, without any charge to the holders, entitling them to subscribe for
      or purchase Common Stock at a price per share that is lower at the record
      date mentioned below than the then Current Market  Price,  the  number of
      Warrant  Shares  thereafter purchasable upon the exercise of this Warrant
      shall  be  determined   by  multiplying  the  number  of  Warrant  Shares
      theretofore purchasable upon  exercise of this Warrant by a fraction, the
      numerator  of  which  shall be the  number  of  shares  of  Common  Stock
      outstanding immediately  prior  to  the  issuance of the rights, options,
      warrants or convertible securities, plus the  number of additional shares
      of Common Stock offered for subscription or purchase, and the denominator
      of  which  shall  be  the  number of shares of Common  Stock  outstanding
      immediately prior to the issuance  of  the  rights, options, warrants, or
      convertible securities, plus the number of shares  of  Common  Stock that
      the aggregate offering price of the total number of shares offered  would
      purchase  at  the  Current  Market  Price  as  of  the  record date.  The
      adjustment   shall  be  made  whenever  rights,  options,  warrants,   or
      convertible securities are issued, and shall become effective immediately
      and  retroactively   to   the   record  date  for  the  determination  of
      stockholders  entitled  to receive  the  rights,  options,  warrants,  or
      convertible securities.

            (c)   If the Company  shall  distribute to all or substantially all
      holders  of its Common Stock evidences  of  its  indebtedness  or  assets
      (excluding  cash  dividends  or distributions out of earnings) or rights,
      options, warrants, or convertible  securities  containing  the  right  to
      subscribe  for  or  purchase Common Stock (excluding those referred to in
      subsection 4.1(b) above),  then in each case the number of Warrant Shares
      thereafter  purchasable upon  the  exercise  of  this  Warrant  shall  be
      determined by  multiplying  the  number  of  Warrant  Shares  theretofore
      purchasable  upon  exercise  of this Warrant by a fraction, of which  the
      numerator  shall  be  the  then Current  Market  Price  on  the  date  of
      distribution, and the denominator  of  which  shall be the Current Market
      Price on the date of distribution minus the then  fair  value (determined
      as provided in subparagraph (e) below) of the portion of  the  assets  or
      evidences  of  indebtedness so distributed or of the subscription rights,
      options, warrants,  or  convertible  securities  applicable to one share.
      The adjustment shall be made whenever any distribution  is made and shall
      become effective on the date of distribution retroactive  to  the  record
      date  for  the  determination  of  stockholders  entitled  to receive the
      distribution.

            (d)   No  adjustment  in  the  number of Warrant Shares purchasable
      pursuant to this Warrant shall be required  unless  the  adjustment would
      require an increase or decrease of at least one percent in  the number of
      Warrant Shares then purchasable upon the exercise of this Warrant  or, if
      this  Warrant  is  not  then  exercisable,  the  number of Warrant Shares
      purchasable  upon  the  exercise  of  this  Warrant  on  the  first  date
      thereafter that this Warrant becomes exercisable; provided, however, that
      any  adjustments  which  by  reason of this subsection (4.1(d))  are  not
      required to be made immediately  shall  be carried forward and taken into
      account in any subsequent adjustment.

            (e)   Whenever the number of Warrant  Shares  purchasable  upon the
      exercise  of  this  Warrant is adjusted, as herein provided, the Exercise
      Price  payable  upon exercise  of  this  Warrant  shall  be  adjusted  by
      multiplying the Exercise  Price  immediately prior to the adjustment by a
      fraction, the numerator of which shall  be  the  number of Warrant Shares
      purchasable  upon the exercise of the Warrant immediately  prior  to  the
      adjustment, and  the  denominator of which shall be the number of Warrant
      Shares so purchasable immediately thereafter.

            (f)   Whenever  the  number  of  Warrant  Shares  purchasable  upon
      exercise of this Warrant  is  adjusted  as  herein  provided, the Company
      shall  cause to be promptly mailed to the Warrantholder  by  first  class
      mail, postage  prepaid, notice of the adjustment and a certificate of the
      chief financial  officer  of  the  Company  setting  forth  the number of
      Warrant  Shares purchasable upon the exercise of this Warrant  after  the
      adjustment,  a  brief statement of the facts requiring the adjustment and
      the computation by which the adjustment was made.

            (g)   For the  purpose of this Section 4.1, the term "Common Stock"
      shall mean (i) the class  of  stock designated as the Common Stock of the
      Company as of the Issue Date of  this Warrant, or (ii) any other class of
      stock  resulting  from successive changes  or  reclassifications  of  the
      Common Stock consisting solely of changes in par value, or from par value
      to no par value, or  from no par value to par value.  If, at any time, as
      a  result  of  an  adjustment  made  pursuant  to  this  Section  4,  the
      Warrantholder shall  become  entitled  to  purchase any securities of the
      Company other than Common Stock, then (y) if the Warrantholder's right to
      purchase is on any other basis than that available  to all holders of the
      Company's  Common  Stock,  the  Company  shall  obtain an opinion  of  an
      independent investment banking firm valuing the other  securities and (z)
      thereafter the number of other securities so purchasable upon exercise of
      this Warrant shall be subject to adjustment from time to time in a manner
      and on terms as nearly equivalent as practicable to the  provisions  with
      respect to the Warrant Shares contained in this Section 4.

            (h)   Upon  the  expiration  of  any  rights, options, warrants, or
      conversion privileges, if they shall have not  been exercised, the number
      of  Warrant  Shares  purchasable upon exercise of the  Warrants,  to  the
      extent the Warrants have  not  then  been  exercised,  shall,  upon  such
      expiration, be readjusted and shall thereafter be as they would have been
      had  they  been  originally  adjusted (or had the original adjustment not
      been required, as the case may  be) on the basis of (i) the fact that the
      only shares of Common Stock so issued were the shares of Common Stock, if
      any, actually issued or sold upon  the  exercise  of the rights, options,
      warrants, or conversion privileges, and (ii) the fact  that the shares of
      Common Stock, if any, were issued or sold for the consideration  actually
      received by the Company upon the exercise plus the consideration, if any,
      actually  received by the Company for the issuance, sale or grant of  all
      such rights,  options,  warrants, or conversion privileges whether or not
      exercised; provided, however,  that no readjustment shall have the effect
      of decreasing the number of Warrant  Shares  purchasable upon exercise of
      this  Warrant  by  an amount in excess of the amount  of  the  adjustment
      initially made in respect of the issuance, sale, or grant of such rights,
      options, warrants, or conversion rights.

      4.2.  No Adjustment for Dividends.  Except as provided in Section 4.1, no
adjustment in respect of any  dividends  or distributions out of earnings shall
be made during the term, or upon the exercise, of this Warrant.

      4.3.  No  Adjustment in Certain Cases.   No  adjustments  shall  be  made
pursuant to Section  4  hereof  in  connection  with the issuance of the Common
Stock  upon the conversion, if any, of the Company's  12%  Secured  Convertible
Promissory  Notes  or exercise of any warrants issued to the holders thereof in
connection therewith.   No  adjustments  shall  be  made  pursuant to Section 4
hereof  in  connection  with the grant or exercise of presently  authorized  or
outstanding options to purchase,  or  the  issuance  of  shares of Common Stock
under, the Company's director or employee benefit plan.

      4.4.  Preservation    of    Purchase    Rights   upon   Reclassification,
Consolidation, etc.  In case of any consolidation of the Company with or merger
of the Company into another corporation, or in  case  of any sale or conveyance
to another corporation of the property, assets, or business  of  the Company as
an  entirety  or  substantially  as  an  entirety, the Company or successor  or
purchasing  corporation,  as  the  case  may  be,   shall   execute   with  the
Warrantholder  an  agreement  that  the  Warrantholder  shall  have  the  right
thereafter  upon  payment  of the Exercise Price in effect immediately prior to
the action to purchase, upon  exercise  of this Warrant, the kind and amount of
shares and other securities and property  that it would have owned or have been
entitled to receive after the happening of  the consolidation, merger, sale, or
conveyance had this Warrant been exercised immediately prior to the action.  In
the event of a merger described in Section 368(a)(2)(E) of the Internal Revenue
Code of 1986, in which the Company is the surviving  corporation,  the right to
purchase  Shares under the Warrants shall terminate on the date of such  merger
and thereupon  the  Warrants  shall  become  null  and  void,  but  only if the
controlling  corporation  shall  agree  to  substitute  for  the  Warrants, its
warrants  which entitle the holder thereof to purchase upon their exercise  the
kind and amount of shares and other securities and property which it would have
owned or been  entitled  to receive had the Warrants been exercised immediately
prior to such merger.  Any  such  agreements  referred  to  in this Section 4.4
shall provide for adjustments, which shall be as nearly equivalent  as  may  be
practicable  to  the  adjustments  provided  for  in  Section  4  hereof.   The
provisions   of   this  Section  (4.4)  shall  similarly  apply  to  successive
consolidations, mergers, sales, or conveyances.

      4.5.  Par Value  of  Shares  of  Common  Stock.  Before taking any action
which  would  cause  an  adjustment effectively reducing  the  portion  of  the
Exercise Price allocable to  each  Share  below  the par value per share of the
Common Stock issuable upon exercise of the Warrants,  the Company will take any
corporate  action  which may, in the opinion of its counsel,  be  necessary  in
order  that  the  Company   may  validly  and  legally  issue  fully  paid  and
nonassessable Common Stock upon exercise of the Warrants.

      4.6.  Independent Public  Accountants.   The Company may retain a firm of
independent public accountants of recognized national  standing  (which  may be
any  such  firm  regularly  employed  by  the  Company) to make any computation
required under this Section 4, and a certificate  signed  by  the firm shall be
conclusive  evidence  of  the  correctness of any computation made  under  this
Section 4.

      4.7.  Treasury Stock.  For  purposes  of this Section 4, shares of Common
Stock  owned  or held at any relevant time by,  or  for  the  account  of,  the
Company, in its  treasury  or  otherwise, shall not be deemed to be outstanding
for purposes of the calculations and adjustments described.

      SECTION 5.  NOTICE TO HOLDERS

      If, prior to the expiration of this Warrant either by its terms or by its
exercise in full, any of the following shall occur:

            (a)   the Company shall  declare  a dividend or authorize any other
      distribution on its Common Stock; or

            (b)   the Company shall authorize the  granting to the shareholders
      of its Common Stock of rights to subscribe for or purchase any securities
      or any other similar rights; or

            (c)   any reclassification, reorganization or similar change of the
      Common Stock, or any consolidation or merger to  which  the  Company is a
      party, or the sale, lease, or exchange of any significant portion  of the
      assets of the Company; or

            (d)   the  voluntary  or  involuntary  dissolution,  liquidation or
      winding up of the Company; or

            (e)   any purchase, retirement or redemption by the Company  of its
      Common Stock;

then,  and in any such case, the Company shall deliver to the Holder or Holders
written  notice  thereof at least 30 days prior to the earliest applicable date
specified below with respect to which notice is to be given, which notice shall
state the following:

            (x)   the  date on which a record is to be taken for the purpose of
      the dividend, distribution or rights, or, if a record is not to be taken,
      the date as of which  the  holders  of Common Stock of record entitled to
      the dividend, distribution or rights will be determined;

            (y)   the  date  on  which  any  reclassification,  reorganization,
      consolidation, merger, sale, transfer, dissolution,  liquidation, winding
      up or purchase, retirement or redemption is expected to become effective,
      and the date, if any, as of which the Company's holders  of  Common Stock
      of record shall be entitled to exchange their Common Stock for securities
      or  other property deliverable upon the reclassification, reorganization,
      consolidation,  merger, sale, transfer, dissolution, liquidation, winding
      up, purchase, retirement or redemption; and

            (z)   if any  matters  referred to in the foregoing clauses (x) and
      (y) are to be voted upon by holders of Common Stock, the date as of which
      the shareholders entitled to vote will be determined.

      SECTION 6.  OFFICERS' CERTIFICATE

      Whenever the Exercise Price or  the  aggregate  number  of Warrant Shares
purchasable  pursuant  to  this  Warrant shall be adjusted as required  by  the
provisions  of  Section 4 above, the  Company  shall  promptly  file  with  its
Secretary or an Assistant  Secretary  at  its  principal  office,  and with its
transfer  agent,  if  any,  an  officers' certificate executed by the Company's
President and Secretary or Assistant  Secretary,  describing the adjustment and
setting forth, in reasonable detail, the facts requiring the adjustment and the
basis for and calculation of the adjustment in accordance  with  the provisions
of  this  Warrant.  Each such officers' certificate shall be made available  to
the Holder  or  Holders of this Warrant for inspection at all reasonable times,
and the Company,  after  each  adjustment, shall promptly deliver a copy of the
officers' certificate relating to  that  adjustment to the Holder or Holders of
this Warrant.  The officers' certificate described  in  this Section 6 shall be
deemed  to  be  conclusive  as  to the correctness of the adjustment  reflected
therein if, and only if, no Holder  of  this Warrant delivers written notice to
the  Company  of  an  objection to the adjustment  within  30  days  after  the
officers' certificate is  delivered  to  the Holder or Holders of this Warrant.
The  Company  will  make its books and records  available  for  inspection  and
copying  during normal  business  hours  by  the  Holder  so  as  to  permit  a
determination  as  to the correctness of the adjustment.  Failure to prepare or
provide  the  officers'  certificate  shall  not  modify  the  parties'  rights
hereunder.

      SECTION 7.  RESERVATION OF WARRANT SHARES

      There has been reserved, and the Company shall at all times keep reserved
so long as this Warrant remains outstanding, out of its authorized and unissued
Common Stock, a number of shares of Common Stock sufficient to support the full
exercise  hereof.   Every  transfer  agent  for  the  Common  Stock  and  other
securities  of  the  Company issuable upon the exercise of this Warrant will be
irrevocably authorized  and  directed  at  all  times  to  reserve  a number of
authorized shares and other securities as shall be requisite for such  purpose.
The Company will keep a copy of this Warrant on file with every transfer  agent
for  the  Common  Stock  and  other securities of the Company issuable upon the
exercise of this Warrant.  The  Company  will  supply every transfer agent with
duly executed stock and other certificates, as appropriate,  for  such  purpose
and  will provide or otherwise make available any cash which may be payable  as
provided in Section 11 hereof.

      SECTION 8.  RESTRICTIONS ON TRANSFER.

      The  Warrantholder  agrees  that  prior to making any disposition of this
Warrant or the Warrant Shares, the Warrantholder  shall  give written notice to
the Company describing briefly the manner in which any proposed  disposition is
to  be  made; and no disposition shall be made if the Company has notified  the
Warrantholder  that,  in  the opinion of counsel reasonably satisfactory to the
Warrantholder, a registration statement or other notification or post-effective
amendment thereto (hereinafter  collectively  a "Registration Statement") under
the  Act  is  required  with  respect to the disposition  and  no  Registration
Statement  has been filed by the  Company  with,  and  declared  effective,  if
necessary, by, the Commission.

      SECTION 9.  PAYMENT OF TAXES

      The Company will pay all documentary stamp taxes, if any, attributable to
the initial  issuance  of this Warrant or the shares of Common Stock comprising
the Warrant Shares; provided, however, the Company shall not be required to pay
any tax that may be payable  in  respect  of  any  transfer  of the Warrants or
Warrant Shares.

      SECTION 10. TRANSFER TO COMPLY WITH THE SECURITIES ACT OF 1933

      This  Warrant,  the  Warrant Shares, and any other securities  issued  or
issuable  upon  exercise  of  this   Warrant,  may  not  be  offered,  sold  or
transferred, in whole or in part, except in compliance with the Act, and except
in compliance with all applicable state securities laws.  The Company may cause
substantially the following legends, or  their  equivalents, to be set forth on
each certificate representing the Warrant Shares  and any other security issued
or issuable upon exercise of this Warrant, not theretofore  distributed  to the
public or sold to underwriters, as defined by the Act, for distribution to  the
public:

            (a)   "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
      BEEN  REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES
      LAWS AND  MAY  NOT BE SOLD, EXCHANGED, HYPOTHECATED OR TRANSFERRED IN ANY
      MANNER EXCEPT IN  COMPLIANCE  WITH  SUCH LAWS AND THE WARRANT PURSUANT TO
      WHICH THEY WERE ISSUED."

            (b)   Any legend required by applicable state securities laws.

      Any certificate issued at any time in  exchange  or  substitution for any
certificate  bearing  such  legends  (except  a  new  certificate  issued  upon
completion of a public distribution pursuant to a registration statement  under
the  Securities  Act  of  1933,  as  amended  (the  "Act"),  or  the securities
represented thereby) shall also bear the above legends unless, in  the  opinion
of the Company's counsel, the securities represented thereby need no longer  be
subject to such restrictions.

      SECTION 11. FRACTIONAL SHARES

      No  fractional  shares  or  scrip representing fractional shares shall be
issued upon the exercise of all or  any  part of this Warrant.  With respect to
any fraction of a share of any security called  for  upon  any exercise of this
Warrant, the Company shall pay to the Holder an amount in money  equal  to that
fraction multiplied by the Current Market Price of that share.

      SECTION 12. NO RIGHTS AS STOCKHOLDER; NOTICES TO WARRANTHOLDER

      Nothing  contained in this Warrant shall be construed as conferring  upon
the Warrantholder  or  its  transferees  any  rights  as  a  stockholder of the
Company,  including  the right to vote, receive dividends, consent  or  receive
notices as a stockholder  in  respect  to  any  meeting of stockholders for the
election  of  directors  of  the  Company  or any other  matter.   The  Company
covenants, however, that for so long as this  Warrant  is  at  least  partially
unexercised,  it  will  furnish  any Holder of this Warrant with copies of  all
reports and communications furnished  to  the  shareholders of the Company.  In
addition, if at any time prior to the expiration  of  the Warrants and prior to
their exercise, any one or more of the following events shall occur:

            (a)   any  action  which  would require an adjustment  pursuant  to
      Section 4.1 (except subsections 4.1(e) and 4.1(h) or 4.4; or

            (b)  a dissolution, liquidation,  or  winding  up  of  the  Company
      (other  than  in connection with a consolidation, merger, or sale of  its
      property, assets,  and  business  as  an  entirety or substantially as an
      entirety) shall be proposed:

then  the  Company  shall  give  notice  in  writing  of   the   event  to  the
Warrantholder, as provided in Section 15 hereof, at least 20 days  prior to the
date fixed as a record date or the date of closing the transfer books  for  the
determination   of   the   stockholders  entitled  to  any  relevant  dividend,
distribution, subscription rights  or  other rights or for the determination of
stockholders  entitled to vote on such proposed  dissolution,  liquidation,  or
winding up.  The  notice  shall  specify the record date or the date of closing
the transfer books, as the case may  be.   Failure to mail or receive notice or
any  defect therein shall not affect the validity  of  any  action  taken  with
respect thereto.

      SECTION 13. CHARGES DUE UPON EXERCISE

      The Company shall pay any and all issue or transfer taxes, including, but
not limited to, all federal or state taxes, that may be payable with respect to
the transfer  of  this  Warrant or the issue or delivery of Warrant Shares upon
the exercise of this Warrant.

      SECTION 14. WARRANT SHARES TO BE FULLY PAID

      The Company covenants  that  all  Warrant  Shares  that may be issued and
delivered  to a Holder of this Warrant upon the exercise of  this  Warrant  and
payment of the  Exercise  Price  will  be, upon such delivery, validly and duly
issued, fully paid and nonassessable.

      SECTION 15. NOTICES

      Any notice pursuant to this Warrant  by the Company or by a Warrantholder
or a holder of Shares shall be in writing and shall be deemed to have been duly
given if delivered or mailed by certified mail, return receipt requested:

      (i)   If  to a Warrantholder or a holder  of  Shares,  addressed  to  the
address set forth above.

      (ii)  If to  the  Company  addressed  to  it at 414 North Orleans Street,
Suite 510, Chicago, Illinois 60610, Attention:  President.

      Each party may from time to time change the  address  to which notices to
it are to be delivered or mailed hereunder by notice in accordance  herewith to
the other party.

      SECTION 16. MERGER OR CONSOLIDATION OF THE COMPANY

      The  Company  will  not  merge  or  consolidate  with  or  into any other
corporation  or  sell  all  or  substantially  all  of  its property to another
corporation,  unless  in connection therewith, the Company  complies  with  the
provisions of Section 4.4 hereof.

      SECTION 17. APPLICABLE LAW

      This Warrant shall  be  governed  by and construed in accordance with the
internal laws (as opposed to conflicts of  law  provisions)  of  the  State  of
Illinois, and courts located in Illinois shall have exclusive jurisdiction over
all disputes arising hereunder.

      SECTION 18. ACCEPTANCE OF TERMS; SUCCESSORS.

      By  its  acceptance  of  this  Warrant,  the Holder accepts and agrees to
comply  with all of the terms and provisions hereof.   All  the  covenants  and
provisions  of  this Warrant by or for the benefit of the Company or the Holder
shall bind and inure  to the benefit of their respective successors and assigns
hereunder.

      SECTION 19. MISCELLANEOUS PROVISIONS

      (a)   Subject to  the terms and conditions contained herein, this Warrant
shall be binding on the Company  and  its  successors  and  shall  inure to the
benefit  of the original Holder, its successors and assigns and all holders  of
Warrant Shares and the exercise of this Warrant in full shall not terminate the
provisions of this Warrant as it relates to holders of Warrant Shares.

      (b)   If  the  Company fails to perform any of its obligations hereunder,
it shall be liable to  the Holder for all damages, costs and expenses resulting
from the failure, including, but not limited to, all reasonable attorney's fees
and disbursements.

      (c)   This Warrant  cannot be changed or terminated or any performance or
condition waived in whole or  in  part except by an agreement in writing signed
by the party against whom enforcement  of  the change, termination or waiver is
sought; provided, however, that any provisions  hereof  may be amended, waived,
discharged  or  terminated  upon  the written consent of the  Company  and  the
Company.

      (d)   If any provision of this  Warrant  shall  be  held  to  be invalid,
illegal  or  unenforceable,  the  provision  shall be severed, enforced to  the
extent possible, or modified in such a way as  to  make it enforceable, and the
invalidity, illegality or unenforceability shall not  affect  the  remainder of
this Warrant.

      (e)   The  Company agrees to execute any further agreements, conveyances,
certificates and other  documents  as may be reasonably requested by the Holder
to effectuate the intent and provisions of this Warrant.

      (f)   Paragraph headings used  in  this  Warrant are for convenience only
and shall not be taken or construed to define or  limit  any  of  the  terms or
provisions  of  this Warrant.  Unless otherwise provided, or unless the context
shall otherwise require,  the  use of the singular shall include the plural and
the use of any gender shall include all genders.

      IN  WITNESS WHEREOF, the Company  has  caused  this  Warrant  to  be duly
executed and issued as of the Issue Date first set forth above.



                                    MOLECULAR DIAGNOSTICS, INC.


                                    By:    _______________________________
                                           Peter P. Gombrich
                                           Chief Executive Officer



                                 PURCHASE FORM

                                                         Dated  _________, ____


       The  undersigned  hereby irrevocably elects to exercise this Warrant  to
the extent of purchasing ______________ shares of the Common Stock of Molecular
Diagnostics, Inc. and tenders payment of the exercise price thereof.

                    INSTRUCTIONS FOR REGISTRATION OF STOCK


       Name  ___________________________________________________________
                    (Please type or print in block letters)



       Address__________________________________________________________

.................................................................................

                                ASSIGNMENT FORM

       FOR  VALUE  RECEIVED,   _________________,  hereby  sells,  assigns  and
transfers unto



       Name  ___________________________________________________________
                    (Please type or print in block letters)

       Address__________________________________________________________



the right to purchase ___________ shares Common Stock of Molecular Diagnostics,
Inc. (the "Company") represented  by  this  Warrant and does hereby irrevocably
constitute  and appoint the Company as its attorney-in-fact,  to  transfer  the
same on the books  of  the  Company  with  full  power  of  substitution in the
premises.

       Signature __________________________________  Dated ____________________

NOTICE:  THE SIGNATURE ON THIS ASSIGNMENT MUST CORRESPOND WITH  THE  NAME AS IT
APPEARS  UPON  THE FACE OF THIS WARRANT IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.

EX-4.38

                                                                   Exhibit 4.38

THIS  WARRANT  AND  THE  UNDERLYING  SHARES OF COMMON STOCK REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER  THE  SECURITIES  ACT  OF  1933 (THE
"ACT"),  AND  ARE  "RESTRICTED  SECURITIES"  AS THAT TERM IS DEFINED IN RULE144
UNDER THE ACT.  THE SECURITIES MAY NOT BE OFFERED  FOR  SALE, SOLD OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION  STATEMENT  UNDER  THE
ACT,  OR  PURSUANT  TO  AN  EXEMPTION  FROM  REGISTRATION  UNDER  THE  ACT, THE
AVAILABILITY  OF  WHICH  IS  TO BE ESTABLISHED TO THE SATISFACTION OF MOLECULAR
DIAGNOSTICS, INC.

                                                      Warrant No. 2002 PIPE - 2

                  WARRANT TO PURCHASE SHARES OF COMMON STOCK

                      WARRANT TO PURCHASE 200,000 SHARES
                  (SUBJECT TO ADJUSTMENT AS SET FORTH HEREIN)

                        EXERCISE PRICE $0.16 PER SHARE
                  (SUBJECT TO ADJUSTMENT AS SET FORTH HEREIN)

           VOID AFTER 3:00 P.M., MOUNTAIN TIME, ON NOVEMBER 1, 2007

      THIS CERTIFIES THAT Qwestar Resources, P.O. Box 3424, Show Low, AZ 85902,
is  entitled  to  purchase  from  Molecular   Diagnostics,   Inc.,  a  Delaware
corporation  (hereinafter  called  the  "Company")  with  its principal  office
located at 414 North Orleans Street, Suite 510, Chicago, Illinois 60610, at any
time after the Exercise Date (as defined below), but before  3:00 P.M., Central
Time,  on  the  Expiration Date (as defined below), at the Exercise  Price  (as
defined below), the  number  of  shares  (the "Shares") of the Company's common
stock, par value $0.001 per share (the "Common  Stock")  set  forth above.  The
number  of  Shares purchasable upon exercise of this Warrant and  the  Exercise
Price per Share  shall  be subject to adjustment from time to time as set forth
in Section 4 below.


      SECTION 1.    DEFINITIONS.

      The following terms  used  in  this  agreement  shall  have the following
meanings (unless otherwise expressly provided herein):

      The "Act."     The Securities Act of 1933, as amended.

      The "Commission."  The Securities and Exchange Commission.

      The "Company."  Molecular Diagnostics, Inc.

       "Common Stock."  The Company's Common Stock, par value $0.001 per share.

       "Current Market Price."  The Current Market Price shall be determined as
follows:

            (a)   if  the security at issue is listed on a national  securities
      exchange or admitted  to  unlisted trading privileges on such an exchange
      or quoted on either the National Market System or the Small Cap Market of
      the automated quotation service operated by The Nasdaq Stock Market, Inc.
      ("Nasdaq"), the current value  shall  be  the last reported sale price of
      that security on such exchange or system on the day for which the Current
      Market Price is to be determined or, if no such sale is made on such day,
      the average of the highest closing bid and  lowest  asked  price for such
      day on such exchange or system; or

            (b)   if  the  security  at  issue  is  not so listed or quoted  or
      admitted to unlisted trading privileges, the Current  Market  Value shall
      be  the average of the last reported highest bid and lowest asked  prices
      quoted  on  the  Nasdaq  Electronic Bulletin Board, or, if not so quoted,
      then by the National Quotation  Bureau,  Inc.  on  the  last business day
      prior to the day for which the Current Market Price is to  be determined;
      or

            (c)   if  the  security  at  issue  is  not so listed or quoted  or
      admitted to unlisted trading privileges and bid  and asked prices are not
      reported, the current market value shall be determined in such reasonable
      manner as may be prescribed from time to time by the  Board  of Directors
      of  the  Company,  subject to the objection and arbitration procedure  as
      described in Section 7 below.

      "Exercise Date."  November 1, 2002.

      "Exercise Price."    $0.16  per  Share,  as  modified  in accordance with
Section 4, below.

      "Expiration Date."  November 1, 2007.

      "Holder" or "Warrantholder."  The person to whom this Warrant  is  issued
and any valid transferee thereof pursuant to Section 3.1 below.

      "NASD."    The National Association of Securities Dealers, Inc.

      "Nasdaq."     The automated quotation system operated by the Nasdaq Stock
 Market, Inc.

      "Termination of  Business."     Any  sale,  lease  or exchange of all, or
 substantially  all,  of the Company's assets or business or  any  dissolution,
 liquidation or winding up of the Company.

      "Warrants."    The  warrants  issued in accordance with the terms of this
Agreement and any Warrants issued in  substitution  for  or replacement of such
warrants, including those evidenced by a certificate or certificates originally
issued or issued upon division, exchange, substitution or  transfer pursuant to
this Agreement.

      "Warrant Securities."The  Common  Stock purchasable upon  exercise  of  a
Warrant  including  the  Common  Stock underlying  unexercised  portions  of  a
Warrant.

      SECTION 2.    TERM OF WARRANTS; EXERCISE OF WARRANT.

      2.1.  Exercise of Warrant.   Subject  to the terms of this Agreement, the
Holder shall have the right, at any time beginning  on  the  Exercise  Date but
prior to 3:00 p.m., Central Time, on the Expiration Date, to purchase from  the
Company  up  to  the number of fully paid and nonassessable Shares to which the
Holder may at the time be entitled to purchase pursuant to this Agreement, upon
surrender to the Company,  at  its  principal  office,  of  the  Warrant  to be
exercised,  together with the purchase form on the reverse thereof, duly filled
in and signed,  and  upon  payment to the Company of the Exercise Price for the
number of Shares in respect  of  which such Warrants are then exercised, but in
no event for less than 100 Shares (unless fewer than an aggregate of 100 shares
are then purchasable under all outstanding Warrants held by a Holder).

      2.2.  Payment of Exercise Price.  Payment of the aggregate Exercise Price
shall be made in cash or by check, or any combination thereof.

      2.3.  Issuance  of Shares.  Upon  such  surrender  of  the  Warrants  and
payment of such Exercise  Price as aforesaid, the Company shall issue and cause
to be delivered with all reasonable  dispatch  to  or upon the written order of
the Holder and in such name or names as the Holder may designate, a certificate
or certificates for the number of full Shares so purchased upon the exercise of
the Warrant, together with cash, as provided in Section  13  hereof, in respect
of any fractional Shares otherwise issuable upon such surrender.

      2.4.  Status  as  Holder of Shares.  Upon receipt of the Warrant  by  the
company as described in Sections  2.1.  above, the Holder shall be deemed to be
the holder of record of the Shares issuable upon such exercise, notwithstanding
that the transfer books of the Company may  then be closed or that certificates
representing such Shares may not have been prepared  or  actually  delivered to
the Holder.





SECTION 3.  TRANSFERABILITY AND FORM OF WARRANT

      3.1.  Limitation  on  Transfer.  Any assignment or transfer of a  Warrant
shall be made by the presentation  and  surrender of the Warrant to the Company
at  its  principal  office  or  the  office of  its  transfer  agent,  if  any,
accompanied by a duly executed Assignment  Form.   Upon  the  presentation  and
surrender  of  these  items  to  the Company, the Company, at its sole expense,
shall  execute and deliver to the new  Holder  or  Holders  a  new  Warrant  or
Warrants,  in  the name of the new Holder or Holders as named in the Assignment
Form, and the Warrant presented or surrendered shall at that time be canceled.

      3.2.  Exchange  of Certificate.  Any Warrant may be exchanged for another
certificate or certificates  entitling  the  Warrantholder  to  purchase a like
aggregate number of Shares as the certificate or certificates surrendered  then
entitled  such  Warrantholder  to  purchase.   Any  Warrantholder  desiring  to
exchange a Warrant shall make such request in writing delivered to the Company,
and  shall  surrender,  properly  endorsed,  with  signatures  guaranteed,  the
certificate  evidencing the Warrant to be so exchanged.  Thereupon, the Company
shall execute  and  deliver  to the person entitled thereto a new Warrant as so
requested.

      3.3.  Mutilated, Lost, Stolen,  or  Destroyed  Certificate.   In case the
certificate  or certificates evidencing the Warrants shall be mutilated,  lost,
stolen or destroyed,  the  Company  shall, at the request of the Warrantholder,
issue and deliver in exchange and substitution for and upon cancellation of the
mutilated certificate or certificates,  or  in lieu of and substitution for the
certificate  or  certificates  lost,  stolen or destroyed,  a  new  Warrant  or
certificates of like tenor and representing  an  equivalent  right or interest,
but  only upon receipt of evidence satisfactory to the Company  of  such  loss,
theft  or  destruction  of  such Warrant and a bond of indemnity, if requested,
also satisfactory in form and  amount, at the applicant's cost.  Applicants for
such  substitute  Warrant  shall  also   comply   with  such  other  reasonable
regulations and pay such other reasonable charges as the Company may prescribe.

      SECTION 4.    ADJUSTMENT OF NUMBER OF SHARES.

      The number and kind of securities purchasable  upon  the  exercise of the
Warrants and the Warrant Price shall be subject to adjustment from time to time
upon the happening of certain events, as follows:

      4.1.  Adjustments.  The number of Shares purchasable upon the exercise of
the Warrants shall be subject to adjustments as follows:

            (a)  In case the Company shall (i) pay a dividend in  Common  Stock
      or  make  a  distribution  to  its  stockholders  in  Common  Stock, (ii)
      subdivide  its  outstanding  Common  Stock, (iii) combine its outstanding
      Common Stock into a smaller number of  shares  of  Common  Stock, or (iv)
      issue  by  classification  of  its Common Stock other securities  of  the
      Company, the number of Shares purchasable  upon  exercise of the Warrants
      immediately  prior  thereto shall be adjusted so that  the  Warrantholder
      shall be entitled to  receive  the  kind  and  number  of Shares or other
      securities  of the Company which it would have owned or would  have  been
      entitled to receive  immediately after the happening of any of the events
      described above, had the Warrants been exercised immediately prior to the
      happening of such event  or  any  record  date with respect thereto.  Any
      adjustment made pursuant to this subsection 4.1(a) shall become effective
      immediately after the effective date of such  event  retroactive  to  the
      record date, if any, for such event.

            (b)   In case the Company shall issue rights, options, warrants, or
      convertible securities  to all or substantially all holders of its Common
      Stock, without any charge  to  such  holders, entitling them to subscribe
      for or purchase Common Stock at a price  per  share which is lower at the
      record  date  mentioned  below than the then Current  Market  Price,  the
      number of Shares thereafter purchasable upon the exercise of each Warrant
      shall  be determined by multiplying  the  number  of  Shares  theretofore
      purchasable  upon  exercise  of  the Warrants by a fraction, of which the
      numerator  shall  be the number of shares  of  Common  Stock  outstanding
      immediately prior to  the  issuance  of such rights, options, warrants or
      convertible securities plus the number  of  additional  shares  of Common
      Stock  offered for subscription or purchase, and of which the denominator
      shall be  the  number  of  shares of Common Stock outstanding immediately
      prior to the issuance of such  rights,  options, warrants, or convertible
      securities plus the number of shares which  the  aggregate offering price
      of  the  total number of shares offered would purchase  at  such  Current
      Market Price.   Such  adjustment  shall  be  made  whenever  such rights,
      options, warrants, or convertible securities are issued, and shall become
      effective  immediately  and  retroactively  to  the  record date for  the
      determination of stockholders entitled to receive such  rights,  options,
      warrants, or convertible securities.

            (c)   In  case the Company shall distribute to all or substantially
      all holders of its  Common  Stock evidences of its indebtedness or assets
      (excluding cash dividends or  distributions  out  of earnings) or rights,
      options,  warrants,  or convertible securities containing  the  right  to
      subscribe for or purchase  Common  Stock  (excluding those referred to in
      subsection  4.1(b)  above),  then  in  each case  the  number  of  Shares
      thereafter  purchasable  upon  the exercise  of  the  Warrants  shall  be
      determined by multiplying the number  of  Shares  theretofore purchasable
      upon exercise of the Warrants by a fraction, of which the numerator shall
      be the then Current Market Price on the date of such distribution, and of
      which the denominator shall be such Current Market  Price  on  such  date
      minus  the  then  fair  value (determined as provided in subparagraph (e)
      below  of the portion of the  assets  or  evidences  of  indebtedness  so
      distributed  or  of  such  subscription  rights,  options,  warrants,  or
      convertible securities applicable to one share.  Such adjustment shall be
      made whenever any such distribution is made and shall become effective on
      the  date  of  distribution  retroactive  to  the  record  date  for  the
      determination of stockholders entitled to receive such distribution.

            (d)   No adjustment in the number of Shares purchasable pursuant to
      the Warrants  shall  be  required unless such adjustment would require an
      increase or decrease of at least one percent in the number of Shares then
      purchasable upon the exercise of the Warrants or, if the Warrants are not
      then exercisable, the number  of  Shares purchasable upon the exercise of
      the  Warrants  on  the first date thereafter  that  the  Warrants  become
      exercisable; provided,  however,  that any adjustments which by reason of
      this subsection (4.1(d)) are not required to be made immediately shall be
      carried forward and taken into account in any subsequent adjustment.

            (e)  Whenever the number of Shares purchasable upon the exercise of
      the Warrant is adjusted, as herein  provided,  the Exercise Price payable
      upon  exercise  of  the  Warrant  shall be adjusted by  multiplying  such
      Exercise Price immediately prior to  such  adjustment  by  a fraction, of
      which  the  numerator  shall  be the number of Warrant Shares purchasable
      upon the exercise of the Warrant  immediately  prior  to such adjustment,
      and  of  which the denominator shall be the number of Warrant  Shares  so
      purchasable immediately thereafter.

            (f)  Whenever the number of Shares purchasable upon exercise of the
      Warrants is  adjusted  as  herein provided, the Company shall cause to be
      promptly  mailed  to  the Warrantholder  by  first  class  mail,  postage
      prepaid,  notice of such  adjustment  and  a  certificate  of  the  chief
      financial officer  of  the  Company  setting  forth  the number of Shares
      purchasable  upon the exercise of the Warrants after such  adjustment,  a
      brief  statement   of   the  facts  requiring  such  adjustment  and  the
      computation by which such adjustment was made.

            (g)  For the purpose  of  this Section 4.1, the term "Common Stock"
      shall mean (i) the class of stock  designated  as the Common Stock of the
      Company at the date of this Agreement, or (ii) any  other  class of stock
      resulting  from  successive  changes or reclassifications of such  Common
      Stock consisting solely of changes  in par value, or from par value to no
      par value, or from no par value to par  value.   In the event that at any
      time, as a result of an adjustment made pursuant to  this  Section 4, the
      Warrantholder  shall  become entitled to purchase any securities  of  the
      Company other than Common  Stock,  (y)  if  the  Warrantholder's right to
      purchase is on any other basis than that available  to all holders of the
      Company's  Common  Stock,  the  Company  shall  obtain an opinion  of  an
      independent investment banking firm valuing such other securities and (z)
      thereafter  the  number  of  such  other securities so  purchasable  upon
      exercise of the Warrants shall be subject to adjustment from time to time
      in  a  manner and on terms as nearly equivalent  as  practicable  to  the
      provisions with respect to the Shares contained in this Section 4.

            (h)   Upon  the  expiration  of  any  rights, options, warrants, or
      conversion privileges, if such shall have not  been exercised, the number
      of Shares purchasable upon exercise of the Warrants,  to  the  extent the
      Warrants  have  not then been exercised, shall, upon such expiration,  be
      readjusted and shall  thereafter be such as they would have been had they
      been  originally adjusted  (or  had  the  original  adjustment  not  been
      required,  as the case may be) on the basis of (i) the fact that the only
      shares of Common Stock so issued were the shares of Common Stock, if any,
      actually issued  or  sold  upon  the  exercise  of  such rights, options,
      warrants, or conversion privileges, and (ii) the fact that such shares of
      Common Stock, if any, were issued or sold for the consideration  actually
      received  by  the  Company upon such exercise plus the consideration,  if
      any, actually received  by the Company for the issuance, sale or grant of
      all such rights, options,  warrants,  or conversion privileges whether or
      not exercised; provided, however, that  no  such  readjustment shall have
      the effect of decreasing the number of Shares purchasable  upon  exercise
      of  the  Warrants  by an amount in excess of the amount of the adjustment
      initially made in respect of the issuance, sale, or grant of such rights,
      options, warrants, or conversion rights.

      4.2.  No Adjustment for Dividends.  Except as provided in Section 4.1, no
adjustment in respect of any  dividends  or distributions out of earnings shall
be made during the term of the Warrants or upon the exercise of the Warrants.

      4.3.  No  Adjustment in Certain Cases.   No  adjustments  shall  be  made
pursuant to Section  4  hereof  in  connection  with the issuance of the Common
Stock upon exercise of the Warrants.  No adjustments  shall be made pursuant to
Section 4 hereof in connection with grant or exercise of  presently  authorized
or  outstanding options to purchase, or the issuance of shares of Common  Stock
under the Company's director or employee benefit plan.

      4.4.  Preservation    of    Purchase    Rights   upon   Reclassification,
Consolidation, etc.  In case of any consolidation of the Company with or merger
of the Company into another corporation, or in  case  of any sale or conveyance
to another corporation of the property, assets, or business  of  the Company as
an  entirety or substantially as an entirety, the Company or such successor  or
purchasing   corporation,   as   the  case  may  be,  shall  execute  with  the
Warrantholder  an  agreement  that  the  Warrantholder  shall  have  the  right
thereafter upon payment of the Exercise  Price  in  effect immediately prior to
such action to purchase, upon exercise of the Warrants,  the kind and amount of
shares and other securities and property which it would have owned or have been
entitled to receive after the happening of such consolidation, merger, sale, or
conveyance had the Warrants been exercised immediately prior  to  such  action.
In  the  event  of  a  merger described in Section 368(a)(2)(E) of the Internal
Revenue Code of 1986, in  which  the  Company is the surviving corporation, the
right to purchase Shares under the Warrants shall terminate on the date of such
merger and thereupon the Warrants shall  become  null and void, but only if the
controlling  corporation  shall  agree  to substitute  for  the  Warrants,  its
warrants which entitle the holder thereof  to  purchase upon their exercise the
kind and amount of shares and other securities and property which it would have
owned or been entitled to receive had the Warrants  been  exercised immediately
prior  to  such  merger.  Any such agreements referred to in this  Section  4.4
shall provide for  adjustments,  which  shall be as nearly equivalent as may be
practicable  to  the  adjustments  provided  for  in  Section  4  hereof.   The
provisions  of  this  Section  (4.4)  shall  similarly   apply   to  successive
consolidations, mergers, sales, or conveyances.

      4.5.  Par  Value  of  Shares  of Common Stock.  Before taking any  action
which  would  cause  an adjustment effectively  reducing  the  portion  of  the
Exercise Price allocable  to  each  Share  below the par value per share of the
Common Stock issuable upon exercise of the Warrants,  the Company will take any
corporate  action  which may, in the opinion of its counsel,  be  necessary  in
order  that  the  Company   may  validly  and  legally  issue  fully  paid  and
nonassessable Common Stock upon exercise of the Warrants.

      4.6.  Independent Public  Accountants.   The Company may retain a firm of
independent public accountants of recognized national  standing  (which  may be
any  such  firm  regularly  employed  by  the  Company) to make any computation
required under this Section 4, and a certificate  signed  by such firm shall be
conclusive  evidence  of  the  correctness of any computation made  under  this
Section 4.

      4.7.  Statement on Warrants.   Irrespective  of  any  adjustments  in the
number   of  securities  issuable  upon  exercise  of  the  Warrants,  Warrants
theretofore  or  thereafter  issued  may continue to express the same number of
securities as are stated in the similar Warrants initially issuable pursuant to
this Agreement.  However, the Company  may,  at any time in its sole discretion
(which shall be conclusive), make any change in the form of Warrant that it may
deem  appropriate  and  that does not affect the  substance  thereof;  and  any
Warrant thereafter issued,  whether  upon  registration  of  transfer of, or in
exchange  or substitution for, an outstanding Warrant, may be in  the  form  so
changed.

      4.8.    Treasury Stock.  For purposes of this Section 4, shares of Common
Stock owned  or  held  at  any  relevant  time  by,  or for the account of, the
Company, in its treasury or otherwise, shall not be deemed  to  be  outstanding
for purposes of the calculations and adjustments described.


      SECTION 5.    NOTICE TO HOLDERS.

      If, prior to the expiration of this Warrant either by its terms or by its
exercise in full, any of the following shall occur:

      (a)   the  Company  shall  declare  a  dividend  or  authorize  any other
distribution on its Common Stock; or

      (b)   the Company shall authorize the granting to the shareholders of its
Common Stock of rights to subscribe for or purchase any securities or any other
similar rights; or

      (c)   any  reclassification,  reorganization  or  similar  change  of the
Common  Stock,  or any consolidation or merger to which the Company is a party,
or the sale, lease, or exchange of any significant portion of the assets of the
Company; or

      (d)   the voluntary or involuntary dissolution, liquidation or winding up
of the Company; or

      (e)   any purchase, retirement or redemption by the Company of its Common
Stock;

then, and in any  such case, the Company shall deliver to the Holder or Holders
written notice thereof  at  least 30 days prior to the earliest applicable date
specified below with respect to which notice is to be given, which notice shall
state the following:

      (x)   the date on which  a  record is to be taken for the purpose of such
dividend, distribution or rights, or,  if a record is not to be taken, the date
as of which the shareholders of Common Stock  of  record to be entitled to such
dividend, distribution or rights are to be determined;

      (y)   the   date   on   which   such  reclassification,   reorganization,
consolidation, merger, sale, transfer,  dissolution, liquidation, winding up or
purchase, retirement or redemption is expected  to  become  effective,  and the
date,  if any, as of which the Company's shareholders of Common Stock of record
shall be  entitled  to  exchange  their  Common  Stock  for securities or other
property deliverable upon such reclassification, reorganization, consolidation,
merger,  sale,  transfer,  dissolution,  liquidation,  winding   up,  purchase,
retirement or redemption; and

      (z)   if any matters referred to in the foregoing clauses (x) and (y) are
to  be  voted upon by shareholders of Common Stock, the date as of which  those
shareholders to be entitled to vote are to be determined.


      SECTION 6.    OFFICERS' CERTIFICATE.

      Whenever the Exercise Price or the aggregate number of Warrant Securities
purchasable  pursuant  to  this  Warrant  shall  be adjusted as required by the
provisions  of  Section  4  above,  the Company shall promptly  file  with  its
Secretary or an Assistant Secretary at  its  principal  office,  and  with  its
transfer  agent,  if  any,  an  officers' certificate executed by the Company's
President and Secretary or Assistant  Secretary,  describing the adjustment and
setting forth, in reasonable detail, the facts requiring  such  adjustment  and
the  basis  for  and  calculation  of  such  adjustment  in accordance with the
provisions  of  this Warrant.  Each such officers' certificate  shall  be  made
available to the  Holder  or  Holders  of  this  Warrant  for inspection at all
reasonable times, and the Company, after each such adjustment,  shall  promptly
deliver a copy of the officers' certificate relating to that adjustment  to the
Holder or Holders of this Warrant.  The officers' certificate described in this
Section  7  shall  be  deemed  to  be  conclusive  as to the correctness of the
adjustment  reflected  therein  if,  and  only if, no Holder  of  this  Warrant
delivers written notice to the Company of an objection to the adjustment within
30 days after the officers' certificate is  delivered  to the Holder or Holders
of  this  Warrant.  The Company will make its books and records  available  for
inspection  and  copying  during  normal  business hours by the Holder so as to
permit a determination as to the correctness  of  the  adjustment.   If written
notice of an objection is delivered by a Holder to the Company and the  parties
cannot  reconcile  the  dispute,  the  Holder  and the Company shall submit the
dispute to arbitration pursuant to the provisions of Section 20 below.  Failure
to prepare or provide the officers' certificate  shall  not modify the parties'
rights hereunder.





      SECTION 7.    RESERVATION OF WARRANT SECURITIES.

      There has been reserved, and the Company shall at all times keep reserved
so long as the Warrants remain outstanding, out of its authorized  and unissued
Common  Stock,  such  number  of shares of Common Stock as shall be subject  to
purchase under the Warrants.  Every  transfer  agent  for  the Common Stock and
other securities of the Company issuable upon the exercise of the Warrants will
be irrevocably authorized and directed at all times to reserve  such  number of
authorized  shares and other securities as shall be requisite for such purpose.
The Company will  keep  a  copy  of  this Agreement on file with every transfer
agent for the Common Stock and other securities  of  the  Company issuable upon
the  exercise  of  the Warrants.  The Company will supply every  such  transfer
agent with duly executed stock and other certificates, as appropriate, for such
purpose and will provide  or  otherwise  make  available  any cash which may be
payable as provided in Section 12 hereof.

      SECTION 8.    RESTRICTIONS ON TRANSFER; REGISTRATION RIGHTS.

      8.1.  Restrictions on Transfer.  The Warrantholder agrees  that  prior to
making any disposition of the Warrants or the Shares,  the Warrantholder  shall
give  written  notice to the Company describing briefly the manner in which any
such proposed disposition  is to be made; and no such disposition shall be made
if the Company has notified  the  Warrantholder  that in the opinion of counsel
reasonably satisfactory to the Warrantholder a registration  statement or other
notification  or post-effective amendment thereto (hereinafter  collectively  a
"Registration Statement")  under  the  Act  is  required  with  respect to such
disposition  and no such Registration Statement has been filed by  the  Company
with, and declared effective, if necessary, by, the Commission.

      8.2.  Piggy-Back  Registration  Right.   If  at  any  time  prior  to the
Expiration  Date the Company files a registration statement with the Commission
pursuant to the Act, or pursuant to any other act passed after the date of this
Agreement, which  filing  provides for the sale of securities by the Company to
the public, or files a Regulation  A  offering  statement  under  the  Act, the
Company shall offer to the Holder or Holders of this Warrant and the holders of
any  Warrant  Securities  the  opportunity  to register or qualify the  Warrant
Securities at the Company's sole expense, regardless  of  whether the Holder or
Holders of this Warrant or the holders of Warrant Securities  or  both may have
previously  availed  themselves of any of the registration rights described  in
this Section 8; provided, however, that in the case of a Regulation A offering,
the opportunity to qualify  shall  be  limited  to  the amount of the available
exemption after taking into account the securities that  the  Company wishes to
qualify.  Notwithstanding anything to the contrary, this Section  8.2 shall not
be  applicable  to  a  registration  statement  registering  securities  issued
pursuant to an employee benefit plan or as to a transaction subject to Rule 145
promulgated  under the Act or which a form S-4 registration statement could  be
used; nor shall  it  be  applicable to the first underwritten registered public
offering of the Company.

      The Company shall deliver written notice to the Holder or Holders of this
Warrant and to any holders of the Warrant Securities of its intention to file a
registration statement or  Regulation  A  offering  statement  under the Act at
least  60 days prior to the filing of such registration statement  or  offering
statement,  and  the  Holder or Holders and holders of Warrant Securities shall
have 30 days thereafter  to  request  in  writing  that the Company register or
qualify  the  Warrant  Securities  or  the  Warrant Securities  underlying  the
unexercised portion of this Warrant in accordance  with this Section 8.2.  Upon
the delivery of such a written request within the specified  time,  the Company
shall  be  obligated  to include in its contemplated registration statement  or
offering statement all  information  necessary  or  advisable  to  register  or
qualify the Warrant Securities or Warrant Securities underlying the unexercised
portion  of  this  Warrant  for a public offering, if the Company does file the
contemplated registration statement  or  offering statement; provided, however,
that neither the delivery of the notice by  the  Company  nor the delivery of a
request  by  a  Holder or by a holder of Warrant Securities shall  in  any  way
obligate the Company  to  file a registration statement or offering statement.
Furthermore, notwithstanding the filing of a registration statement or offering
statement, the Company may,  at  any  time prior to the effective date thereof,
determine not to offer the securities to  which  the  registration statement or
offering  statement  relates,  other than the Warrant, Warrant  Securities  and
Warrant  Securities  underlying  the   unexercised  portion  of  this  Warrant.
Notwithstanding the foregoing, if, as a  qualification  of  any offering in any
state or jurisdiction in which the Company (by vote of its Board  of Directors)
or any underwriter determines in good faith that it wishes to offer  securities
registered  in the offering, it is required that offering expenses be allocated
in a manner different  from  that  provided  above,  then the offering expenses
shall  be allocated in whatever manner is most nearly in  compliance  with  the
provisions set out above.

      If  the  registration  for  which  the  Company  gives  notice  is  for a
registered  public  offering  involving  an  underwriting, the Company shall so
advise as part of the written notice given pursuant  to  this Section.  In such
event,  the  right  of  any Warrantholder or holder of Shares  to  registration
pursuant  to  this  Section   8.2  shall  be  conditioned  upon  such  holder's
participation  in  such underwriting,  and  the  inclusion  of  Shares  in  the
underwriting shall be  limited  to  the  extent  provided  herein.  All holders
proposing to distribute their Shares through such underwriting  shall (together
with the Company and the other holders distributing their Shares  through  such
underwriting)  enter  into an underwriting agreement in customary form with the
managing  underwriter  selected   for   such   underwriting   by  the  Company.
Notwithstanding   any   other  provision  of  this  Section,  if  the  managing
underwriter determines that  marketing  factors  require  a  limitation  of the
number  of shares to be underwritten, such underwriter may limit the amount  of
securities  to  be included in the registration and underwriting by the holders
of Company securities exercising "piggyback" registration rights (including the
Warrantholder and  each  holder  of Warrants and Shares).  The Company shall so
advise all such holders, and the number  of  shares of such securities that may
be included in the registration and underwriting  shall  be allocated among all
of  such holders, in proportion, as nearly as practicable,  to  the  respective
amounts  of  securities  requested  to be included in such registration held by
such  holders  at  the  time of filing the  registration  statement,  provided,
however,  that  no  security   holder   other  than  one  exercising  a  demand
registration right shall have superior rights  with  respect  to inclusion in a
registration  than those of the Warrantholder and each holder of  Warrants  and
Shares  and  if any  party  is  granted  such  superior  rights  hereafter  the
Warrantholder  and  each  holder  of  Warrants and Shares shall be deemed to be
automatically  granted similar rights.   The  Company  shall  advise  all  such
holders of any such  limitations  and  of  the number or securities that may be
included in the registration.  Any securities  excluded  or withdrawn from such
underwriting shall not be transferred prior to one hundred  twenty  (120)  days
after  the  effective  date  of the registration statement relating thereto, or
such shorter period of time as the underwriters may require.

      The Company shall comply  with  the  requirements of this Section 8.2 and
the related requirements of Section 8.5 at its own expense.  That expense shall
include,  but  not  be  limited  to, legal, accounting,  consulting,  printing,
federal and state filing fees, NASD  fees,  out-of-pocket  expenses incurred by
counsel, accountants and consultants retained by the Company, and miscellaneous
expenses  directly related to the registration statement or offering  statement
and the offering.   However,  this expense shall not include the portion of any
underwriting commissions, transfer  taxes and the underwriter's accountable and
nonaccountable expense allowances attributable  to  the  offer  and sale of the
Warrant,   Warrant  Securities  and  the  Warrant  Securities  underlying   the
unexercised  portion  of  this Warrant, all of which expenses shall be borne by
the Holder or Holders of this Warrant and the holders of the Warrant Securities
registered or qualified.

      8.3.  Inclusion  of  Information.      In  the  event  that  the  Company
registers or qualifies the Warrant Securities  pursuant  to  Section 8.2 above,
the  Company shall include in the registration statement or qualification,  and
the prospectus  included  therein,  all  information and materials necessary or
advisable  to comply with the applicable statutes  and  regulations  so  as  to
permit the public  sale  of  the  Warrant  Securities or the Warrant Securities
underlying the unexercised portion of this Warrant.   As  used  in Section 8.2,
reference to the Company's securities shall include, but not be limited to, any
class  or  type  of  the Company's securities or the securities of any  of  the
Company's subsidiaries or affiliates.

      8.4.  Condition  of  Company's  Obligations.   As  to  each  registration
statement  or offering statement, the Company's obligations contained  in  this
Section 8 shall  be conditioned upon a timely receipt by the Company in writing
of the following:

            (a)  Information  as  to  the  terms  of  the  contemplated  public
      offering furnished by and on behalf of each Holder or holder intending to
      make   a  public  distribution  of  the  Warrant  Securities  or  Warrant
      Securities underlying the unexercised portion of the Warrant; and

            (b)   Such  other information as the Company may reasonably require
      from such Holders or  holders,  or  any  underwriter for any of them, for
      inclusion in the registration statement or offering statement.

      8.5.  Additional Requirements.  In each instance  in  which  the  Company
shall  take  any  action  to  register or qualify the Warrant Securities or the
Warrant Securities underlying the  unexercised portion of this Warrant, if any,
pursuant to this Section 8, the Company shall do the following:

            (a)  supply to the Holders  of  the  Warrant  and  the  holders  of
      Warrant  Securities  whose  Warrant  Securities  are  being registered or
      qualified, two (2) manually signed copies of each registration  statement
      or  offering  statement,  and  all  amendments  thereto, and a reasonable
      number  of  copies  of  the  preliminary,  final or other  prospectus  or
      offering circular, all prepared in conformity  with  the  requirements of
      the  Act and the rules and regulations promulgated thereunder,  and  such
      other documents as the Holders shall reasonably request;

            (b)   cooperate  with  respect  to  (i)  all necessary or advisable
      actions relating to the preparation and the filing  of  any  registration
      statements  or  offering statements, and all amendments thereto,  arising
      from the provisions  of  this  Section  8, (ii) all reasonable efforts to
      establish  an exemption from the provisions  of  the  Act  or  any  other
      federal or state  securities  statutes,  (iii) all necessary or advisable
      actions to register or qualify the public  offering  at issue pursuant to
      federal securities statutes and the state "blue sky" securities  statutes
      of  each  jurisdiction  that  the  Holders  of  the Warrant or holders of
      Warrant Securities shall reasonably request, and (iv) all other necessary
      or advisable actions to enable the Holders of the  Warrant  Securities to
      complete  the  contemplated  disposition  of  their  securities  in  each
      reasonably requested jurisdiction; and

            (c)   keep  all  registration statements or offering statements  to
      which this Section 8 applies, and all amendments thereto, effective under
      the Act for a period of  at  least 8 months after their initial effective
      date and cooperate with respect  to all necessary or advisable actions to
      permit the completion of the public  sale  or  other  disposition  of the
      securities subject to a registration statement or offering statement.

      8.6.  Reciprocal Indemnification.  In each instance in which pursuant  to
this  Section  8  the  Company shall take any action to register or qualify the
Securities or the Warrant Securities underlying the unexercised portion of this
Warrant, prior to the effective  date of any registration statement or offering
statement,  the  Company and each Holder  or  holder  of  Warrants  or  Warrant
Securities  being  registered   or   qualified   shall  enter  into  reciprocal
indemnification  agreements,  in  the  form  customarily   used   by  reputable
investment  bankers with respect to public offerings of securities,  containing
substantially   the   same   terms   as   described  in  Section  11  .   These
indemnification agreements also shall contain  an  agreement  by  the Holder or
shareholder  at issue to indemnify and hold harmless the Company, its  officers
and directors  from  and  against  any  and  all  losses,  claims,  damages and
liabilities, including, but not limited to, all expenses reasonably incurred in
investigating,  preparing,  defending or settling any claim, directly resulting
from any untrue statements of  material facts, or omissions to state a material
fact necessary to make a statement  not misleading, contained in a registration
statement or offering statement to which  this  Section 8 applies, if, and only
if,  the  untrue  statement  or  omission  directly resulted  from  information
provided in writing to the Company by the indemnifying  Holder  or  shareholder
expressly for use in the registration statement or offering statement at issue.

      8.7.    Survival.  The Company's obligations described in this  Section 8
shall  continue in full force and effect regardless of the exercise, surrender,
cancellation or expiration of this Warrant.

      SECTION 9.    PAYMENT OF TAXES.

      The  Company  will pay all documentary  stamp taxes, if any, attributable
to the initial issuance  of  the  Warrants  or  the  securities  comprising the
Shares;  provided,  however, the Company shall not be required to pay  any  tax
which may be payable  in  respect  of  any  transfer  of  the  Warrants  or the
securities comprising the Shares.

      SECTION 10.   INDEMNIFICATION AND CONTRIBUTION

      10.1. Indemnification  by  Company.   In  the  event of the filing of any
Registration Statement with respect to the Warrant Shares pursuant to Section 8
hereof, the Company agrees to indemnify and hold harmless  the Warrantholder or
any  holder  of  Warrant  Shares  and  each  person,  if any, who controls  the
Warrantholder or any holder of Warrant Shares within the  meaning  of  the Act,
against  any  and all loss, claim, damage or liability, joint or several (which
shall, for all  purposes  of this Agreement include, but not be limited to, all
costs of defense and investigation  and  all  attorneys'  fees),  to which such
Warrantholder or any holder of Warrant Shares may become subject, under the Act
or otherwise, insofar as such loss, claim, damage, or liability (or action with
respect  thereto)  arises  out of or is based upon (a) any untrue statement  or
alleged untrue statement of  a  material  fact  contained  in  the Registration
Statement, any Preliminary Prospectus, the Effective Prospectus,  or  the Final
Prospectus  or  any  amendment  or  supplement thereto; or (b) the omission  or
alleged  omission  to  state  in the Registration  Statement,  any  Preliminary
Prospectus, the Effective Prospectus  or  the Final Prospectus or any amendment
or  supplement  thereto  a  material fact required  to  be  stated  therein  or
necessary  to make the statements  therein  not  misleading;  except  that  the
Company shall  not  be  liable  in any such case to the extent, but only to the
extent, that any such loss, claim,  damage,  or  liability  arises out of or is
based  upon  an  untrue  statement or alleged untrue statement or  omission  or
alleged  omission  made  in  reliance  upon  and  in  conformity  with  written
information furnished to the Company  by  such  Warrantholder  or the holder of
such Warrant Shares specifically for use in the preparation of the Registration
Statement, any Preliminary Prospectus, the Effective Prospectus  and  the Final
Prospectus or any amendment or supplement thereto.  This indemnity will  be  in
addition to any liability which the Company may otherwise have.

     10.2.Indemnification   by  Warrantholders.   The  Warrantholders  and  the
holders of Warrant Shares agree  that  they,  severally, but not jointly, shall
indemnify  and  hold harmless the Company, each other  person  referred  to  in
subparts (1), (2)  and  (3)  of  Section  11(a)  of  the  Act in respect of the
Registration Statement and each person, if any, who controls the Company within
the meaning of the Act, against any and all loss, claim, damage  or  liability,
joint or several (which shall, for all purposes of this Agreement include,  but
not  be  limited  to, all costs of defense and investigation and all attorneys'
fees), to which the  Company  may  become  subject  under the Act or otherwise,
insofar as such loss, claim, damage, liability (or action  in  respect thereto)
arises  out  of  or  are based upon (a) any untrue statement or alleged  untrue
statement of a material  fact  contained  in  the  Registration  Statement, any
Preliminary Prospectus, the Effective Prospectus or the Final Prospectus or any
amendment  or  supplement  thereto; or (b) the omission or alleged omission  to
state in the Registration Statement,  any Preliminary Prospectus, the Effective
Prospectus or the Final Prospectus or any  amendment  or  supplement  thereto a
material fact required to be stated therein or necessary to make the statements
therein not misleading; except that such indemnification shall be available  in
each  such  case  to  the  extent,  but  only  to  the extent, that such untrue
statement or alleged untrue statement  or omission or alleged omission was made
in  reliance  upon  information  and  in  conformity with  written  information
furnished to the Company by the Warrantholder  or  the holder of Warrant Shares
specifically for use in the preparation thereof.   This  indemnity  will  be in
addition  to any liability which such Warrantholder or holder of Warrant Shares
may otherwise have.

     10.3.Right  to  Provide Defense.  Promptly after receipt by an indemnified
party under Section 10.1 or 10.2 above of written notice of the commencement of
any action, the indemnified party shall, if a claim in respect thereof is to be
made  against  the  indemnifying   party   under   such  section,   notify  the
indemnifying party in writing of the claim or the commencement  of that action;
the  failure  to  notify  the  indemnifying party shall not relieve it  of  any
liability which it may have to an  indemnified party, except to the extent that
the indemnifying party did not otherwise  have knowledge of the commencement of
the action and the indemnifying party's ability  to  defend  against the action
was   prejudiced  by  such  failure.   Such  failure  shall  not  relieve   the
indemnifying  party  from  any  other  liability  which  it  may  have  to  the
indemnified  party.   If  any  such claim or action shall be brought against an
indemnified party, and it shall  notify  the  indemnifying  party  thereof, the
indemnifying party shall be entitled to participate therein and, to  the extent
that  it wishes, jointly with any other similarly notified indemnifying  party,
to assume  the  defense  thereof  with  counsel  reasonably satisfactory to the
indemnified party.  After notice from the indemnifying party to the indemnified
party  of  its  election to assume the defense of such  claim  or  action,  the
indemnifying party  shall  not  be  liable  to the indemnified party under such
section  for  any  legal  or  other  expenses  subsequently   incurred  by  the
indemnified party in connection with the defense thereof other  than reasonable
costs of investigation.

      10.4. Contribution.  If the indemnification provided for in Sections 10.1
and 10.2 of this Agreement is unavailable or insufficient to hold  harmless  an
indemnified  party, then each indemnifying party shall contribute to the amount
paid or payable  by  such  indemnified party as a result of the losses, claims,
damages, or liabilities referred to in Sections 10.1 or 10.2 above  (a) in such
proportion as is appropriate  to  reflect the relative benefits received by the
Company on the one hand and the Warrantholders  on  the  other;  or  (b) if the
allocation provided by clause (a) above is not permitted by applicable  law, in
such proportion as is appropriate to reflect the relative benefits referred  to
in  clause (a) above but also the relative fault of the Company on the one hand
and the  Warrantholders   on  the  other  in  connection with the statements or
omissions which resulted in such losses, claims,  damages,  or  liabilities, as
well  as  any  other relevant equitable considerations.  The relative  benefits
received by the  Company  and  the  Warrantholders shall be deemed to be in the
same proportion as the total net proceeds  from  the offering (before deducting
expenses) received by the Company bear to the total  underwriting discounts and
un-itemized expenses received by the Underwriters, in each case as set forth in
the table on the cover page of the Final Prospectus.   Relative  fault shall be
determined by reference to, among other things, whether the untrue statement of
a material fact or the omission to state a material fact relates to information
supplied  by the Company or the Underwriter  and the parties' relative  intent,
knowledge,  access  to  information, and opportunity to correct or prevent such
untrue statement or omission.   For  purposes  of  this  Section 10.5, the term
"damages" shall include any counsel fees or other expenses  reasonably incurred
by  the  Company  or  the  Underwriters  in  connection  with investigating  or
defending  any  action  or  claim  which  is  the  subject of the  contribution
provisions  of  this  Section 10.4.  No person adjudged  guilty  of  fraudulent
misrepresentation (within  the  meaning  of  Section 11(f) of the Act) shall be
entitled to contribution from any person who was  not guilty of such fraudulent
misrepresentation.

      Each party entitled to contribution agrees that  upon  the  service  of a
summons or other initial legal process upon it in any action instituted against
it  in  respect  of  which  contribution  may be sought, it shall promptly give
written notice of such service to the party  or  parties from whom contribution
may be sought, but the omission so to notify such  party or parties of any such
service shall not relieve the party from whom contribution  may  be sought from
any  obligation  it  may  have  hereunder  or otherwise (except as specifically
provided in Section 10.4 hereof).

      SECTION 11.   TRANSFER TO COMPLY WITH THE SECURITIES ACT OF 1933

      This Warrant, the Warrant Securities,  and all other securities issued or
issuable  upon  exercise  of  this  Warrant,  may  not   be  offered,  sold  or
transferred, in whole or in part, except in compliance with the Act, and except
in compliance with all applicable state securities laws.  The Company may cause
substantially the following legends, or their equivalents,  to  be set forth on
each  certificate  representing  the Warrant Securities, or any other  security
issued or issuable upon exercise of  this  Warrant, not theretofore distributed
to the public or sold to underwriters, as defined  by the Act, for distribution
to the public pursuant to Section 8 above:

      (a)   "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOTBEEN
            REGISTERED  UNDER  THE  SECURITIES  ACT  OF 1933 OR ANY STATE
            SECURITIES LAWS AND MAY NOT BE SOLD, EXCHANGED,  HYPOTHECATED
            OR  TRANSFERRED IN ANY MANNER EXCEPT IN COMPLIANCE  WITH  THE
            AGREEMENT PURSUANT TO WHICH THEY WERE ISSUED."

      (b)   Any legend required by applicable state securities laws.

      Any certificate  issued  at  any time in exchange or substitution for any
certificate  bearing  such  legends  (except  a  new  certificate  issued  upon
completion of a public distribution pursuant  to a registration statement under
the  Securities  Act  of  1933,  as  amended  (the "Act"),  or  the  securities
represented thereby) shall also bear the above  legends  unless, in the opinion
of the Company's counsel, the securities represented thereby  need no longer be
subject to such restrictions.

      SECTION 12.   FRACTIONAL SHARES

      No  fractional  shares or scrip representing fractional shares  shall  be
issued upon the exercise  of  all or any part of this Warrant.  With respect to
any fraction of a share of any  security  called  for upon any exercise of this
Warrant, the Company shall pay to the Holder an amount  in  money equal to that
fraction multiplied by the Current Market Price of that share.

      SECTION 13.   NO RIGHTS AS STOCKHOLDER; NOTICES TO WARRANTHOLDER.

      Nothing contained in this Agreement or in the Warrants shall be construed
as  conferring  upon  the  Warrantholder  or  its transferees any rights  as  a
stockholder of the Company, including the right  to  vote,  receive  dividends,
consent  or  receive  notices  as  a  stockholder in respect to any meeting  of
stockholders for the election of directors  of the Company or any other matter.
The Company covenants, however, that for so long  as  this  Warrant is at least
partially unexercised, it will furnish any Holder of this Warrant  with  copies
of all reports and communications furnished to the shareholders of the Company.
In  addition,  if at any time prior to the expiration of the Warrants and prior
to their exercise, any one or more of the following events shall occur:

            (a)   any  action  which  would  require  an adjustment pursuant to
      Section 4.1 (except subsections 4.1(e) and 4.1(h) or 4.4; or

            (b)   a  dissolution, liquidation, or winding  up  of  the  Company
      (other than in connection  with  a  consolidation, merger, or sale of its
      property, assets, and business as an  entirety  or  substantially  as  an
      entirety) shall be proposed:

then   the  Company  shall  give  notice  in  writing  of  such  event  to  the
Warrantholder,  as provided in Section 16 hereof, at least 20 days prior to the
date fixed as a record  date  or the date of closing the transfer books for the
determination  of  the  stockholders   entitled   to   any  relevant  dividend,
distribution, subscription rights or other rights or for  the  determination of
stockholders  entitled  to  vote on such proposed dissolution, liquidation,  or
winding up.  Such notice shall  specify such record date or the date of closing
the transfer books, as the case may  be.   Failure to mail or receive notice or
any  defect therein shall not affect the validity  of  any  action  taken  with
respect thereto.

      SECTION 14.   CHARGES DUE UPON EXERCISE.

      The Company shall pay any and all issue or transfer taxes, including, but
not limited to, all federal or state taxes, that may be payable with respect to
the transfer  of  this  Warrant  or the issue or delivery of Warrant Securities
upon the exercise of this Warrant.

      SECTION 15.   WARRANT SECURITIES TO BE FULLY PAID

      The Company covenants that all  Warrant Securities that may be issued and
delivered to a Holder of this Warrant upon  the  exercise  of  this Warrant and
payment  of  the Exercise Price will be, upon such delivery, validly  and  duly
issued, fully paid and nonassessable.

      SECTION 16.   NOTICES

      Any  notice   pursuant   to  this  Agreement  by  the  Company  or  by  a
Warrantholder or a holder of Shares  shall be in writing and shall be deemed to
have been duly given if delivered or mailed  by  certified mail, return receipt
requested:

      (i)   If  to  a  Warrantholder or a holder of Shares,  addressed  to  the
address set forth above.

      (ii)  If to the Company  addressed  to  it  at  414 North Orleans Street,
Suite 510, Chicago, Illinois 60610, Attention:  President.

      Each party may from time to time change the address  to  which notices to
it are to be delivered or mailed hereunder by notice in accordance  herewith to
the other party.

      SECTION 17.   MERGER OR CONSOLIDATION OF THE COMPANY.

      The  Company  will  not  merge  or  consolidate  with  or  into any other
corporation  or  sell  all  or  substantially  all  of  its property to another
corporation, unless the provisions of Section 4.4 are complied with.

      SECTION 18.   APPLICABLE LAW

       This Warrant shall be governed by and construed in  accordance  with the
laws  of  the  State  of  Illinois,  and  courts located in Illinois shall have
exclusive jurisdiction over all disputes arising hereunder.

      SECTION 19.   ARBITRATION.

      The Company and the Holder, and by receipt of this Warrant or any Warrant
Securities, all subsequent Holders or holders  of  Warrant Securities, agree to
submit  all  controversies,  claims, disputes and matters  of  difference  with
respect to this Warrant, including, without limitation, the application of this
Section 19 to arbitration in Chicago,  Illinois,  according  to  the  rules and
practices  of the American Arbitration Association from time to time in  force;
provided,  however,  that  if  such  rules  and  practices  conflict  with  the
applicable procedures  of  Illinois courts of general jurisdiction or any other
provisions of Illinois law then  in  force, those Illinois rules and provisions
shall govern.  This agreement to arbitrate  shall be specifically enforceable.
Arbitration may proceed in the absence of any party if notice of the proceeding
has  been  given  to that party.  The parties agree  to  abide  by  all  awards
rendered in any such  proceeding.   These  awards shall be final and binding on
all parties to the extent and in the manner  provided  by  the  rules  of civil
procedure enacted in Illinois.  All awards may be filed, as a basis of judgment
and  of the issuance of execution for its collection, with the clerk of one  or
more courts,  state  or  federal,  having  jurisdiction  over  either the party
against  whom  that  award  is  rendered  or  its property.  No party shall  be
considered in default hereunder during the pendency  of arbitration proceedings
relating to that default.

      SECTION 20. ACCEPTANCE OF TERMS; SUCCESSORS.

      By  its acceptance of this Warrant Certificate, the  Holder  accepts  and
agrees to comply  with  all  of  the  terms  and  provisions  hereof.   All the
covenants  and provisions of this Warrant Certificate by or for the benefit  of
the Company  or  the  Holder  shall  bind  and  inure  to  the benefit of their
respective successors and assigns hereunder.

      SECTION 21    MISCELLANEOUS PROVISIONS

      (a)   Subject to the terms and conditions contained herein,  this Warrant
shall  be  binding  on  the  Company and its successors and shall inure to  the
benefit of the original Holder,  its  successors and assigns and all holders of
Warrant Securities and the exercise of this Warrant in full shall not terminate
the provisions of this Warrant as it relates to holders of Warrant Securities.

      (b)   If the Company fails to perform  any  of its obligations hereunder,
it shall be liable to the Holder for all damages, costs  and expenses resulting
from the failure, including, but not limited to, all reasonable attorney's fees
and disbursements.

      (c)   This Warrant cannot be changed or terminated or  any performance or
condition waived in whole or in part except by an agreement in  writing  signed
by  the party against whom enforcement of the change, termination or waiver  is
sought;  provided,  however, that any provisions hereof may be amended, waived,
discharged or terminated  upon  the  written  consent  of  the  Company and the
Company.

      (d)   If  any  provision  of  this  Warrant shall be held to be  invalid,
illegal or unenforceable, such provision shall  be  severed,  enforced  to  the
extent  possible,  or modified in such a way as to make it enforceable, and the
invalidity, illegality  or  unenforceability  shall not affect the remainder of
this Warrant.

      (e)   The Company agrees to execute such further agreements, conveyances,
certificates and other documents as may be reasonably  requested  by the Holder
to effectuate the intent and provisions of this Warrant.

      (f)   Paragraph  headings  used in this Warrant are for convenience  only
and shall not be taken or construed  to  define  or  limit  any of the terms or
provisions of this Warrant.  Unless otherwise provided, or unless  the  context
shall  otherwise require, the use of the singular shall include the plural  and
the use of any gender shall include all genders.

Dated October 31, 2002

                                    MOLECULAR DIAGNOSTICS, INC.



                                    By: ___________________________________
                                           Peter P. Gombrich
                                           Chief Executive Officer




                                 PURCHASE FORM

                                                    Dated                     ,

      The undersigned hereby irrevocably elects to exercise the Warrant
represented by this Warrant Certificate to the extent of purchasing
Shares of Molecular Diagnostics, Inc. and tenders payment of the exercise price
thereof.

                    INSTRUCTIONS FOR REGISTRATION OF STOCK

      Name    _____________________________________________________
                    (Please type or print in block letters)

      Address _____________________________________________________

.................................................................................

                                ASSIGNMENT FORM

      FOR VALUE RECEIVED,  _____________________,  hereby  sells,  assigns and
transfers unto

      Name    _____________________________________________________
                    (Please type or print in block letters)

      Address _____________________________________________________

the right to purchase Shares of Molecular Diagnostics, Inc. represented by this
Warrant Certificate to the extent of __________________________________________
______ Shares as to which such right is exercisable and does hereby irrevocably
constitute and appoint ________________________________________________________
___________________ attorney, to transfer the same on the books of the  Company
with full power of substitution in the premises.

      Signature   ___________________________    Dated ________________________

NOTICE:  THE SIGNATURE  ON  THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS IT
APPEARS UPON THE FACE OF THIS  WARRANT CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.

EX-10.42

                                                                  Exhibit 10.42

THE  SECURITIES,  IN  THE FORM OF THE PROMISSORY NOTE OF MOLECULAR DIAGNOSTICS,
INC., HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
UNDER ANY STATE SECURITIES  LAWS.  SUCH SECURITIES CANNOT BE SOLD, TRANSFERRED,
ASSIGNED OR OTHERWISE DISPOSED, EXCEPT IN ACCORDANCE WITH THE SECURITIES ACT OF
1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS.

                                PROMISSORY NOTE

                                                              Chicago, Illinois
                                                                  July 30, 2002

      FOR VALUE RECEIVED, MOLECULAR  DIAGNOSTICS,  INC, a Delaware corporation,
414  North  Orleans  Street,  Suite  510,  Chicago,  Illinois  60610,  and  its
successors  and  assigns,  (the  "Company") promises to pay  to  the  order  of
("Holder"), at , or at such other  place  as  Holder  may  from  time  to  time
designate  in writing, the principal sum of  Dollars ($) in lawful money of the
United States  of America, together with interest on so much thereof as is from
time to time outstanding  at  the  rate  hereinafter  provided,  and payable as
hereinafter  provided.   This  Note is one of a series of Notes containing  the
same terms as this Note.

   1. Interest Rate.  The unpaid  principal  balance  of  this  Note shall bear
      interest  at  the rate of seven percent (7%) per annum, simple  interest.
      Interest shall  be  paid in cash or the Company's common stock, par value
      $0.001 per share at the option of the holder at the Maturity of the Note.

   2. Payment/Maturity Date.   The  total outstanding principal balance hereof,
      together with accrued and unpaid  interest,  shall  be due and payable on
      July 30, 2002.

   3. Conversion.  The Notes will be convertible as follows: (a) at any time at
      the option of holder; (b) automatically when the Company  receives equity
      infusion of at least $7 million (including from conversion  of the Notes)
      prior to the due date of the Notes.  The Notes are convertible  into: one
      share  of the Company's common stock at 25% discount to the market  price
      at the time  of  conversion  (not less than $.50 and not more than $1.00)
      and Private Warrants.  For each  four  shares  of common stock into which
      the  Notes  convert,  the holder will receive one Private  Warrant.   The
      Private Warrants will be  exercisable into one share of common stock at a
      price that is 150% of the conversion price of the Notes.

   4. Default  Interest and Attorney  Fees.   Upon  declaration  of  a  default
      hereunder,  the  balance  of  the  principal  remaining  unpaid, interest
      accrued thereon, and all other costs, and fees shall bear interest at the
      rate of eighteen percent (18%) per annum from the date of default, or the
      date of advance, as applicable.  In the event of default, the Company and
      all  other  parties  liable hereon agree to pay all costs of  collection,
      including reasonable attorneys' fees.

   5. Interest Calculation.   Daily  interest  shall be calculated on a 365-day
      year and the actual number of days in each month.

   6. Prepayment.  This Note may be prepaid in whole or in part.

   7. Costs of Collection.  Company agrees that  if, and as often as, this Note
      is  placed in the hands of an attorney for collection  or  to  defend  or
      enforce any of Holder's rights hereunder or under any instrument securing
      payment  of  this  Note,  Company  shall  pay  to  Holder  its reasonable
      attorneys'  fees  and  all  court  costs  and other expenses incurred  in
      connection therewith, regardless of whether  a  lawsuit is ever commenced
      or  whether, if commenced, the same proceeds to judgment  or  not.   Such
      costs   and  expenses  shall  include,  without  limitation,  all  costs,
      reasonable attorneys' fees, and expenses incurred by Holder in connection
      with any  insolvency,  bankruptcy,  reorganization,  foreclosure, deed in
      lieu  of  foreclosure  or  similar proceedings involving Company  or  any
      endorser, surety, guarantor,  or  other person liable for this Note which
      in any way affect the exercise by Holder of its rights and remedies under
      this Note, or any other document or  instrument  securing, evidencing, or
      relating to the indebtedness evidenced by this Note.

   8. Default.  At the option of Holder, the unpaid principal  balance  of this
      Note  and  all  accrued  interest  thereon  shall become immediately due,
      payable, and collectible, with written notice  of default and demand, and
      with five days notice to cure any default, upon  the  occurrence  at  any
      time  of any of the following events, each of which shall be deemed to be
      an event of default hereunder:

      a.    Company's  failure  to  make any payment of principal, interest, or
            other charges on or before  the  date on which such payment becomes
            due and payable under this Note.

      b.    Company's  breach  or  violation  of  any   agreement  or  covenant
            contained  in  this  Note, or in any other document  or  instrument
            securing, evidencing,  or relating to the indebtedness evidenced by
            this Note.

      c.    Dissolution, liquidation or termination of Company.

   9. Application  of Payments.  Any  payment  made  against  the  indebtedness
      evidenced by this  Note  shall  be applied against the following items in
      the  following  order:   (1) costs of  collection,  including  reasonable
      attorney's  fees  incurred or  paid  and  all  costs,  expenses,  default
      interest,  late  charges  and  other  expenses  incurred  by  Holder  and
      reimbursable to Holder  pursuant  to this Note (as described herein); (2)
      default  interest  accrued to the date  of  said  payment;  (3)  ordinary
      interest  accrued  to   the  date  of  said  payment;  and  (4)  finally,
      outstanding principal.

   10.Assignment and Transferability  of Note.  Company may assign this Note to
      any  entity  that acquires Company  or  substantially  all  of  Company's
      assets.  Holder  may  not  transfer  the  Note  in any manner without the
      written agreement of the Company.

   11.Non-Waiver.  No delay or omission on the part of Holder in exercising any
      rights or remedy hereunder shall operate as a waiver  of  such  right  or
      remedy  or of any other right or remedy under this Note.  A waiver on any
      one or more  occasion shall not be construed as a bar to or waiver of any
      such right and/or remedy on any future occasion.

   12.Maximum Interest.   In  no  event  whatsoever  shall  the amount paid, or
      agreed to be paid, to Holder for the use, forbearance,  or  retention  of
      the  money  to be loaned hereunder ("Interest") exceed the maximum amount
      permissible under  applicable  law.  If the performance or fulfillment of
      any provision hereof, or any agreement  between  Company and Holder shall
      result in Interest exceeding the limit for Interest  prescribed  by  law,
      then  the  amount  of  such Interest shall be reduced to such limit.  If,
      from any circumstance whatsoever,  Holder  should  receive as Interest an
      amount that would exceed the highest lawful rate, the  amount  that would
      be  excessive Interest shall be applied to the reduction of the principal
      balance  owing  hereunder  (or,  at the option of Holder, be paid over to
      Company) and not to the payment of Interest.

   13.Purpose of Loan.  Company certifies  that the loan evidenced by this Note
      is obtained for business or commercial  purposes  and  that  the proceeds
      thereof  will  not be used primarily for personal, family, household,  or
      agricultural purposes.

   14.Governing Law.   As  an  additional  consideration  for  the extension of
      credit,  Company  and  each  endorser, surety, guarantor, and  any  other
      person who may become liable for  all  or  any  part  of  this obligation
      understand and agree that the loan evidenced by this Note is  made in the
      State  of  Illinois  and  the  provisions  hereof  will  be  construed in
      accordance  with  the  laws  of  the  State of Illinois, and such parties
      further agree that in the event of default  this  Note may be enforced in
      any court of competent jurisdiction in the State of Illinois, and they do
      hereby  submit  to  the  jurisdiction of such court regardless  of  their
      residence or where this Note  was  executed or any endorsement hereof may
      be executed.

   15.Arbitration.  If at any time during  the  term  of this Note any dispute,
      difference, or disagreement shall arise upon or in  respect  of the Note,
      and  the meaning and construction hereof, every such dispute, difference,
      and disagreement shall be referred to a single arbiter agreed upon by the
      parties,  or  if  no  single  arbiter  can  be agreed upon, an arbiter or
      arbiters shall be selected in accordance with  the  rules of the American
      Arbitration  Association  and such dispute, difference,  or  disagreement
      shall be settled by arbitration  in  accordance  with the then prevailing
      commercial  rules of the American Arbitration Association,  and  judgment
      upon the award rendered by the arbiter may be entered in any court having
      jurisdiction thereof.

   16.Binding Effect.   The  term  "Company"  as  used herein shall include the
      original Company of this Note and any party who  may  subsequently become
      liable  for  the  payment  hereof as an assumer with the consent  of  the
      Holder, provided that Holder  may,  at  its option, consider the original
      Company  of this Note alone as Company unless  Holder  has  consented  in
      writing to  the  substitution  of  another  party  as  Company.  The term
      "Holder"  as  used  herein  shall  mean  Holder  or,  if  this  Note   is
      transferred, the then Holder of this Note.

   17.Relationship  of  Parties.   Nothing  herein contained shall create or be
      deemed  or  construed to create a joint venture  or  partnership  between
      Company and Holder.  Holder is acting hereunder as a lender only.

   18.Severability.   Invalidation  of any of the provisions of this Note or of
      any  paragraph,  sentence,  clause,   phrase,  or  word  herein,  or  the
      application  thereof  in any given circumstance,  shall  not  affect  the
      validity of the remainder of this Note.

   19.Amendment.  This Note may  not  be  amended, modified, or changed, except
      only by an instrument in writing signed by both of the parties.

   20.Time of the Essence.  Time is of the  essence for the performance of each
      and every obligation of Company hereunder.

      IN WITNESS WHEREOF, the undersigned has executed this Note as of July 30,
2002.

                                           MOLECULAR DIAGNOSTICS, INC.
                                           A Delaware corporation



                                           By: _______________________________
                                                 Peter P. Gombrich
                                                 Chief Executive Officer

EX-10.43

                                                               Exhibit 10.43



                    AMENDMENT NO. 1 TO THE PROMISSORY NOTE

       This  Amendment  No. 1, dated as of August 19, 2002 (this "Amendment No.
1"), is to the Promissory Note, dated as of July 30, 2002, (the "Note") between
Molecular Diagnostics, Inc.,  a  Delaware  corporation (the "Company"), and the
holders of the Notes (the "Investors").

                                  WITNESSETH:

       WHEREAS, the Investors purchased the  Notes  in connection with a bridge
financing that closed June 30, 2002; and

       WHEREAS,  according  to the terms of the Notes,  the  total  outstanding
principal balance and accrued  and  unpaid  interest on the Notes were due July
30, 2002;and

       WHEREAS, pursuant to and in compliance with the provisions of Section 19
of  the  Notes, the Company and the Investors desire  to  amend  the  Notes  as
hereinafter set forth.

       NOW,  THEREFORE,  in consideration of the premises and agreements herein
contained, the Company and the Investors agree as follows:

       1.    Section 2 is  amended  by  deleting  the  date "July 30, 2002" and
inserting the new date of "December 31, 2002."

       2.    Section  3 is amended by deleting the parenthetical  phrase  "(not
less than $.50 and not  more  than $1.00)," and to insert the phrase "(not more
than $1.00)."

       3.    Capitalized terms not defined herein shall have the meanings given
them in the Notes.

       4.    This Amendment No. 1 may be executed in any number of counterparts
and each of such counterparts shall  for  all  purposes  be  deemed  to  be  an
original,  and  all such counterparts shall together constitute but one and the
same instrument.






IN WITNESS WHEREOF, the parties have caused this Amendment No. 1 to be duly
executed and attested as of the ____ day of August, 2002.


                                        MOLECULAR DIAGNOSTICS, INC.



                                        By:   ______________________________
                                              Name:  Peter P. Gombrich
                                              Title: Chief Executive Officer
                                                     and President



                                 INVESTOR:



                                        By:   ______________________________

EX-10.44

                                                                  Exhibit 10.44

                                   INDENTURE

     THIS INDENTURE (this "Indenture") is made and entered into as of the first
day  of  October,  2002  by and between Molecular Diagnostics, Inc., a Delaware
corporation (hereinafter called  the "Company"), having its principal office at
414 N. Orleans Street, Chicago, Illinois  60610, and each of the holders of the
Company's 12% Convertible Secured Promissory Notes hereinafter authorized (said
Notes  being hereinafter referred to as the  "Notes"  and  said  holders  being
hereinafter referred to as the "Noteholders").

      In  consideration  of the acceptance by the Noteholders of the Notes, the
Company hereby covenants and agrees with the Noteholders as follows:

      1.    Creation  and  Authorization   of   Notes.     The  Company  hereby
authorizes the issuance of the Notes, in aggregate principal  amount  of  up to
$4,000,000 (the "Offering").  Each Note shall:

      a.    be substantially in the form attached hereto as Exhibit A;

      b.    be  issuable  for  cash  and/or  the surrender by the Noteholder of
outstanding obligations of the Company to the Noteholder;

      c.    mature on July 31, 2003 (the "Maturity Date");

      d.    bear interest payable in kind on the  Maturity  Date in the form of
shares of common stock of the Company ("Common Stock"), valued  as  provided in
the Note (such shares being referred to as "Interest Shares");

      e.    be convertible as to principal into shares of Common Stock  at  the
times  and as valued in the Note  (such shares being referred to as "Conversion
Shares");

      f.    be  subject  to  optional prepayment by the Company at any time, in
whole or in part; provided that  in  the  event  of any prepayment, the Company
shall prepay all Notes outstanding under this Indenture ratably;

      g.    be subject to either automatic conversion  or  mandatory prepayment
(as  set  forth  in  the  Note)  upon  the  closing  of  a  Qualified Financing
Transaction (as defined in the Note);

      h.    be  secured  by  a security interest in the Company's  intellectual
property subject to the terms  and  conditions of the Security Agreement in the
Form of Exhibit B (the "Security Agreement"),  which  shall  be allocated among
the  Noteholders  in  proportion  to  the principal amount of Notes  they  hold
pursuant to the Collateral Sharing Agreement  in  the  form  of  Exhibit C (the
"Collateral Sharing Agreement");

      i.    be registered on the books of the Company by the Secretary  of  the
Company in the name of the Noteholders;

      j.    be executed on behalf of the Company by the manual signature of the
Chief Executive Officer of the Company;

      k.    be  issued  in reliance on one or more exemptions from registration
under the Securities Act  of  1933,  as  amended  (the  "Securities  Act")  and
applicable  state  securities laws and shall contain a legend to that effect as
set forth on each Note; and

      l.    be issued  in accordance with the terms of this Indenture, pursuant
to the exemption from qualification  under  the Trust Indenture Act of 1939 set
forth in Section 304(a)(9) of said Act.

      EACH NOTEHOLDER, BY HIS ACCEPTANCE OF HIS NOTE, AND ANY TRANSFEREE OF HIS
NOTE, WITHOUT FURTHER ACTION, SHALL BE DEEMED  AUTOMATICALLY  TO  HAVE BECOME A
PARTY  TO,  AND TO HAVE AGREED TO BE BOUND BY, THE SECURITY AGREEMENT  AND  THE
COLLATERAL SHARING  AGREEMENT  IN  THE  SAME  AS  IF  THE NOTEHOLDER HAD BEEN A
SIGNATORY THERETO.

      2.    Warrants.  In addition to the Notes, the Company  shall,  upon  the
closing  of  its  PIPE  Financing  (as  defined below), issue each Noteholder a
warrant substantially in the form of Exhibit  D  hereto to purchase a number of
shares of Common Stock equal to one share of Common  Stock for each 4 shares of
common  stock  into which the principal amount of the Note  is  convertible  (a
"Warrant"), having  an  exercise  price of: [$0.15 per share (for the first One
Million Dollars ($1,000,000) principal amount of cash subscriptions received by
the Company)] or [$0.20 per share (for  subscriptions  received after the first
One  Million Dollars ($1,000,000) principal amount of subscriptions  have  been
received  by  the Company)] (as set forth and subject to adjustment as provided
in the Warrant)  and  a  term  expiring five years from the date of issue.  The
shares of Common Stock issuable  upon  exercise  of Warrants are referred to as
"Warrant Shares." For purposes of this Indenture,  the  term  "PIPE  Financing"
means  an  Six  Million  Dollar ($6,000,000) private placement of the Company's
equity securities to occur  after the Company has completed the sale of its 12%
Convertible Secured Promissory  Notes  in  the  aggregate  principal  amount of
approximately Four Million Dollars (U.S. $4,000,000).

      3.    Securities  Act  Compliance.   The  Interest Shares, the Conversion
Shares, the Warrants and the Warrant Shares shall, like the Notes, be issued in
accordance with one or more exemptions from registration  under  the Securities
Act and applicable state securities laws and shall bear a legend to such effect
comparable to the legend borne by the Notes.

      4.    Issuance  of  Conversion  Shares.   Any  Noteholders who desire  to
convert his Note, in whole or in part, into Conversion Shares shall deliver his
Note to the Company, together with a properly completed  Notice  of  Conversion
whereupon:

      a.    the  Company  shall  cause  its  transfer  agent  to deliver to the
Noteholder  one  or  more  certificates representing the applicable  number  of
Conversion Shares; and

      b.    if the Noteholder  is  converting  less  than  the entire principal
amount of his Note:

            i.    if the conversion occurs prior to the Maturity Date, issue to
      the Noteholder a replacement Note representing the unconverted  principal
      amount of the Note; and

            ii.   if  the  conversion  occurs on the Maturity Date, pay to  the
      Noteholder an amount of cash equal  to  the  unconverted principal amount
      of, and the accrued interest on, the Note.

      5.    Conclusive Effect of Registry.   The ownership of the Notes and the
address for payment thereof shall be proved by reference  to  the  registry  of
Notes  maintained by the Secretary of the Company and, prior to due presentment
for registration  of transfer, or receipt of notification of change of address,
the Company may treat  the  person  in  whose name any Note shall be registered
upon the books of the Company as the absolute  owner  thereof,  and the address
appearing  in  the  books  of  the Company as the appropriate address  for  the
purpose  of  paying  principal  of and  interest  on  the  Notes,  for  issuing
Conversion Shares, and for all other  purposes.    All  payments so made to any
such registered Noteholder at such address shall be valid and, to the extent of
the amount or amounts so paid, effectual to satisfy and discharge the liability
of the Company for monies payable on any such Note.

      6.    Changes in Registered Address.   Any Noteholder who shall desire to
change  the address for payment of principal of and interest  on  his  Note  or
delivery  of  Conversion  Shares may notify the Secretary of the Company of the
changed address.

      7.    Transfer of Notes.    Any  Noteholder desiring to sell, transfer or
otherwise distribute his Note shall present  the  Note  to the Secretary of the
Company  for  transfer,  accompanying  the  Note  with either (a)  evidence  of
compliance  with  the  registration  provisions  of  the   Securities  Act  and
applicable  state  securities  laws,  or  (b) an opinion of counsel  reasonably
satisfactory to the Company to the effect that  such proposed sale, transfer or
other distribution may be made in reliance upon an  applicable  exemption  from
the  provisions  of  the  Securities  Act and applicable state securities laws.
Promptly upon receipt of the Note and such documentation, the Company shall, if
such documentation is satisfactory in form and substance to the Company and its
counsel, cancel the Note and issue a new  Note  registered  in  the name of the
transferee.  The determination of the Company and its counsel with  respect  to
any proposed transfer shall be final and binding upon the Noteholder.

      8.    Transfer  of  Warrants  and  Warrant  Shares.  Each Warrant and the
Warrant Shares shall be subject to the restrictions  on  transfer  set forth in
Section 8.1 and 11 of the Warrant.

      9.    Transfer of Interest Shares and Conversion Shares.   Any  holder of
Interest  Shares  or  Conversion Shares desiring to sell, transfer or otherwise
distribute such shares  shall  present  the  certificate(s)  representing  such
shares  to  the  transfer  agent  of the Company for transfer, accompanying the
certificate(s) with either (a) evidence  of  compliance  with  the registration
provisions of the Securities Act and applicable state securities  laws,  or (b)
an opinion of counsel reasonably satisfactory to the Company to the effect that
such proposed sale, transfer or other distribution may be made in reliance upon
an  applicable  exemption  from  the  provisions  of  the  Securities  Act  and
applicable  state  securities laws.  Promptly upon receipt of notification from
the transfer agent that  the  certificate(s)  have  been  delivered  to it, the
Company  shall, if such documentation is satisfactory in form and substance  to
the Company  and its counsel, direct the transfer agent to effect the requested
transfer.  The determination of the Company and its counsel with respect to any
proposed transfer shall be final and binding upon the holder of the shares.

      10.   Registration Rights.  The Interest Shares, Conversion Shares and
Warrant Shares (collectively, the "Investment Shares") shall be subject to the
registration rights set forth in this Section 10.

      a.    Piggy-Back Registration Rights.  If, at any time prior to the fifth
anniversary of  the  closing  of  the  PIPE  Financing,  the  Company  files  a
registration  statement  with  the U.S. Securities and Exchange Commission (the
"Commission") pursuant to the Securities  Act,  or  pursuant  to  any other act
passed after the date of this Indenture, which filing provides for  the sale of
securities  by  the  Company  to  the  public, or files a Regulation A offering
statement under the Securities Act, the  Company shall offer to the Noteholders
and the holders of any Investment Shares the opportunity to register or qualify
the Investment Shares at the Company's sole  expense, regardless of whether the
Noteholders or holders of Investment Shares or both may have previously availed
themselves  of any of the registration rights described  in  this  Section  10;
provided, however, that in the case of a Regulation A offering, the opportunity
to qualify shall  be  limited  to  the  amount of the available exemption after
taking  into  account  the securities that the   Company  wishes  to  qualify.
Notwithstanding anything  to  the  contrary,  this  Section  10  shall  not  be
applicable  to  a registration statement registering securities issued pursuant
to an employee benefit  plan  or  as  to  a  transaction  subject  to  Rule 145
promulgated  under  the  Securities  Act  or  for which a form S-4 registration
statement could be used.

      The Company shall deliver written notice  to  the  Noteholders and to any
holders  of  the  Investment  Shares  of its intention to file  a  registration
statement or Regulation A offering statement  under the Securities Act at least
60  days  prior  to  the  filing  of such registration  statement  or  offering
statement, and the Noteholders and  holders  of Investment Shares shall have 30
days thereafter to request in writing that the  Company register or qualify the
Investment Shares in accordance with this Section  10.   Upon the delivery of a
written request within the specified time, the Company shall  be  obligated  to
include  in  its  contemplated registration statement or offering statement all
information necessary or advisable to register or qualify the Investment Shares
for a public offering,  if  the Company does file the contemplated registration
statement or offering statement;  provided,  however, that neither the delivery
of the notice by the Company nor the delivery  of  a request by a Noteholder or
holder of Investment Shares shall in any way obligate  the  Company  to  file a
registration statement or offering statement.  Furthermore, notwithstanding the
filing  of a registration statement or offering statement, the Company may,  at
any time  prior  to  the  effective  date  thereof,  determine not to offer the
securities to which the registration statement or offering  statement  relates,
other  than  the  Investment  Shares.  Notwithstanding the foregoing, if, as  a
qualification of any offering in any state or jurisdiction in which the Company
(by vote of its Board of Directors) or any underwriter determines in good faith
that it wishes to offer securities registered  in  the offering, it is required
that offering expenses be allocated in a manner different  than  as provided in
this  Section  10,  then  the offering expenses shall be allocated in  whatever
manner is most nearly in compliance with the provisions of this Section 10.

      If  the  registration for  which  the  Company  gives  notice  is  for  a
registered public  offering  involving  an  underwriting,  the Company shall so
advise as part of its written notice to Noteholders and holders  of  Investment
Shares  given  pursuant  to  this  Section.   In  that  event, the right of any
Noteholder  or  holder of Investment Shares to registration  pursuant  to  this
Section  10 shall  be  conditioned  upon  the  holder's  participation  in  the
underwriting,  and the inclusion of Investment Shares in the underwriting shall
be limited to the  extent provided herein.  All holders proposing to distribute
their Investment Shares  through  the  underwriting  shall  (together  with the
Company and the other holders who desire to distribute their shares through the
underwriting)  enter into an underwriting agreement in customary form with  the
managing underwriter  selected  by  the  Company.   Notwithstanding  any  other
provision  of  this  Section,  if  the  managing  underwriter  determines  that
marketing  factors  require  a  limitation  of  the  number  of  shares  to  be
underwritten, the underwriter may limit the amount of securities to be included
in  the  registration  and  underwriting  by  the holders of Company securities
exercising  "piggy-back"  registration rights (including  the  Noteholders  and
holders of Investment Shares).   The  Company  shall so advise all holders, and
the number of shares that may be included in the  registration and underwriting
shall  be  allocated among all of the holders desiring  to  have  their  shares
registered,  in proportion, as nearly as practicable, to the respective amounts
of shares requested  by  each  holder  to  be  included  in  the  registration,
provided,  however,  that  no  holder  of  shares  or  other  securities to  be
registered (other than one exercising a demand registration right)  shall  have
superior  rights  with respect to inclusion in a registration than those of the
Noteholders and holders  of  Investment  Shares,  and  if  any party is granted
superior rights hereafter the Noteholder and each holder of  Investment  Shares
shall  be deemed to be automatically granted similar rights.  The Company shall
advise all  Noteholders  and  holders of Investment Shares if any limitation in
accordance with this Section is  necessary  and the number or Investment Shares
that may be included in the registration.  Any securities excluded or withdrawn
from the underwriting shall not be transferred  prior  to  one  hundred  twenty
(120)  days  after  the  effective  date of the registration statement relating
thereto, or any shorter period of time the underwriters may require.

      The Company shall comply with the  requirements of this Section 10 at its
own  expense.   That expense shall include,  but  not  be  limited  to,  legal,
accounting, consulting,  printing,  federal  and  state filing fees, NASD fees,
out-of-pocket  expenses  incurred  by  counsel,  accountants   and  consultants
retained  by  the Company, and miscellaneous expenses directly related  to  the
registration statement  or  offering statement and the offering.  However, this
expense shall not include the portion of any underwriting commissions, transfer
taxes and the underwriter's accountable  and  nonaccountable expense allowances
attributable  to  the offer and sale of the Investment  Shares,  all  of  which
expenses shall be borne by the holders of Investment Shares that are registered
or qualified.

      b.    Inclusion  of Information.    If the Company registers or qualifies
the Investment Shares in  accordance  with  this  Section 10, the Company shall
include  in  the registration statement or qualification,  and  the  prospectus
included therein,  all  information  and  materials  necessary  or advisable to
comply with the applicable statutes and regulations so as to permit  the public
sale of the Investment Shares.

      c.    Condition  of  Company's  Obligations.   As  to  each  registration
statement  or offering statement, the Company's obligations contained  in  this
Section 10 shall be conditioned upon a timely receipt by the Company in writing
of the following:

                  (i)   Information  as to the terms of the contemplated public
      offering furnished by and on behalf  of  each  Noteholder  or  holder  of
      Investment  Shares  intending  to  make  a  public  distribution  of  the
      Investment Shares; and

                 (ii)  Any other information the Company may reasonably require
      from the Noteholders  or holders of Investment Shares, or any underwriter
      for any of them, for inclusion  in the registration statement or offering
      statement.

        d.  Additional Requirements.  In  each  instance  in  which the Company
shall take any action to register or qualify the Investment Shares  pursuant to
this Section 10, the Company shall do the following:

                  (i)  supply the Noteholders and holders of Investment  Shares
      that are being registered or qualified, two (2) manually signed copies of
      each registration  statement  or  offering  statement, and all amendments
      thereto, and a reasonable number of copies of  the  preliminary, final or
      other  prospectus or offering circular, all prepared in  conformity  with
      the requirements  of  the  Securities  Act  and the rules and regulations
      promulgated thereunder, and any other documents  that the Noteholders and
      holders of Investment Shares may reasonably request;

                (ii)  cooperate with respect to (A) all  necessary or advisable
      actions  relating to the preparation and the filing of  any  registration
      statements  or  offering  statements, and all amendments thereto, arising
      from the provisions of this  Section  10,  (B)  all reasonable efforts to
      establish an exemption from the provisions of the  Securities  Act or any
      other  federal  or  state  securities  statutes,  (C)  all  necessary  or
      advisable  actions  to  register  or qualify the public offering at issue
      pursuant  to  federal  securities  statutes  and  the  state  "blue  sky"
      securities statutes of each jurisdiction  that the Noteholders or holders
      of  Investment  Shares  shall  reasonably  request,  and  (D)  all  other
      necessary or advisable actions to enable the holders of Investment Shares
      to  complete the contemplated disposition of  their  securities  in  each
      reasonably requested jurisdiction; and

                (iii)   keep all registration statements or offering statements
      to which this Section  10  applies, and all amendments thereto, effective
      under the Securities Act for  a  period  of at least 8 months after their
      initial effective date and cooperate with  respect  to  all  necessary or
      advisable  actions to permit the completion of the public sale  or  other
      disposition  of  the  securities  subject  to a registration statement or
      offering statement.

      e.    Reciprocal Indemnification Agreements.   In  each instance in which
the Company shall take any action to register or qualify the  Investment Shares
pursuant  to  this Section 10, prior to the effective date of any  registration
statement or offering  statement,  the Company and each Noteholder or holder of
Investment Shares being registered or  qualified  shall  enter  into reciprocal
indemnification   agreements,   in  the  form  customarily  used  by  reputable
investment  bankers  with  respect to  public  offerings  of  securities.   The
indemnification agreements also  shall  contain an agreement by the Noteholders
and holders of Investment Shares at issue  to  indemnify  and hold harmless the
Company,  its  officers  and  directors  from and against any and  all  losses,
claims, damages and liabilities, including,  but  not  limited to, all expenses
reasonably  incurred  in investigating, preparing, defending  or  settling  any
claim, directly resulting  from  any  untrue  statements  of material facts, or
omissions  to  state  a  material  fact  necessary  to  make  a  statement  not
misleading,  contained  in  a  registration statement or offering statement  to
which  this Section 10 applies, if,  and  only  if,  the  untrue  statement  or
omission  directly resulted from information provided in writing to the Company
by the indemnifying Noteholder or holder of Investment Shares expressly for use
in the registration statement or offering statement at issue.

      f.    Indemnification  by  the Company.  In connection with the filing of
any registration statement covering  any  Investment  Shares, the Company shall
indemnify  and hold harmless each  holder thereof against  any  and  all  loss,
claim, damage,  liability,  joint  or  several  (which  shall  for all purposes
include, but not be limited to, all costs of defense and investigation  and all
attorneys'  fees)  to  which the holder may become subject under the Securities
Act or otherwise, insofar  as  the  loss, claim, damage or liability (or action
with respect thereto) arises out of or  is  based upon (i) any untrue statement
or alleged untrue statement of a material fact  contained  in  the registration
statement, any preliminary prospectus, the effective prospectus  or  the  final
prospectus,  or  any  amendment  or  supplement thereto or (ii) the omission or
alleged  omission  to  state  in the registration  statement,  any  preliminary
prospectus, the effective prospectus  or the final prospectus, or any amendment
or supplement to any of the foregoing,  a  material  fact required to be stated
therein or necessary to make the statements therein not misleading; except that
the Company shall not be liable in any such case to the extent, but only to the
extent, that any loss, claim, damage or liability arises  out  of  or  is based
upon  an  untrue  statement  or alleged untrue statement or omission or alleged
omission made in reliance upon  and  in  conformity  with  written  information
furnished to the Company by the Noteholders or any holder of Investment  Shares
for  use  in  the  preparation  of  the registration statement, any preliminary
prospectus, the effective prospectus  or the final prospectus, or any amendment
or supplement to any of the foregoing.   This  indemnity will be in addition to
any liability the Company may otherwise have.

      g.    Indemnification by the Holders of Investment  Shares.   The holders
of  any Investment Shares covered by a registration statement prepared  by  the
Company  shall  severally,  but  not  jointly,  indemnify and hold harmless the
Company, each other Person referred to in subparts  (1), (2) and (3) of Section
11(a) of the Securities Act in respect of the registration  statement,  against
any  and  all  loss, claim, damage or liability, joint or several, (which shall
for all purposes  include,  but  not  be  limited  to, all costs of defense and
investigation and all attorneys' fees) to which the  Company may become subject
under the Securities Act or otherwise, insofar as the  loss,  claim,  damage or
liability  (or action with respect thereto) arises out of or is based upon  (i)
any untrue statement  or  alleged untrue statement of a material fact contained
in  the  registration statement,  any  preliminary  prospectus,  the  effective
prospectus  or  the  final prospectus, or any amendment or supplement to any of
the foregoing, or (ii)  the  omission  or  alleged  omission  to  state  in the
registration statement, any preliminary prospectus, the effective prospectus or
the final prospectus, or any amendment or supplement to any of the foregoing, a
material fact required to be stated therein or necessary to make the statements
therein  not misleading; except that the indemnification shall be available  in
each case  to  the extent, but only to the extent, that the untrue statement or
alleged untrue statement  or  omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by any
holder of Investment Shares for  use  in  the  preparation  of the registration
statement, any preliminary prospectus, the effective prospectus  or  the  final
prospectus, or any amendment or supplement thereto.  This indemnity will be  in
addition  to any liability the Noteholders and holders of Investment Shares may
otherwise have.

      h.    Indemnification   Procedures.    Promptly   after   receipt  by  an
indemnified  party  under  Sections  10(f)  or  10(g),  of  written  notice  of
commencement  of  any  action, the indemnified party shall, if the indemnifying
party intends to assert  a  claim  in  respect thereof against the indemnifying
party  under the relevant section hereof,  notify  the  indemnifying  party  in
writing  of  the claim or commencement of the action, provided that, failure to
notify the indemnifying  party  shall not relieve the indemnifying party of any
obligation it may have to the indemnified  party, except to the extent that the
indemnifying party did not otherwise have notice of the action, and the failure
to notify the indemnifying party prejudiced the indemnifying party's ability to
defend itself in the action, and even in that  event,  the  failure  to  notify
shall   not   relieve  the  indemnifying  party  of  any  other  liability  the
indemnifying party  may  have to the indemnified party.  If any claim or action
is brought against an indemnified  party and the indemnified party notifies the
indemnifying party thereof, the indemnifying  party  shall  have  the  right to
participate in the claim or action, jointly with any other indemnifying  party,
if  any,  and  to  assume  the  defense  of  the  claim or action using counsel
reasonably  satisfactory  to  the indemnified party.   After  notice  from  the
indemnifying party to the indemnified  party  that  it  intends  to  assume the
defense of the claim or action, the indemnifying party shall not be liable  for
any  legal  fees  or  other costs or expenses incurred by the indemnified party
after receipt of the notice,  other  that for reasonable costs of investigation
in connection with the claim or action.

      i.    Contribution.  If the indemnification provided in Sections 10(f) or
10(g) is unavailable or insufficient to  hold  harmless  the indemnified party,
then each indemnifying party shall contribute to the amount  paid or payable by
the indemnified party as a result of the indemnified losses, claims, damages or
liabilities  (i) in an appropriate proportion to reflect the relative  benefits
received by the  Company  on  the  one  hand and the Noteholders and holders of
Investment Shares on the other hand, or (ii)  if  the  allocation  provided  by
clause  (i) of this Section 10(i) is not permitted by applicable law, then in a
proportion  appropriate  to reflect the relative benefits referred to in clause
(i) of this Section 10(i),  but  also  the relative fault of the Company on the
one hand and the Noteholders and holders  of  Investment  Shares  on  the other
hand,  in  connection with the indemnified losses, claims and damages incurred,
as well as any  other relevant equitable considerations.  The relative benefits
received by the Company  and  the Noteholders shall be deemed to be in the same
proportion  as  the total net proceeds  from  the  offering  (before  deducting
expenses) received  by the Company bear to the total underwriting discounts and
un-itemized expenses received by the underwriters, in each case as set forth in
the final prospectus.   Relative  fault  shall  be  determined by reference to,
among  other things, whether the untrue statement of a  material  fact  or  the
omission  to  state  a  material  fact  relates  to information supplied by the
Company or the underwriter and the parties' relative  intent, knowledge, access
to information and opportunity to correct or prevent the  untrue  statement  or
omission.  For purposes of this Section 10(i), the term "damages" shall include
any  counsel  fees  or other expenses reasonably incurred by the Company or the
underwriters in connection  with investigating or defending any action or claim
that is the subject of the contribution  provisions  of this Section 10(i).  No
Person adjudged guilty of fraudulent misrepresentation  (within  the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
Person who was not guilty of the fraudulent misrepresentation.

      j.    Notice of Contribution.  Each party entitled to contribution agrees
that upon the service of a summons or other initial legal process upon it or in
any  action  instituted  against  it  in respect of which contribution  may  be
sought, it shall promptly give written  notice  of  the service to the party or
parties from whom the contribution may be sought, but  the  failure to notify a
party  or  parties  of  the  service  shall  not  relieve  any party from  whom
contribution  may  be  sought  from  any  obligation  it may have hereunder  or
otherwise (except as specifically provided in Section 10(i).

      k.    Holdback.  (i) Each Noteholder agrees that,  upon  receipt  of  any
notice from the Company of the happening of any event requiring the preparation
of  a  supplement  or  amendment  to a registration statement or any prospectus
relating  thereto, the Noteholder will  forthwith  discontinue  disposition  of
Investment  Shares  thereunder  until  the  holder  has  received copies of the
supplemented or amended registration statement or prospectus  from  the Company
and,  if  so  directed  by  the  Company, each Noteholder shall deliver to  the
Company all copies, other than permanent  file  copies then in the Noteholder's
possession,  of  the previous versions of the registration  statement  and  any
prospectus covering the Investment Shares; and

      (ii) Each Noteholder  shall  suspend,  upon  request  of the Company, any
disposition  of  Investment  Shares  pursuant  to a registration statement  and
prospectus contemplated by this Section 10 during  (A) any period not to exceed
two  30-day  periods  within any one 12-month period the  Company  requires  in
connection with an underwritten  offering  of  equity  securities  and  (B) any
period, not to exceed a 60-day period per circumstance or development, when the
Company  determines in good faith that offers and sales pursuant thereto should
not be made  by reason of the presence of material undisclosed circumstances or
developments with  respect  to  which  the disclosure that would be required in
such a prospectus is premature, would have  an adverse effect on the Company or
is otherwise inadvisable.

      l.    Provision  of  Information  to Company.   As  a  condition  to  the
inclusion  of  its  Investment  Shares  in  any  registration  statement,  each
Noteholder  shall  furnish  to  the  Company  any  information   regarding  the
Noteholder and the distribution proposed by the Noteholder that the Company may
request in writing or as shall be required in connection with any registration,
qualification or compliance referred to in this Section 10.

      m.    Limitation  on  Transfer  of  Investment  Shares.   Each Noteholder
acknowledges  and  agrees  that  the  Investment  Shares sold pursuant  to  any
registration statement described in this Section are  not  transferable  on the
books  of  the  Company  unless the stock certificate submitted to the transfer
agent  evidencing  the  Investment  Shares  is  accompanied  by  a  certificate
reasonably satisfactory to  the  Company  to the effect that (i) the Investment
Shares have been sold in accordance with the  registration  statement  and (ii)
the requirement of delivering a current prospectus has been satisfied.

      n.    Regulation  M.  Each Noteholder agrees not to take any action  with
respect to any distribution  deemed  to  be  made  pursuant  to  a registration
statement  that  would  constitute  a  violation  of  Regulation  M  under  the
Securities  Exchange  Act  of 1934 or any other applicable rule, regulation  or
law.

      o.    Cessation of Disposition  of  Investment Shares.  At the end of the
period during which the Company is obligated to keep any registration statement
current  and  effective  as  described  in this  Section  10,  the  holders  of
Investment  Shares  included in the registration  statement  shall  discontinue
sales of shares pursuant  to  the registration statement upon receipt of notice
from  the Company of its intention  to  remove  from  registration  the  shares
covered  by  the  registration  statement  which remain unsold, and the holders
shall notify the Company of the number of shares  registered that remain unsold
immediately upon receipt of notice from the Company.

      p.    Rule  144 Undertakings.  With a view to  making  available  to  the
Noteholders the benefits  of  certain  rules  and regulations of the Commission
that at any time permit the sale of the Investment Shares to the public without
registration, the Company shall use reasonable efforts to:

                    i.make  and  keep public information  available,  as  those
                      terms are understood  and  defined  in Rule 144 under the
                      Securities Act, at all times;

                    ii. file with the Comission in a timely  manner all reports
                      and  other  documents required of the Company  under  the
                      Exchange Act; and

                    iii.so  long  as   a   Noteholder   owns  any  unregistered
                      Investment  Shares, furnish to the Noteholder,  upon  any
                      reasonable request, a written statement by the Company as
                      to its compliance with Rule 144 under the Act, and of the
                      Exchange Act,  a  copy  of  the  most  recent  annual  or
                      quarterly  report  of  the Company, and any other reports
                      and  documents  of  the  Company   the   Noteholder   may
                      reasonably  request  in  availing  itself  of any rule or
                      regulation  of  the  Commission allowing a Noteholder  to
                      sell any securities without registration.

      q.    Waiver or Amendment of this Section.   With  the written consent of
the  Company  and  Noteholders  holding at least a majority of  the  Investment
Shares that are then outstanding,  any  provision  of  this  Section  10 may be
waived  (either generally or in a particular instance, either retroactively  or
prospectively  and  either  for  a specified period of time or indefinitely) or
amended.  Upon the effectuation of  each waiver or amendment, the Company shall
promptly give written notice thereof  to  the Noteholders, if any, who have not
previously received notice thereof or consented thereto in writing.

      r.    No Restraint or Delay.  The Noteholders shall have no right to take
any action to restrain, enjoin or otherwise  delay any registration pursuant to
this Section 10 as a result of any controversy  that  may arise with respect to
the interpretation or implementation of this Indenture.

      11.   Amendments and Modifications.   At any time  and  from time to time
this Indenture may be amended or modified by the Company as follows:

      a.    Subject to such governmental approvals as may be required  by  law,
but  without the consent of the Noteholders, this Indenture may be amended from
time to time for any one or more of the following purposes:

            i.    to  evidence  the  succession of another corporation or other
      legal entity to the Company and  the  assumption by such successor of the
      respective  covenants,  agreements  and  obligations   of   the   Company
      hereunder;

            ii.   to  add to the covenants and agreements of the Company herein
      contained any further  covenants and agreements to be thereafter observed
      or to surrender any right or power herein reserved to the Company;

            iii.  to  cure any  ambiguity  or  any  defective  or  inconsistent
      provision contained in this Indenture; or

            iv.   to  make  any  provision  with  respect  to  the  matters  or
      questions  arising   under  this  Indenture  that  may  be  necessary  or
      desirable.

      b.    With the consent of the Collateral Agent, acting in accordance with
the provisions of the Collateral  Sharing  Agreement,  this  Indenture  may  be
amended  for  the  purpose of adding any provision to, changing or modifying in
any manner the rights and obligations of the Noteholders and of the Company.

      Notwithstanding   anything  in  this  Indenture  to  the  contrary,  this
Indenture may in no event be amended to increase the aggregate principal amount
of the Notes to more than Four Million Dollars (US $4,000,000).

      12.   Miscellaneous.

      a.    Successors and  Assigns.    Nothing in this Indenture shall prevent
any consolidation or merger of the Company  with  or into any other corporation
or other legal entity, or the sale or transfer of all  or  substantially all of
the  assets  of  the  Company  or other legal entity, to any other  corporation
lawfully  entitled  to acquire the  same;  provided,  however,  that  any  such
consolidation, merger,  sale or transfer shall be on the condition that the due
and punctual payment of the principal of and interest on all the Notes, and the
due and punctual performance  and  observance  of  all  of  the  covenants  and
agreements  of  this Indenture required to be kept or performed by the Company,
shall be assumed by such other corporation or other legal entity,.

      b.    Liability.    No  recourse  for  the payment of the principal of or
interest on any Note shall be had against any  incorporator,  past,  present or
future shareholder, officer or director of the Company or any successor  entity
and  any  and  all  such  personal liability of such incorporator, shareholder,
officer or director, hereby  expressly  waived and released by every Noteholder
as a condition to, and as a consideration  for,  the  issuance  of  the Note to
Noteholder.

      c.    Notices.   Any notice or demand required or permitted to  be  given
or  served  under this Indenture may be delivered by first class mail, prepaid,
and addressed,  if  to  a  Noteholder,  to  the  Noteholder  at  his address as
reflected in the books of the Company, and, if to the Company, to the attention
of the Secretary of the Company and the Company's principal office.

      d.    Severability.   In the event that one or more of the provisions  of
this Indenture or of the Notes for any reason shall be held invalid, illegal or
unenforceable  in  any respect, such invalidity, illegality or unenforceability
shall not affect any  other  provisions of this Indenture or of the Notes which
shall remain in full force and effect.

      e.    Governing Law.  This  Indenture  and  the Note shall be governed by
and construed in accordance with the laws of the State of Illinois.

      f.    Number and Gender.  Unless the context otherwise requires, wherever
used herein, the singular shall include the plural and the plural shall include
the  singular,  and  the  use  of  one  gender  shall denote  the  other  where
appropriate.

                             [signature page follows]




      IN WITNESS WHEREOF, the Company has executed  this  Indenture  as  of the
date first written above.

                                           MOLECULAR DIAGNOSTICS, INC.


                                           By: ________________________________
                                                 Peter P. Gombrich
                                                 Chief Executive Officer


                                                                      EXHIBIT A

THIS  NOTE  AND  THE  INTEREST SHARES AND CONVERSION SHARES, AS DEFINED HEREIN,
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER
ANY STATE SECURITIES LAWS,  AND  MAY  NOT  BE  SOLD,  TRANSFERRED,  ASSIGNED OR
OTHERWISE  DISPOSED,  EXCEPT IN ACCORDANCE WITH THE SECURITIES ACT OF 1933,  AS
AMENDED, AND APPLICABLE STATE SECURITIES LAWS.

                    12% CONVERTIBLE SECURED PROMISSORY NOTE

                                                              Chicago, Illinois
$______________________                          _______________________, 200__


      FOR VALUE RECEIVED,  MOLECULAR  DIAGNOSTICS,  INC, a Delaware corporation
having its principal office at, 414 North Orleans Street,  Suite  510, Chicago,
Illinois 60610, acting for itself and for all its successors and assigns,  (the
"Company")  promises  to pay to the order of  ("Holder"), at , or at such other
place as Holder may from  time  to time designate in writing, the principal sum
of   Dollars (US $) in the lawful  money  of  the  United  States  of  America,
together  with  interest on so much thereof as is from time to time outstanding
at the rate hereinafter  provided,  and  payable as hereinafter provided.  This
Note  is one of a series of Notes having the  same  terms  and  conditions  and
issued  pursuant  to  that  certain  Indenture dated as of October 1, 2002 (the
"Indenture"), the terms of which are incorporated herein by reference.

      1.    Interest Rate.  The unpaid  principal  balance  of  this Note shall
bear  simple interest at the rate of twelve percent (12%) per annum.   Interest
shall be  payable  in kind on the Maturity Date (as defined below) in shares of
common stock of the Company ("Common Stock") valued at:

[For  cash  subscriptions  for  the  first  One  Million  Dollars  ($1,000,000)
principal amount  of  Notes  being offered (determined on a "first come - first
served" basis): $0.10 per share]

[For subscribers who subscribe  after  cash  subscriptions  for  the  first One
Million  Dollars  ($1,000,000) principal amount of Notes have been received  by
the Company (determined  on  a  "first  come  - first served" basis): $0.15 per
share]

 (subject to adjustment to reflect any stock splits,  reverse  stock splits and
similar recapitalization events occurring after the date hereof).

      2.    Maturity  Date.   The  total outstanding principal balance  hereof,
together with accrued and unpaid interest, shall be due and payable on July 31,
2003 (the "Maturity Date").

      3.    Conversion.

[For  cash  subscriptions  for  the  first  One  Million  Dollars  ($1,000,000)
principal amount of Notes being offered  (determined  on  a "first come - first
served" basis):  This Note shall convert automatically into  shares  of  Common
Stock  valued  at  $0.10  per share (subject to adjustment to reflect any stock
splits, reverse stock splits  and  similar  recapitalization  events  occurring
after  the  date hereof) upon the earliest to occur of: (a) the closing of  the
Company's Six  Million  Dollar ($6,000,000) "PIPE" Financing (as defined in the
Indenture); or (b) a "Qualified  Financing  Transaction,"  which,  for purposes
hereof,  means  a transaction in which the Company closes a new debt or  equity
financing after the  date hereof and prior to the Maturity Date that results in
net proceeds to the Company of at least Four Million Dollars (US $4,000,000).]

[For subscribers who subscribe  after  cash  subscriptions  for  the  first One
Million  Dollars  ($1,000,000) principal amount of Notes have been received  by
the Company (determined on a "first come - first served" basis):  This Note may
be converted as to both principal and accrued interest, in whole or in part, at
the option of the Holder,  at  any  time on or prior to the Maturity Date, into
shares of Common Stock, valued at $0.15  per  share  (subject  to adjustment to
reflect  any  stock  splits,  reverse stock splits and similar recapitalization
events occurring after the date hereof).]

      4.    Prepayment.  This Note shall be subject to prepayment as follows:

            a.    Optional Prepayment.   This  Note may be prepaid, in whole or
      in part, at any time prior to the Maturity  Date  at  the  option  of the
      Company; provided, however, that unless this Note is prepaid in full, all
      Interest Shares shall be issued on the Maturity Date.

      [For subscribers who subscribe after cash subscriptions for the first One
      Million Dollars ($1,000,000) principal amount of Notes have been received
      by the Company (determined on a "first come - first served" basis):

            b.    Mandatory   Prepayment.    This  Note  shall  be  subject  to
      mandatory prepayment in full upon the closing  of  a "Qualified Financing
      Transaction,"  which, for purposes hereof, means a transaction  in  which
      the Company closes  a  new debt or equity financing after the date hereof
      and prior to the Maturity  Date  that  results  in  net  proceeds  to the
      Company of at least Four Million Dollars (US $4,000,000).]

      5.    Default  Interest and Attorney Fees.  Upon declaration of a default
hereunder, the balance  of  the  principal  remaining  unpaid, interest accrued
thereon,  and  all  other costs and fees shall bear interest  at  the  rate  of
fifteen percent (15%)  per annum (the "Default Rate") from the date of default.
In the event of default,  the Company and all other parties liable hereon agree
to pay all costs of collection, including reasonable attorneys' fees.

      6.    Interest Calculation.   Daily  interest  shall  be  calculated on a
365-day year and the actual number of days in each month.

      7.    Costs of Collection.  The Company agrees that if, and  as often as,
this Note is placed in the hands of an attorney for collection or to  defend or
enforce  any  of  Holder's  rights  hereunder  or under any instrument securing
payment of this Note, the Company shall pay to Holder its reasonable attorneys'
fees and all court costs and other expenses incurred  in  connection therewith,
regardless of whether a lawsuit is ever commenced or whether, if commenced, the
same  proceeds  to  judgment  or  not.   The costs and expenses shall  include,
without  limitation,  all  costs,  reasonable  attorneys'  fees,  and  expenses
incurred   by   Holder   in  connection  with   any   insolvency,   bankruptcy,
reorganization, foreclosure, deed in lieu of foreclosure or similar proceedings
involving Company or any endorser, surety, guarantor or other person liable for
this Note which in any way  affect  the  exercise  by  Holder of its rights and
remedies  under  this  Note,  or  any  other  document or instrument  securing,
evidencing or relating to the indebtedness evidenced by this Note.

      8.    Default.  The events constituting an  "Event  of Default" hereunder
are defined in the Security Agreement (as defined in the Indenture).   Upon the
occurrence  of  an  Event  of  Default,  the  Holder shall have such rights and
remedies  as are set forth in the Indenture, the  Security  Agreement  and  the
Collateral Sharing Agreement (as defined in the Indenture).

      9.    Application of Payments.  Any payment made against the indebtedness
evidenced by  this  Note  shall  be  applied against the following items in the
following order:  (a) costs of collection, including reasonable attorneys' fees
incurred or paid and all costs, expenses,  default  interest,  late charges and
other expenses incurred by Holder and reimbursable to Holder pursuant  to  this
Note  (as  described  herein); (b) Default Interest accrued to the date of said
payment; (c) ordinary interest  accrued  to  the  date  of  said  payment;  and
finally, (d) outstanding principal.

      10.   Transfer.  This Note may be transferred only in accordance with the
provisions of the Indenture.

      11.   Maximum Interest.  In no event whatsoever shall the amount paid, or
agreed  to  be  paid,  to  Holder for the use, forbearance, or retention of the
money to be loaned hereunder ("Interest") exceed the maximum amount permissible
under applicable law.  If the  performance  or  fulfillment  of  any  provision
hereof,  or  any  agreement  between  the  Company  and Holder, shall result in
Interest exceeding the limit for Interest prescribed by law, then the amount of
such  Interest  shall  be  reduced  to such limit.  If, from  any  circumstance
whatsoever, Holder should receive as  Interest  an amount that would exceed the
highest  lawful  rate,  the amount that would be excessive  Interest  shall  be
applied to the reduction  of  the principal balance owing hereunder (or, at the
option of Holder, be paid over  to  the  Company)  and  not  to  the payment of
Interest.

      12.   Purpose of Loan.  The Company certifies that the loan  evidenced by
this Note is obtained for business or commercial purposes and that the proceeds
will  not  be  used  primarily for personal, family, household, or agricultural
purposes.

      13.   Governing Law.  As an additional consideration for the extension of
credit, Holder, Company  and  each  endorser,  surety, guarantor, and any other
person who may become liable for all or any part  of this obligation understand
and agree that the loan evidenced by this Note is made in the State of Illinois
and the provisions hereof will be construed in accordance  with the laws of the
State of Illinois, and such parties further agree that upon  the  occurrence of
an  Event  of  Default,  this  Note  may  be enforced in any court of competent
jurisdiction  in  the State of Illinois, and  they  do  hereby  submit  to  the
jurisdiction of such court regardless of their residence or where this Note was
executed or any endorsement hereof may be executed.

      14.   Binding  Effect.   The  term "Company" as used herein shall include
the original Company of this Note and  any  party  who  may subsequently become
liable  for the payment hereof as an assumer with the consent  of  the  Holder,
provided  that Holder may, at its option, consider the original Company of this
Note alone  as  the  Company  unless  Holder  has  consented  in writing to the
substitution of another party as the Company.  The term "Holder" as used herein
shall  mean  Holder or, if this Note is transferred, the subsequent  Holder  of
this Note.

      15.   Relationship  of Parties.  Nothing herein contained shall create or
be deemed or construed to create  a  joint  venture  or partnership between the
Company and any Holder.  Holder is acting hereunder as a lender only.

      16.   Severability.  Invalidation of any of the  provisions  of this Note
or  of  any  paragraph,  sentence,  clause,  phrase,  or  word  herein,  or the
application thereof in any given circumstance, shall not affect the validity of
the remainder of this Note.

      17.   Amendment.   This  Note  may  not be amended, modified, or changed,
except by an instrument in writing signed by the Company and the Noteholder, in
accordance with the provisions of the Indenture.

      18.   Time of the Essence.  Time is of the essence for the performance of
each and every obligation of Company hereunder.

      19.   Agreement to be Bound by Security  Agreement and Collateral Sharing
Agreement.  HOLDER, BY HIS ACCEPTANCE OF THIS NOTE,  AND ANY TRANSFEREE OF THIS
NOTE, WITHOUT FURTHER ACTION, AUTOMATICALLY SHALL BE DEEMED  TO  HAVE  BECOME A
PARTY  TO,  AND  TO HAVE AGREED TO BE BOUND BY, THE SECURITY AGREEMENT AND  THE
COLLATERAL SHARING  AGREEMENT  IN  THE  SAME  CAPACITY  AS IF HOLDER HAD BEEN A
SIGNATORY THERETO.


      IN  WITNESS  WHEREOF,  the  undersigned  has  executed this  Note  as  of
_________________, 200__.

                                           MOLECULAR DIAGNOSTICS, INC.



                                           By: ________________________________
                                                 Peter P. Gombrich
                                                 Chief Executive Officer


                                                                      EXHIBIT A

                               CONVERSION NOTICE

                                                        Dated  _________, 200__


      The undersigned hereby irrevocably elects to convert  the  Note  to which
this Conversion Notice is attached into shares of the Common Stock of Molecular
Diagnostics, Inc., as follows:



                                  AMOUNT CONVERTED
                                (check as applicable)


      _____The entire principal amount of the Note

      _____ $_____________ principal amount of the Note



                    INSTRUCTIONS FOR REGISTRATION OF STOCK



      Name  _______________________________________________________
                    (Please type or print in block letters)

      Address______________________________________________________



                                                                      EXHIBIT B

                              SECURITY AGREEMENT

THIS SECURITY AGREEMENT (this "Agreement"), dated as of October 1, 2002 is made
by Molecular Diagnostics, Inc., a Delaware corporation ("Debtor"), in favor  of
B.  Michael  Pisani,  residing  at  44 Lake Road, Short Hills, New Jersey 07078
("Secured Party"), as Collateral Agent  under a Collateral Sharing Agreement of
even date herewith (the "Collateral Sharing  Agreement") for the holders of the
12% Convertible Secured Promissory Notes issued  by  the  Company (the "Notes")
pursuant to an Indenture of even date herewith (the "Indenture").

      For valuable consideration, Debtor agrees as follows:

      1.    Security  Interest.   Debtor  hereby  grants  to  Secured  Party  a
continuing  security  interest  in  and to the following property or  types  of
property now owned by Debtor or hereafter  created  or  acquired by Debtor (the
"Collateral"  provided  however,  that  the Collateral shall  not  include  any
property owned by any of Debtor's subsidiaries):

            (a)   All  intellectual  property   of  Debtor,  including  without
      limitation inventions, designs, patents, patent applications, trademarks,
      trade names, copyrights, licenses and computer software;

            (b)   All  materials  and  records,  pertaining   to   any  of  the
      foregoing;

            (c)   All  documents of title evidencing or issued with respect  to
      any of the foregoing; and

            (d)   All proceeds  and products of all of the foregoing, including
      without limitation proceeds of insurance policies insuring the foregoing.

      2.    Liabilities.  The Collateral  shall  ratably secure the payment and
performance  of  all 12% Convertible Secured Promissory  Notes  issued  by  the
Company pursuant to  an  Indenture  of  even  date herewith, as may be renewed,
replaced, modified, waived or extended from time to time (the "Liabilities").

      3.    Warranties of Debtor.  Debtor warrants  and  represents  that as of
the date hereof:

            (a)   Debtor has the legal capacity and power to execute,  deliver,
      and  perform  this  Agreement  and any other documents executed or to  be
      executed in connection herewith;  such  actions have been duly authorized
      and do not and will not contravene or conflict with any provisions of law
      or any agreement or instrument affecting Debtor or its property.

            (b)   No financing statement, mortgage,  notice of judgment, or any
      similar instrument (unless filed on behalf of Secured Party) covering any
      of the Collateral is on file in any public office, except for a financing
      statement evidencing a first priority lien on all  of  Debtor's assets in
      favor of Round Valley Capital, LLC.

            (c)   Debtor  is the lawful owner of all Collateral  owned  by  it,
      free and clear of all  liens,  pledges,  charges,  mortgages,  and claims
      other  than  the  security  interest  hereunder, except liens for current
      taxes not delinquent and for a lien on  all the assets of Debtor in favor
      of Round Valley Capital, LLC (collectively, "Permitted Liens").

            (d)   Debtor is a corporation duly  formed  and  in  good  standing
      under the laws of the State of Delaware.  The exact legal name of  Debtor
      and  the  name  under which Debtor conducts business are set forth in the
      first paragraph of  this  Agreement  and Debtor does not conduct business
      under any other name.

      4.    Covenants of Debtor.  Debtor agrees  that, until payment in full of
the Liabilities, it will:

           (a)    Not change its name, its jurisdiction  of organization or its
      legal structure, without obtaining the prior written  consent  of Secured
      Party.

           (b)    Take  reasonable action to defend the Collateral against  the
      claims and demands  of  all persons other than Secured Party and promptly
      pay all taxes, assessments,  and  charges  upon  the  Collateral, and not
      authorize or execute any documents creating or perfecting  a lien upon or
      security  interest  in  any of the Collateral except in favor of  Secured
      Party and except for Permitted  Liens,  or  otherwise  create, suffer, or
      permit to exist any liens or security interests upon any Collateral other
      than in favor of Secured Party, and except for Permitted Liens.

           (c)    Execute  such  documents  and do such other acts  as  Secured
      Party  may  reasonably request to establish  and  maintain  a  valid  and
      perfected security interest in the Collateral free and clear of all other
      liens and claims  except  for  lines  in  favor  of the Secured Party and
      except  for Permitted Liens, including, but not limited  to,  paying  the
      cost of filing  and recording a financing statement in all public offices
      reasonably deemed  necessary by Secured Party.  Debtor hereby irrevocably
      authorizes Secured Party  at  any time, so long as any Liabilities remain
      outstanding, to file in any jurisdiction any initial financing statements
      and amendments thereto that (a)  describe  the Collateral and (b) contain
      any other information required by Part 5 of  Article  9  of  the  Uniform
      Commercial  Code of the jurisdiction wherein such financing statement  or
      amendment is  filed regarding the sufficiency or filing office acceptance
      of any financing  statement  or  amendment.  The Debtor agrees to furnish
      any such information to the Secured  Party promptly upon request.  Debtor
      hereby also irrevocably authorizes Secured  Party  to  make  such filings
      with the U.S. Patent and Trademark Office, the U.S. Copyright  Office and
      other regulatory agencies as Secured Party deems necessary or appropriate
      to  provide notice of the security interest in the Collateral granted  to
      Secured Party hereunder.

            (d)   After  the  occurrence  of  an  Event  of Default, furnish to
      Secured  Party,  immediately  upon  the  request  of Secured  Party,  any
      evidence of ownership of the Collateral.

            (e)   Keep  at  its  office,  at the address set  forth  under  its
      signature hereto, its records concerning  the  Collateral,  which records
      shall  be of such character as will enable Secured Party to determine  at
      any time  the status of the Collateral.  After the occurrence of an Event
      of Default,  furnish  to Secured Party such information concerning Debtor
      and the Collateral as Secured  Party  may  from  time  to time reasonably
      request  and  permit  Secured  Party  from  time  to time to inspect  the
      Collateral and to inspect, audit, and make copies of,  and extracts from,
      all  records and all other papers in the possession of Debtor  pertaining
      to the Collateral.

            (f)   Take all actions as may be necessary to maintain and preserve
      the Collateral.

            (g)   Make  appropriate  entries  upon its financial statements and
      its books and records disclosing Secured Party's security interest in the
      Collateral.

            (h)   Provide to Secured Party such  financial statements of Debtor
      and  information  from  time to time as Secured  Party  shall  reasonably
      request.

            (i)   Immediately notify  Secured Party in reasonable detail (i) of
      any material loss or depreciation in the value of the Collateral and (ii)
      of the occurrence of any event, which,  after  any  notice and passage of
      any cure period, may become an Event of Default.

            (j)   Not sell, transfer, or otherwise dispose  of  any  Collateral
      without Secured Party's prior written consent.

            (k)   Preserve  and  maintain  its  existence,  rights,  franchise,
      licenses  and  privileges  and  will not liquidate, dissolve or merge  or
      consolidate with or into any other  entity,  unless the Secured Party has
      provided its prior written consent.

            (l)   Not make any distribution of Debtor's  property  or assets to
      its stockholders, except as expressly permitted by Secured Party.

            (m)   Except  in  the  ordinary  course of business or as otherwise
      expressly  permitted  in this Agreement, and  except  for  the  Permitted
      Liens, not pledge, mortgage,  grant  a  security  interest  in, encumber,
      assign, sell, lease or otherwise dispose of or transfer, whether by sale,
      merger, consolidation, liquidation, dissolution, or otherwise, any of the
      Debtor's assets.

      5.    Events  Of  Default.  The occurrence of any of the following  shall
constitute an "Event of Default" under this Agreement and under the Notes:

            (a)   Payment Default.   Debtor  fails to pay principal or interest
      on the Notes on the Maturity Date (as defined in the Notes);

            (b)   Covenant Default.  Debtor  fails  to perform any of its other
      covenants hereunder or under the Notes or Indenture  that are material to
      Debtor  or  the  rights  of  Secured  Party  hereunder  and such  failure
      continues for ten (10) days after receipt of written notice thereof.

            (c)   Insolvency.   Debtor admits in writing its inability  to  pay
      its debts generally as they  become  due,  or makes an assignment for the
      benefit of creditors or files any petition or action for relief under any
      bankruptcy, reorganization, insolvency or moratorium  law,  or  any other
      law or laws for the relief of, or relating to, debtors.

            (d)   Bankruptcy.   An  involuntary  petition  is  filed  under any
      bankruptcy  or  insolvency  statute  against  the  Debtor or a custodian,
      receiver or trustee has been appointed to take possession of any property
      or other assets of Debtor, unless the petition or appointment  is  or has
      been  set  aside  or  withdrawn  or  ceases or has ceased to be in effect
      within thirty (30) days from the date of said filing or appointment.

      6.    Remedies on Default.  Notwithstanding any provision of any document
or  instrument  evidencing  or  relating  to  the  Liabilities,  (i)  upon  the
occurrence of any Event of Default specified in  Sections  5(a)  or  (b) above,
Secured  Party may, to the extent authorized by the Noteholders to do so  under
the Collateral  Sharing  Agreement,  declare all of the Liabilities immediately
due  and payable without notice or demand  of  any  kind,  and  (ii)  upon  the
occurrence  of an Event of Default specified in Sections 5(c) or (d) above, all
of the Liabilities  shall  be  immediately  and  automatically  due and payable
without  action  of  any  kind on the part of Secured Party.  Debtor  expressly
waives protest, notice, presentment,  dishonor  and demand of any kind.  In its
capacity as Collateral Agent for the holders of the  Notes under the Collateral
Sharing Agreement, Secured Party may exercise from time  to time any rights and
remedies available under the Uniform Commercial Code of Illinois, including the
right  to  have  Debtor  assemble  the  Collateral and deliver it  to  a  place
designated by Secured Party.  Debtor shall  pay all related expenses, including
reasonable attorneys' fees.  If any notification of intended disposition of any
of the Collateral is required by law, such notification,  if  mailed,  shall be
deemed  reasonably  and  properly given if mailed at least ten (10) days before
the disposition, postage prepaid,  addressed to Debtor at the address set forth
under its signature hereto.  Secured  Party  shall,  in  addition to and not in
limitation  of  all rights of offset under applicable law, have  the  right  to
appropriate and apply all of the Collateral in its possession to payment of the
Liabilities subject  to  the  rights  of  any  other  secured  party  permitted
hereunder.   Secured  Party  may  proceed  to  sell or otherwise dispose of the
Collateral  at public or private sale for cash or  credit;  provided,  however,
that Debtor shall be credited with proceeds of such sale only when the proceeds
are actually  received by Secured Party.  Any proceeds of the Collateral may be
applied by Secured  Party  to  the payment of expenses and costs to exercise of
Secured Party's rights hereunder,  and  any  balance  of such proceeds shall be
applied toward the Liabilities pro rata for the benefit  of  all holders of the
Notes.  Any balance remaining shall be returned to the Debtor.

      7.    Rights  of  Secured  Party.  Secured Party may at its  option  (but
shall have no duty to):

            (a)   During the continuance  of  an  Event of Default, perform any
      agreement of Debtor hereunder that Debtor shall have failed to perform;

            (b)   During the continuance of an Event of Default, take any other
      action that Secured Party reasonably deems necessary or desirable for the
      preservation  of  the  Collateral  or  Secured Party's  interest  herein,
      including  without limiting the generality  of  the  foregoing:  (i)  any
      action to realize  upon  the  Collateral;  (ii)  the  discharge of taxes,
      liens,  security interests or other encumbrances at any  time  levied  or
      placed on the Collateral subject to the rights of any other secured party
      permitted  hereunder;  or  (iii)  the discharge or keeping current of any
      obligation of Debtor having effect on the Collateral; and

            (c)   At any time and from time to time, so long as any Liabilities
      are outstanding, file, or cause to  be  filed, any financing statement or
      other notification with any governmental  authority  respecting any right
      of Secured Party in the Collateral.

      Effective  during the continuance of an Event of Default,  Debtor  hereby
appoints  Secured  Party   as   its   attorney-in-fact,  which  appointment  is
irrevocable and coupled with an interest,  for  purposes of performing acts and
signing and delivering any agreement, document, or  instrument,  on  behalf  of
Debtor  in  accordance  with  this  Section.  Debtor immediately will reimburse
Secured Party for all expenses so incurred  by  Secured  Party,  together  with
interest thereon at the default Rate (as defined in the Notes).

      8.    General.

            (a)   Nonwaiver;  Cumulative Remedies.  No delay or omission on the
      part of Secured Party in  the  exercise  of  any  right  or  remedy shall
      operate as a waiver thereof, and no single or partial exercise by Secured
      Party  of  any  right  or remedy shall preclude other or further exercise
      thereof or the exercise  of  any  other  right or remedy.  The rights and
      remedies  herein  provided  to  Secured  Party  are  cumulative  and  not
      exclusive of any rights or remedies provided by law.

            (b)   Notices.   All notices, requests,  and  demands  to  or  upon
      Secured Party or Debtor  shall  be deemed to have been given or made when
      deposited  in  the mail, postage prepaid,  addressed  to  Debtor  at  the
      address set forth  under its signature or to Secured Party at the address
      listed in the heading of this Agreement.

            (c)   Successors.    This   Agreement  shall,  upon  execution  and
      delivery by the Debtor, become effective  and  shall  be binding upon and
      inure  to  the  benefit  of  Debtor, Secured Party, and their  respective
      successors and assigns, except that Debtor may not transfer or assign any
      of its rights or interest hereunder without the consent of Secured Party.

            (d)   Number and Gender.   Unless  the  context otherwise requires,
      wherever used herein the singular shall include the plural and the plural
      shall include the singular, and the use of one  gender  shall  denote the
      other where appropriate.

            (e)   Enforcement Costs.  Debtor agrees to pay or reimburse Secured
      Party upon demand for all reasonable costs, expenses, and fees (including
      legal  costs  and fees and reasonable time charges of attorneys) incurred
      by Secured Party  in preparing, negotiating, enforcing, or preserving its
      rights under, this  Agreement  or any note, document, or other instrument
      executed in connection herewith.

            (f)   Provisions Severable;  References.   If any term or provision
      of   this   Agreement   shall   be   unenforceable   or   invalid,   such
      unenforceability  or  invalidity  shall  not  render  any  other term  or
      provision  hereof  unenforceable  or  invalid,  and  all other terms  and
      provisions of this Agreement shall be enforceable and  valid.  References
      to  Sections  herein  shall  be  to  Sections  of  this Agreement  unless
      otherwise specified

            (g)   Construction; Jurisdiction.  This Agreement  and  the  rights
      and  obligations  of  the  parties  hereunder  shall  be governed by, and
      construed and interpreted in accordance with, the laws  of  the  State of
      Illinois.   Debtor  hereby  irrevocably consents to the jurisdiction  and
      venue of any state or federal court sitting in the State of Illinois, and
      agrees that any litigation involving  this  Agreement  (including without
      limitation ancillary claims) may be conducted in any such  court  at  the
      sole option of Secured Party.  Debtor hereby waives any right or claim it
      may  have  to  transfer or change the venue of any suit, action, or other
      proceeding brought  against  Debtor  by  Secured Party in accordance with
      this Section or to claim that any such proceeding  has been brought in an
      inconvenient forum.  THE DEBTOR AGREES TO WAIVE ANY  RIGHT IT MAY HAVE TO
      A TRIAL BY JURY IN ANY SUCH SUIT ACTION OR PROCEEDING.


                           [signature page follows]


                                                                      EXHIBIT B

      IN WITNESS WHEREOF, the Company has executed this Security  Agreement for
the  benefit of the Secured Party, as Collateral Agent for the holders  of  the
Notes  under  the  Collateral  Sharing  Agreement  as of the date first written
above.

                                    MOLECULAR DIAGNOSTICS, INC.


                                    By: ____________________________________
                                           Peter P. Gombrich
                                           Chief Executive Officer

                                    Address:     414 North Orleans Street
                                                 Chicago, Illinois 60610



                                                                      EXHIBIT C

                         COLLATERAL SHARING AGREEMENT

      This Collateral Sharing Agreement (this "Agreement")  is  entered into as
of this 1st day of October, 2002 among B. Michael Pisani, residing  at  44 Lake
Road,  Short  Hills,  New Jersey 07078 (the "Collateral Agent") and the holders
(the "Noteholders") of  the  12%  Convertible  Secured  Promissory  Notes  (the
"Notes")  issued  by  Molecular  Diagnostics, Inc., a Delaware corporation (the
"Borrower"), pursuant to an Indenture of even date herewith (the "Indenture").

                                   RECITALS

      WHEREAS,  the  Notes  are secured  by  a  security  interest  in  certain
Collateral (as defined below)  granted  to  the  Collateral Agent pursuant to a
Security Agreement of even date herewith (the "Security Agreement"); and

      WHEREAS, the parties desire by this Agreement  to  set forth the basis by
which  the Collateral Agent will hold the security interest  and  exercise  its
rights under the Security Agreement for the benefit of all of the Noteholders.

      NOW  THEREFORE,  in  exchange  for  good  and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged,  the  parties agree as
follows:

                                   AGREEMENT

      1.    Defined  Terms.   Capitalized  terms used herein and not  otherwise
defined herein shall have the meanings attributed to such terms in the Security
Agreement.  In addition, the following terms shall have the following meanings:

      "Agent's Expenses" means all of the reasonable  fees,  costs and expenses
of the Collateral Agent (including, without imitation, the reasonable  fees and
disbursements  of  its counsel) (a) arising in connection with the preparation,
execution, delivery,  modification,  restatement,  amendment  or termination of
this Agreement and each Collateral Document or the enforcement  (whether in the
context of a civil action, adversary proceeding, workout or otherwise)  of  any
of the provisions hereof or thereof, or (b) incurred or required to be advanced
in  connection  with the sale or other disposition or the custody, preservation
or protection of  Collateral  pursuant  to  any  Collateral  Document  and  the
exercise  or  enforcement of the Collateral Agent's rights under this Agreement
and in and to the Collateral.

      "Collateral"  means  all property of the Borrower in which the Collateral
Agent shall have been granted  a  security  interest  or  lien under any of the
Collateral Documents.

      "Collateral  Account"  means  the  collateral  account  established   and
maintained by the Collateral Agent pursuant to Section 8.

      "Collateral  Documents"  means  the  Security  Agreement  and  any  other
agreements, instruments and documents incidental thereto.

      "Distribution  Date" means the first day of every month following receipt
by the Collateral Agent of a Notice of Default.

      "Notice of Default"  means  a written notice to the Collateral Agent from
any Noteholder or Noteholders certifying  that an Event of Default has occurred
and  is  continuing.   A  "Notice of Default" may  be  included  in  a  written
direction to the Collateral  Agent  from  the Requisite Noteholders pursuant to
Section 5.

      "Pro Rata Share" means, with respect  to  any  Noteholder  at any time, a
fraction  (expressed  as  a  percentage), the numerator of which shall  be  the
outstanding amount payable to  the  Noteholder  under  the  Notes  held  by the
Noteholder,  and  the  denominator  of which shall be the aggregate outstanding
amount payable to all Noteholders under the Notes.

      "Requisite  Noteholders" means,  at  any  time,  Noteholders  holding  an
aggregate Pro Rata  Share  greater  than  66-2/3%,  provided  that   "Requisite
Noteholders" shall mean all of the Noteholders (other than any Noteholder  that
has  given  notice to the Collateral Agent in accordance with the last sentence
of Section 10)  with  respect to (a) the release by the Collateral Agent of any
Collateral,  other than  a  release  in  connection  with  the  disposition  of
Collateral by  either  the  Collateral Agent or the Borrower and the receipt by
the Collateral Agent of the proceeds  of  disposition,  (b) any  amendment  to,
waiver  of  or  departure  from  the  terms  of  this  Agreement  or any of the
Collateral   Documents   that   would   change  the  definition  of  "Requisite
Noteholders," change any of the powers or  duties  of  the  Collateral Agent or
change any of the rights of any of the Noteholders under this  Agreement or any
of the Collateral Documents.

      2.    Appointment,  Nature  of  Relationship.   Each  of  the Noteholders
hereby designates and appoints the Collateral Agent, in the Collateral  Agent's
individual  capacity  and  not  as  lender,  as  the  Collateral  Agent for the
Noteholder  under  this  Agreement  and  the  Collateral  Documents,  and  each
Noteholder  hereby  irrevocably  authorizes  the  Collateral  Agent to take any
action  on the Noteholder's behalf under the provisions of this  Agreement  and
the Collateral  Documents and to exercise any powers as are set forth herein or
therein, together  with  any  other  powers  as  are  incidental  thereto.  The
Collateral Agent agrees to act on the express terms and conditions contained in
this  Agreement.   Notwithstanding  the  use  of  the  defined term "Collateral
Agent," it is expressly understood and agreed that the Collateral  Agent  shall
not  have  any  fiduciary  responsibilities to any Noteholder by reason of this
Agreement or the other Collateral  Documents  and  that the Collateral Agent is
merely acting as the representative of the Noteholders  with  only  the  duties
that  are  expressly  set forth in this Agreement and the Collateral Documents.
In its capacity as the  Noteholders' contractual representative, the Collateral
Agent (a) does not assume  any  fiduciary  duties  to  any  of the Noteholders,
(b) is a "representative" of the Noteholders within the meaning  of  Section 9-
105  of  the  Uniform  Commercial  Code  and  (c) is  acting  as an independent
contractor, the rights and duties of which are limited to those  expressly  set
forth  in this Agreement and the Collateral Documents.  Each of the Noteholders
agrees not  to  assert  any  claim  against  the Collateral Agent on any agency
theory or any other theory of liability for breach  of  fiduciary  duty, all of
which claims each Noteholder hereby expressly waives.

      3.    Powers  and  Duties.   The  Collateral  Agent  shall  have and  may
exercise  the  powers  under  the  Collateral  Documents  that are specifically
delegated  to  the  Collateral Agent by the terms hereof and thereof,  together
with powers that are reasonably incidental thereto.  The Collateral Agent shall
have no implied duties to the Noteholders, or any obligation to the Noteholders
to take any action hereunder  or  under any of the Collateral Documents, except
any action specifically required by  this  Agreement  or  any of the Collateral
Documents  to  be  taken by the Collateral Agent or directed by  the  Requisite
Noteholders in accordance with the terms hereof.

      4.    Authorization   to  Execute  Collateral  Documents.   Each  of  the
Noteholders authorizes and directs the Collateral Agent, for the benefit of the
Noteholders, to execute and deliver  each of the Collateral Documents requiring
execution and delivery by the Collateral  Agent and to accept delivery from the
Borrower of those Collateral Documents that  do  not  require  execution by the
Collateral Agent.

      5.    Direction  by Requisite Noteholders.  Except as otherwise  provided
in this Section 5, the Collateral  Agent  shall take any action with respect to
the  Collateral  and  the  Collateral Documents  directed  in  writing  by  the
Requisite Noteholders.  Notwithstanding  the  foregoing,  the  Collateral Agent
shall  not  be  obligated to take any action (a) that is in conflict  with  any
provisions of applicable law or of this Agreement or any Collateral Document or
(b) with respect  to which the Collateral Agent, in its sole opinion, shall not
have been provided  adequate security and indemnity against the costs, expenses
and liabilities that  may  be incurred by it as a result of compliance with the
direction.  Under no circumstances  shall  the  Collateral  Agent be liable for
following the written direction of the Requisite Noteholders.  In each instance
in  which  the  Requisite  Noteholders  deliver  a  written  direction  to  the
Collateral Agent pursuant hereto, the Requisite Noteholders shall promptly send
a copy of the written direction to each other Noteholder.

      6.    Notice  of  Default.  Any Noteholder or Noteholders  may  give  the
Collateral Agent a Notice  of  Default in the manner provided in Section 2, and
upon receipt of thereof, the Collateral  Agent  shall give a copy of the Notice
of Default to each other Noteholder.  If, and only  if,  the  Collateral  Agent
shall  have  received a Notice of Default, the Collateral Agent shall, upon the
written direction  of  the  Requisite  Noteholders,  exercise  the  rights  and
remedies provided in this Agreement and in any of the Collateral Documents.

      7.    Remedies.   Each  of the Noteholders hereby irrevocably agrees that
the Collateral Agent shall be authorized, after the occurrence of a Default and
at  the  direction of the Requisite  Noteholders  or  incidental  to  any  such
direction,  for the purpose of carrying out the terms of this Agreement and any
of the Collateral  Documents,  to  take  any  and all appropriate action and to
execute  any  and  all  documents  and instruments that  may  be  necessary  or
desirable to accomplish the purposes  hereof  and  thereof,  including, without
limiting the generality of the foregoing, to the extent permitted by applicable
law, to do the following:

            (a)   to ask for, demand, sue for, collect, receive  and give
      acquittance  for  any  and  all  moneys  due  or to become due with
      respect to the Collateral,

            (b)   to receive, take, endorse, assign and  deliver  any and
      all   checks,  notes,  drafts,  acceptances,  documents  and  other
      negotiable  and  nonnegotiable  instruments,  documents and chattel
      paper taken or received by the Collateral Agent  in connection with
      this Agreement or any of the Collateral Documents,

            (c)   to   commence,   file,   prosecute,   defend,   settle,
      compromise  or  adjust  any claim, suit, action or proceeding  with
      respect to the Collateral,

            (d)   to sell, transfer,  assign or otherwise deal in or with
      the  Collateral  or any part thereof  pursuant  to  the  terms  and
      conditions of this Agreement and the Collateral Documents, and

            (e)   to do,  at  its  option  and at the expense and for the
      account  of  the Noteholders (to the extent  the  Collateral  Agent
      shall not be reimbursed  by the Borrower), at any time or from time
      to  time, all acts and things  which  the  Collateral  Agent  deems
      reasonably  necessary  to protect or preserve the Collateral and to
      realize upon the Collateral.

      8.    The Collateral Account.   Upon receipt by the Collateral Agent of a
Notice  of  Default,  the  Collateral  Agent   shall   open   and  maintain  an
interest-bearing   bank   account   that   shall  be  entitled  the  "Molecular
Diagnostics, Inc. 12% Convertible Secured Note Collateral Account."  All moneys
received by the Collateral Agent with respect  to Collateral after receipt of a
Notice of Default shall be deposited in the Collateral  Account  and thereafter
shall  be held, applied and/or disbursed by the Collateral Agent in  accordance
with Section  9.   In  no  event shall moneys other than proceeds of Collateral
(and interest thereon) be deposited  in the Collateral Account.  The Collateral
Account at all times shall be subject  to the exclusive dominion and control of
the Collateral Agent.

      9.    Application of Moneys.  All  moneys held by the Collateral Agent in
the Collateral Account shall be distributed  by  the  Collateral  Agent on each
Distribution Date as follows:

            FIRST:  To  the  Collateral  Agent  in an amount equal to the
      Agent's Expenses that are unpaid as of the  Distribution  Date, and
      to any Noteholder that has theretofore advanced or paid any Agent's
      Expenses  in  an amount equal to the amount so advanced or paid  by
      the Noteholder prior to the Distribution Date;

            SECOND:  To   the   Noteholders   in  accordance  with  their
      respective Pro Rata Shares as of such Distribution Date; and

            THIRD:  Any surplus remaining after  payment  in full in cash
      of all Agent's Expenses and all Liabilities shall be  paid  to  the
      Borrower,  or  to  whomever may be lawfully entitled to receive the
      same, or as a court of competent jurisdiction may direct.

Notwithstanding the foregoing, except for any surplus under clause THIRD above,
the Collateral Agent shall  not  be  required  to  make  a  distribution on any
Distribution  Date  if  the  balance  in  the Collateral Account available  for
distribution  on the Distribution Date is less  than  $1,000.   The  Collateral
Agent shall not  be  responsible  for any Noteholder's application (or order of
application) of payments received by  the  Noteholder from the Collateral Agent
hereunder to the Liabilities owing to such Noteholder.   The  Collateral  Agent
waives  any  right  of  set-off  it  may  have against monies in the Collateral
Account to the extent the set-off results in  a  distribution  of  monies other
than as set forth in the foregoing provisions for application of monies  in the
Collateral Account.

      10.   Information  from  Noteholders.   Each  of  the  Noteholders hereby
agrees,  promptly  upon  request  by  the Collateral Agent, to provide  to  the
Collateral Agent in writing any information  regarding  the  Notes  held by the
Noteholder as may be reasonably required by the Collateral Agent at any time to
determine the Noteholder's Pro Rata Share or to calculate distributions  to the
Noteholder  from  the  Collateral  Account.   Each  Noteholder shall notify the
Collateral Agent in writing promptly following the repayment  in  full  of  the
Noteholder's Note.

      11.   Limitation  on  Collateral Agent's Duties in Respect of Collateral.
Other than the Collateral Agent's  duties  set  forth in this Agreement and the
Collateral Documents as to the custody of moneys,  stock certificates and stock
powers  received  by  the  Collateral Agent hereunder and  thereunder  and  the
accounting to the Borrower and  the  Noteholders therefor, the Collateral Agent
shall have no duty to the Borrower or  the  Noteholders  with  respect  to  any
Collateral  in its possession or control or in the possession or control of its
agent or nominee,  any  income  thereon,  or the preservation of rights against
prior parties or any other rights pertaining thereto.

      12.   Noteholder Credit Decision.  Each  Noteholder  acknowledges that it
has, independently and without reliance upon the Collateral  Agent or any other
Noteholder, and based on the financial information provided by the Borrower and
any other documents and information the Noteholder has deemed appropriate, made
its  own  credit  analysis and decision to acquire the Notes.  Each  Noteholder
also acknowledges that  it  will,  independently  and without reliance upon the
Collateral  Agent  or  any other Noteholder, and based  on  any  documents  and
information the Noteholder  deems appropriate at the time, continue to make its
own credit decisions in taking or not taking action under this Agreement.

      13.   Exculpation.   Neither   the   Collateral  Agent  nor  any  of  its
employees, agents or affiliates shall be responsible  for  or  have any duty to
ascertain,   inquire   into,   or   verify   (a) any   statement,  warranty  or
representation made by the Borrower in connection with any Collateral Document;
(b) the performance or observance of any of the covenants  or agreements of the
Borrower  under  any  Collateral  Document;  (c) the  validity, enforceability,
effectiveness or genuineness of any Collateral Document or any other instrument
or writing furnished in connection therewith; (d) the validity,  perfection  or
priority  of  any  security  interest  or  lien  created  under  any Collateral
Document; or (e) the financial condition of the Borrower.

      14.   Employment of Agents and Counsel.  The Collateral Agent may execute
any  of  its duties as the Collateral Agent hereunder and under any  Collateral
Document by  or  through employees, agents, and attorneys-in-fact and shall not
be answerable to the  Noteholders, except as to money or securities received by
it or its authorized agents,  for  the default or misconduct of any such agents
or attorneys-in-fact selected by it.  The Collateral Agent shall be entitled to
advice of counsel in all matters pertaining  to  the  Collateral Agent's duties
hereunder and under the Collateral Documents.

      15.   Reliance on Documents and Counsel.  The Collateral  Agent  shall be
entitled  to  rely  upon  any  notice, consent, certificate, affidavit, letter,
telegram, statement, paper or document believed by it to be genuine and correct
and to have been signed or sent  by  the  proper  person  or  persons,  and, in
respect  to  legal  matters,  upon  the  opinion  of  counsel  selected  by the
Collateral Agent, which may be employees of the Collateral Agent.

      16.   Collateral   Agent's   Reimbursement   and   Indemnification.   The
Noteholders agree to reimburse and indemnify the Collateral  Agent  ratably  in
proportion  to  their  respective Pro Rata Shares as of the date hereof (a) for
any amounts not reimbursed  by  the  Borrower  under  the Collateral Documents,
(b) for any other expenses incurred by the Collateral Agent  on  behalf  of the
Noteholders,   in   connection   with  the  preparation,  execution,  delivery,
administration and enforcement of  the  Collateral  Documents  and  (c) for any
liabilities,  obligations,  losses,  damages,  penalties,  actions,  judgments,
suits, costs, expenses or disbursements of any kind and nature whatsoever which
may be imposed on, incurred by or asserted against the Collateral Agent  in any
way  relating  to  or  arising  out  of  the  Collateral Documents or any other
document  delivered  in connection therewith or the  transactions  contemplated
thereby, or the enforcement  of  any  of  the  terms thereof,  provided that no
Noteholder shall be liable for any of the foregoing  to  the  extent any of the
foregoing is found in a final non-appealable judgment by a court  of  competent
jurisdiction to have arisen from the gross negligence or willful misconduct  of
the  Collateral  Agent.   The  agreements  in this Section 16 shall survive the
repayment of the Liabilities and the termination  of  the  other  provisions of
this Agreement.

      17.   Rights as a Noteholder.  Notwithstanding that the Collateral  Agent
is  acting  as  the  Collateral  Agent  hereunder,  the Collateral Agent in its
individual  capacity  as  a Noteholder shall have the same  rights  and  powers
hereunder as any Noteholder and may exercise the same as though it were not the
Collateral Agent, and the term  "Noteholder" or "Noteholders" shall include the
Collateral Agent in its capacity as a Noteholder.

      18.   Successor Collateral Agent.  The Collateral Agent may resign at any
time by giving written notice thereof  to the Noteholders and the Borrower, and
the Collateral Agent may be removed at any  time,  with  or  without  cause, by
written notice received by the Collateral Agent from the Requisite Noteholders.
Upon any resignation or removal, the Requisite Noteholders shall have the right
to appoint, on behalf of the Noteholders, a successor Collateral Agent.   If no
successor  Collateral  Agent  shall  have  been  so  appointed by the Requisite
Noteholders and shall have accepted the appointment within  30  days  after the
departure  of  the  Collateral  Agent, then the departing Collateral Agent  may
appoint, on behalf of the Noteholders,  a successor Collateral Agent.  Upon the
acceptance of any appointment as the Collateral  Agent hereunder by a successor
Collateral Agent, the successor Collateral Agent shall thereupon succeed to and
become  vested  with  all  the rights, powers, privileges  and  duties  of  the
departing  Collateral Agent,  and  the  departing  Collateral  Agent  shall  be
discharged from  its  duties and obligations hereunder and under the Collateral
Documents.   After any departing  Collateral  Agent's  resignation  or  removal
hereunder as Collateral  Agent, the provisions of this Agreement shall continue
in effect for its benefit  in  respect  of  any  actions taken or omitted to be
taken by it while it was acting as the Collateral Agent hereunder and under the
Collateral Documents.

      19.   Release and Termination.  All of the Collateral  shall  be released
and this Agreement shall be terminated on the earlier of:

            (a)   the  date  on which (i) the Collateral Agent shall have
      received  from each of the  Noteholders  written  notice  that  all
      Liabilities  owing  to  the  Noteholder  have been paid in full and
      (ii) all Agent's Expenses shall have been paid in full; or

            (b)   the date on which (i) the Collateral  Agent  shall have
      received  written  instructions from all of the Noteholders  (other
      than any Noteholder  that  has given notice to the Collateral Agent
      in accordance with the last  sentence  of Section 10) directing the
      Collateral  Agent to release the Collateral  and  (ii) all  Agent's
      Expenses shall have been paid in full.

      20.   Amendments and Waivers.  No amendment to or waiver of any departure
from the terms of this  Agreement  shall  be  effective  unless  in writing and
signed by all of the parties hereto.  The Collateral Agent shall not execute or
deliver any amendment or waiver with respect to any Collateral Document  except
at the direction or with the consent of the Requisite Noteholders.

      21.   Notices.  All Notices hereunder shall be given in the manner and to
the  respective  addresses  for  the Noteholders contained by the Note registry
maintained by the Secretary of the Company in accordance the Indenture.

      22.   Headings.   Section  headings   used  in  this  Agreement  are  for
convenience only and shall not affect the construction of this Agreement.

      23.   Severability.  Any provision of this  Agreement  that is prohibited
or  unenforceable  in  any  jurisdiction  shall  not  invalidate the  remaining
provisions hereof, and any prohibition or unenforceability  in any jurisdiction
shall  not  invalidate  or  render  unenforceable  the provision in  any  other
jurisdiction.

      24.   Binding Effect.  This Agreement shall be  binding upon and inure to
the benefit of each of the parties hereto and their respective  successors  and
assigns.

      25.   Governing  Law.  The provisions of this Agreement shall be governed
by and construed in accordance  with the internal laws (as opposed to conflicts
of law provisions) and decisions of the State of Illinois.

      26.   Number and Gender.  Unless the context otherwise requires, wherever
used herein the singular shall include  the plural and the plural shall include
the  singular,  and  the  use  of  one  gender shall  denote  the  other  where
appropriate.

      IN  WITNESS WHEREOF, this Collateral  Sharing  Agreement  has  been  duly
executed as of by the date first written above.




                                           ____________________________________
                                           B. Michael Pisani
                                           Collateral Agent

                                           PURSUANT   TO  THE  INDENTURE,  EACH
                                           NOTEHOLDER'S  ACCEPTANCE OF HIS NOTE
                                           CONSTITUTES HIS  AGREEMENT  TO  BE A
                                           PARTY   TO,  AND  BE  BOUND  BY  THE
                                           PROVISIONS  OF  THIS  AGREEMENT, THE
                                           SAME AS IF A SIGNATORY HERETO.



                                                                      EXHIBIT D

THIS  WARRANT  AND  THE UNDERLYING SHARES OF COMMON STOCK REPRESENTED  BY  THIS
CERTIFICATE HAVE NOT  BEEN  REGISTERED  UNDER  THE  SECURITIES ACT OF 1933 (THE
"ACT"), AND ARE "RESTRICTED SECURITIES" AS THAT TERM  IS  DEFINED  IN  RULE 144
UNDER  THE  ACT.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE
TRANSFERRED EXCEPT  PURSUANT  TO  AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
ACT,  OR  PURSUANT  TO  AN  EXEMPTION FROM  REGISTRATION  UNDER  THE  ACT,  THE
AVAILABILITY OF WHICH IS TO BE  ESTABLISHED  TO  THE  SATISFACTION OF MOLECULAR
DIAGNOSTICS, INC.

                                                       Warrant No. 200__- [   ]


                  WARRANT TO PURCHASE SHARES OF COMMON STOCK

                      WARRANT TO PURCHASE _______ SHARES
                  (SUBJECT TO ADJUSTMENT AS SET FORTH HEREIN)

[For cash subscriptions for the first One Million Dollars ($1,000,000)
principal amount of Notes being offered (determined on a "first come - first
served" basis):

                        EXERCISE PRICE $0.15 PER SHARE
                  (SUBJECT TO ADJUSTMENT AS SET FORTH HEREIN)]

[For subscribers who subscribe after cash subscriptions for the first One
Million Dollars ($1,000,000) principal amount of Notes have been received by
the Company (determined on a "first come - first served" basis):

                        EXERCISE PRICE $0.20 PER SHARE
                  (SUBJECT TO ADJUSTMENT AS SET FORTH HEREIN)]

                                  ISSUE DATE:
      VOID AFTER 3:00 P.M., CENTRAL TIME, ON THE FIFTH ANNIVERSARY OF THE
                                  ISSUE DATE

      THIS  CERTIFIES  THAT  ,  ,  is  entitled  to  purchase  from   Molecular
Diagnostics,  Inc.,  a  Delaware corporation (hereinafter called the "Company")
with its principal office  located  at  414  North  Orleans  Street, Suite 510,
Chicago,  Illinois  60610,  at  any  time  after the Exercise Date (as  defined
below), but before 3:00 P.M., Central Time,  on the Expiration Date (as defined
below), at the Exercise Price (as defined below),  the  number  of  shares (the
"Warrant  Shares")  of  the Company's common stock, par value $0.001 per  share
(the "Common Stock") set  forth  above.   The number of Shares purchasable upon
exercise of this Warrant and the Exercise Price  per  Share shall be subject to
adjustment from time to time as set forth in Section 4 below.


      SECTION 1.  DEFINITIONS

      The  following  terms  used  in  this  Warrant shall have  the  following
meanings (unless otherwise expressly provided herein):

      The "Act."  The Securities Act of 1933, as amended.

      The "Commission."  The Securities and Exchange Commission.

      The "Company."  Molecular Diagnostics, Inc.

      "Common Stock."  The Company's Common Stock, par value $0.001 per share.

      "Current Market Price."  The Current Market  Price shall be determined as
follows:

            (a)   if the security at issue is listed  on  a national securities
      exchange or admitted to unlisted trading privileges on  such  an exchange
      or quoted on either the National Market System or the Small Cap Market of
      the automated quotation service operated by The Nasdaq Stock Market, Inc.
      ("Nasdaq"),  the  current value shall be the last reported sale price  of
      that security on such exchange or system on the day for which the Current
      Market Price is to be determined or, if no such sale is made on such day,
      the average of the  highest  closing  bid and lowest asked price for such
      day on such exchange or system; or

            (b)   if  the security at issue is  not  so  listed  or  quoted  or
      admitted to unlisted  trading  privileges, the Current Market Value shall
      be the average of the last reported  highest  bid and lowest asked prices
      quoted on the Nasdaq Electronic Bulletin Board,  or,  if  not  so quoted,
      then  by  the  National  Quotation Bureau, Inc. on the last business  day
      prior to the day for which  the Current Market Price is to be determined;
      or

            (c)   if the security at  issue  is  not  so  listed  or  quoted or
      admitted to unlisted trading privileges and bid and asked prices  are not
      reported, the current market value shall be determined in such reasonable
      manner  as  may be prescribed from time to time by the Board of Directors
      of  the  Company,   subject   to  the  objection  procedures  hereinafter
      described.

      "Exercise Date."  July 31, 2003.

      "Exercise Price."  [$0.15] or [$0.20] per Share, as modified from time to
time in accordance with the provisions of this Warrant.

      "Expiration Date."  The fifth anniversary  of the Issue Date indicated on
the first page of this Warrant.

      "Holder" or "Warrantholder."  The person to  whom  this Warrant is issued
and any valid transferee thereof pursuant to Section 3.1 below.

      "NASD."  The National Association of Securities Dealers, Inc.

      "Nasdaq."  The automated quotation system operated by  the  Nasdaq  Stock
Market, Inc.

      "Termination  of  Business."   Any  sale,  lease  or  exchange of all, or
substantially  all,  of  the  Company's assets or business or any  dissolution,
liquidation or winding up of the Company.

      "Warrant."  This Warrant  and  any  other warrants issued in substitution
for  or replacement thereof, including those  evidenced  by  a  certificate  or
certificates  originally issued or issued upon division, exchange, substitution
or transfer pursuant to this Warrant.

      "Warrant  Shares."   The  Common  Stock purchasable upon exercise of this
Warrant  including the Common Stock underlying  unexercised  portions  of  this
Warrant.

      SECTION 2.  TERM OF WARRANTS; EXERCISE OF WARRANT

      2.1.  Exercise of Warrant.

            (a)   Subject  to  the terms of this Warrant, the Holder shall have
      the right, at any time beginning  on  the Exercise Date but prior to 3:00
      p.m., Central Time, on the Expiration Date,  to purchase from the Company
      up to the number of fully paid and nonassessable  Warrant Shares to which
      the  Holder  may  at the time be entitled to purchase  pursuant  to  this
      Warrant, upon surrender  to  the Company, at its principal office, of the
      Warrant to be exercised, together  with  the purchase form on the reverse
      thereof, duly filled in and signed, and upon  payment  to  the Company of
      the Exercise Price for the number of Warrant Shares in respect  of  which
      the  Warrant is then exercised, but in no event for less than 100 Warrant
      Shares  (unless  fewer  than  an aggregate of 100 Warrant Shares are then
      purchasable under all outstanding Warrants held by a Holder).

            (b)   In lieu of payment  of  the  Exercise  Price,  the Holder may
      require  the Company to convert this Warrant into shares of Common  Stock
      (the "Conversion  Right")  as  provided for in this Section 2.1(b).  Upon
      exercise of the Conversion Right, the Company shall deliver to the Holder
      (without payment by the Holder of  any of the Exercise Price) that number
      of shares of Common Stock equal to the  quotient obtained by dividing (x)
      the value of the Warrant at the time the  Conversion  Right  is exercised
      (determined  by  subtracting  the  aggregate  Exercise  Price  in  effect
      immediately  prior  to  the  exercise  of  the  Conversion Right from the
      aggregate Current Market Price for the Common Stock  immediately prior to
      the exercise of the Conversion Right by (y) the Current  Market  Price of
      the Common Stock.

      2.2.  Payment of Exercise Price.  Payment of the aggregate Exercise Price
may be made in cash or by check, or any combination thereof.

      2.3.  Issuance of Shares.  Upon surrender of this Warrant and payment  of
the  applicable  Exercise  Price,  the  Company  shall  issue  and  cause to be
delivered  with  all  reasonable  dispatch to or upon the written order of  the
Holder and in the name or names the  Holder  may  designate,  a  certificate or
certificates  for  the  number  of  full  Warrant Shares so purchased upon  the
exercise of this Warrant, together with cash, as provided in Section 12 hereof,
in respect of any fraction of a Warrant Share  that  would  otherwise have been
issuable upon exercise of this Warrant.

      2.4.  Status as Holder of Shares.  Upon receipt of this  Warrant  by  the
company  following any exercise by the Holder, the Holder shall be deemed to be
the  holder   of   record   of  the  Warrant  Shares  issuable  upon  exercise,
notwithstanding that the transfer  books  of  the Company may then be closed or
that certificates representing the Warrant Shares may not have been prepared or
actually delivered to the Holder.

      SECTION 3.  TRANSFERABILITY AND FORM OF WARRANT

      3.1.  Limitation on Transfer.  Any assignment or transfer of this Warrant
shall  be  made by presentation and surrender hereof  to  the  Company  at  its
principal office  or the office of its transfer agent, if any, accompanied by a
duly executed Assignment  Form.   Upon  the presentation and surrender of these
items  to the Company, the Company, at its  sole  expense,  shall  execute  and
deliver  to  the  transferee  or  transferees  of this Warrant a new Warrant or
Warrants, in the name of the transferee or transferees  named in the Assignment
Form, and this Warrant shall at that time be canceled.

      3.2.  Exchange of Certificate.  This Warrant may be exchanged for another
Warrant or Warrants entitling the Warrantholder to purchase  a  like  aggregate
number  of  Warrant Shares as the Warrant or Warrants surrendered then entitled
the Warrantholder  to  purchase.   Any  Warrantholder  desiring  to  exchange a
Warrant  shall  make  a request in writing delivered to the Company, and  shall
surrender, properly endorsed,  with  signatures  guaranteed,  the Warrant to be
exchanged.   Thereupon,  the  Company shall execute and deliver to  the  person
entitled thereto a new Warrant as requested.

      3.3.  Mutilated, Lost, Stolen,  or  Destroyed  Certificate.   In case the
certificate  evidencing  this  Warrant  shall  be  mutilated,  lost, stolen  or
destroyed,  the Company shall, at the request of the Warrantholder,  issue  and
deliver in exchange and substitution for and upon cancellation of the mutilated
certificate, or in lieu of and substitution for the certificate lost, stolen or
destroyed, a  new  Warrant  of  like  tenor representing an equivalent right or
interest, but only upon receipt of evidence  satisfactory to the Company of the
loss,  theft  or  destruction  of  the Warrant and  a  bond  of  indemnity,  if
requested, also satisfactory in form  and  amount,  at  the  applicant's  cost.
Applicants  for substitute Warrants shall also comply with any other reasonable
regulations and pay any other reasonable charges the Company may request.

      SECTION 4.  ADJUSTMENT OF NUMBER OF SHARES

      The number  and  kind of securities purchasable upon the exercise of this
Warrant and the Exercise Price payable shall be subject to adjustment from time
to time upon the happening of certain events, as follows:

      4.1.  Adjustments.   The  number  of  Warrant Shares purchasable upon the
exercise of this Warrant and the Exercise Price shall be subject to adjustments
as follows:

            (a)   In case the Company shall (i)  pay a dividend in Common Stock
      or  make  a  distribution  to  its  stockholders in  Common  Stock,  (ii)
      subdivide its outstanding Common Stock,  (iii)  combine  its  outstanding
      Common  Stock  into  a smaller number of shares of Common Stock, or  (iv)
      issue by classification  of  its  Common  Stock  other  securities of the
      Company, then in any of the foregoing cases, the number of Warrant Shares
      purchasable upon exercise of the Warrant immediately prior  thereto shall
      be  adjusted  so that the Warrantholder shall be entitled to receive  the
      kind and number of Warrant Shares or other securities of the Company that
      it would have owned  or  would  have been entitled to receive immediately
      after the happening of any of the events described above, had the Warrant
      been exercised immediately prior  to  the  happening  of the event or any
      record date with respect thereto.  Any adjustment made  pursuant  to this
      subsection  4.1(a) shall become effective immediately after the effective
      date of the event retroactive to the record date, if any, for the event.

            (b)   If  the  Company  shall  issue  rights, options, warrants, or
      convertible securities to all or substantially  all holders of its Common
      Stock, without any charge to the holders, entitling them to subscribe for
      or purchase Common Stock at a price per share that is lower at the record
      date mentioned below than the then Current Market  Price,  the  number of
      Warrant  Shares  thereafter purchasable upon the exercise of this Warrant
      shall  be  determined   by  multiplying  the  number  of  Warrant  Shares
      theretofore purchasable upon  exercise of this Warrant by a fraction, the
      numerator  of  which  shall be the  number  of  shares  of  Common  Stock
      outstanding immediately  prior  to  the  issuance of the rights, options,
      warrants or convertible securities, plus the  number of additional shares
      of Common Stock offered for subscription or purchase, and the denominator
      of  which  shall  be  the  number of shares of Common  Stock  outstanding
      immediately prior to the issuance  of  the  rights, options, warrants, or
      convertible securities, plus the number of shares  of  Common  Stock that
      the aggregate offering price of the total number of shares offered  would
      purchase  at  the  Current  Market  Price  as  of  the  record date.  The
      adjustment   shall  be  made  whenever  rights,  options,  warrants,   or
      convertible securities are issued, and shall become effective immediately
      and  retroactively   to   the   record  date  for  the  determination  of
      stockholders  entitled  to receive  the  rights,  options,  warrants,  or
      convertible securities.

            (c)   If the Company  shall  distribute to all or substantially all
      holders  of its Common Stock evidences  of  its  indebtedness  or  assets
      (excluding  cash  dividends  or distributions out of earnings) or rights,
      options, warrants, or convertible  securities  containing  the  right  to
      subscribe  for  or  purchase Common Stock (excluding those referred to in
      subsection 4.1(b) above),  then in each case the number of Warrant Shares
      thereafter  purchasable upon  the  exercise  of  this  Warrant  shall  be
      determined by  multiplying  the  number  of  Warrant  Shares  theretofore
      purchasable  upon  exercise  of this Warrant by a fraction, of which  the
      numerator  shall  be  the  then Current  Market  Price  on  the  date  of
      distribution, and the denominator  of  which  shall be the Current Market
      Price on the date of distribution minus the then  fair  value (determined
      as provided in subparagraph (e) below) of the portion of  the  assets  or
      evidences  of  indebtedness so distributed or of the subscription rights,
      options, warrants,  or  convertible  securities  applicable to one share.
      The adjustment shall be made whenever any distribution  is made and shall
      become effective on the date of distribution retroactive  to  the  record
      date  for  the  determination  of  stockholders  entitled  to receive the
      distribution.

            (d)   No  adjustment  in  the  number of Warrant Shares purchasable
      pursuant to this Warrant shall be required  unless  the  adjustment would
      require an increase or decrease of at least one percent in  the number of
      Warrant Shares then purchasable upon the exercise of this Warrant  or, if
      this  Warrant  is  not  then  exercisable,  the  number of Warrant Shares
      purchasable  upon  the  exercise  of  this  Warrant  on  the  first  date
      thereafter that this Warrant becomes exercisable; provided, however, that
      any  adjustments  which  by  reason of this subsection (4.1(d))  are  not
      required to be made immediately  shall  be carried forward and taken into
      account in any subsequent adjustment.

            (e)   Whenever the number of Warrant  Shares  purchasable  upon the
      exercise  of  this  Warrant is adjusted, as herein provided, the Exercise
      Price  payable  upon exercise  of  this  Warrant  shall  be  adjusted  by
      multiplying the Exercise  Price  immediately prior to the adjustment by a
      fraction, the numerator of which shall  be  the  number of Warrant Shares
      purchasable  upon the exercise of the Warrant immediately  prior  to  the
      adjustment, and  the  denominator of which shall be the number of Warrant
      Shares so purchasable immediately thereafter.

            (f)   Whenever  the  number  of  Warrant  Shares  purchasable  upon
      exercise of this Warrant  is  adjusted  as  herein  provided, the Company
      shall  cause to be promptly mailed to the Warrantholder  by  first  class
      mail, postage  prepaid, notice of the adjustment and a certificate of the
      chief financial  officer  of  the  Company  setting  forth  the number of
      Warrant  Shares purchasable upon the exercise of this Warrant  after  the
      adjustment,  a  brief statement of the facts requiring the adjustment and
      the computation by which the adjustment was made.

            (g)   For the  purpose of this Section 4.1, the term "Common Stock"
      shall mean (i) the class  of  stock designated as the Common Stock of the
      Company as of the Issue Date of  this Warrant, or (ii) any other class of
      stock  resulting  from successive changes  or  reclassifications  of  the
      Common Stock consisting solely of changes in par value, or from par value
      to no par value, or  from no par value to par value.  If, at any time, as
      a  result  of  an  adjustment  made  pursuant  to  this  Section  4,  the
      Warrantholder shall  become  entitled  to  purchase any securities of the
      Company other than Common Stock, then (y) if the Warrantholder's right to
      purchase is on any other basis than that available  to all holders of the
      Company's  Common  Stock,  the  Company  shall  obtain an opinion  of  an
      independent investment banking firm valuing the other  securities and (z)
      thereafter the number of other securities so purchasable upon exercise of
      this Warrant shall be subject to adjustment from time to time in a manner
      and on terms as nearly equivalent as practicable to the  provisions  with
      respect to the Warrant Shares contained in this Section 4.

            (h)   Upon  the  expiration  of  any  rights, options, warrants, or
      conversion privileges, if they shall have not  been exercised, the number
      of  Warrant  Shares  purchasable upon exercise of the  Warrants,  to  the
      extent the Warrants have  not  then  been  exercised,  shall,  upon  such
      expiration, be readjusted and shall thereafter be as they would have been
      had  they  been  originally  adjusted (or had the original adjustment not
      been required, as the case may  be) on the basis of (i) the fact that the
      only shares of Common Stock so issued were the shares of Common Stock, if
      any, actually issued or sold upon  the  exercise  of the rights, options,
      warrants, or conversion privileges, and (ii) the fact  that the shares of
      Common Stock, if any, were issued or sold for the consideration  actually
      received by the Company upon the exercise plus the consideration, if any,
      actually  received by the Company for the issuance, sale or grant of  all
      such rights,  options,  warrants, or conversion privileges whether or not
      exercised; provided, however,  that no readjustment shall have the effect
      of decreasing the number of Warrant  Shares  purchasable upon exercise of
      this  Warrant  by  an amount in excess of the amount  of  the  adjustment
      initially made in respect of the issuance, sale, or grant of such rights,
      options, warrants, or conversion rights.

      4.2.  No Adjustment for Dividends.  Except as provided in Section 4.1, no
adjustment in respect of any  dividends  or distributions out of earnings shall
be made during the term, or upon the exercise, of this Warrant.

      4.3.  No  Adjustment in Certain Cases.   No  adjustments  shall  be  made
pursuant to Section  4  hereof  in  connection  with the issuance of the Common
Stock  upon the conversion, if any, of the Company's  12%  Secured  Convertible
Promissory  Notes  or exercise of any warrants issued to the holders thereof in
connection therewith.   No  adjustments  shall  be  made  pursuant to Section 4
hereof  in  connection  with the grant or exercise of presently  authorized  or
outstanding options to purchase,  or  the  issuance  of  shares of Common Stock
under, the Company's director or employee benefit plan.

      4.4.  Preservation    of    Purchase    Rights   upon   Reclassification,
Consolidation, etc.  In case of any consolidation of the Company with or merger
of the Company into another corporation, or in  case  of any sale or conveyance
to another corporation of the property, assets, or business  of  the Company as
an  entirety  or  substantially  as  an  entirety, the Company or successor  or
purchasing  corporation,  as  the  case  may  be,   shall   execute   with  the
Warrantholder  an  agreement  that  the  Warrantholder  shall  have  the  right
thereafter  upon  payment  of the Exercise Price in effect immediately prior to
the action to purchase, upon  exercise  of this Warrant, the kind and amount of
shares and other securities and property  that it would have owned or have been
entitled to receive after the happening of  the consolidation, merger, sale, or
conveyance had this Warrant been exercised immediately prior to the action.  In
the event of a merger described in Section 368(a)(2)(E) of the Internal Revenue
Code of 1986, in which the Company is the surviving  corporation,  the right to
purchase  Shares under the Warrants shall terminate on the date of such  merger
and thereupon  the  Warrants  shall  become  null  and  void,  but  only if the
controlling  corporation  shall  agree  to  substitute  for  the  Warrants, its
warrants  which entitle the holder thereof to purchase upon their exercise  the
kind and amount of shares and other securities and property which it would have
owned or been  entitled  to receive had the Warrants been exercised immediately
prior to such merger.  Any  such  agreements  referred  to  in this Section 4.4
shall provide for adjustments, which shall be as nearly equivalent  as  may  be
practicable  to  the  adjustments  provided  for  in  Section  4  hereof.   The
provisions   of   this  Section  (4.4)  shall  similarly  apply  to  successive
consolidations, mergers, sales, or conveyances.

      4.5.  Par Value  of  Shares  of  Common  Stock.  Before taking any action
which  would  cause  an  adjustment effectively reducing  the  portion  of  the
Exercise Price allocable to  each  Share  below  the par value per share of the
Common Stock issuable upon exercise of the Warrants,  the Company will take any
corporate  action  which may, in the opinion of its counsel,  be  necessary  in
order  that  the  Company   may  validly  and  legally  issue  fully  paid  and
nonassessable Common Stock upon exercise of the Warrants.

      4.6.  Independent Public  Accountants.   The Company may retain a firm of
independent public accountants of recognized national  standing  (which  may be
any  such  firm  regularly  employed  by  the  Company) to make any computation
required under this Section 4, and a certificate  signed  by  the firm shall be
conclusive  evidence  of  the  correctness of any computation made  under  this
Section 4.

      4.7.  Treasury Stock.  For  purposes  of this Section 4, shares of Common
Stock  owned  or held at any relevant time by,  or  for  the  account  of,  the
Company, in its  treasury  or  otherwise, shall not be deemed to be outstanding
for purposes of the calculations and adjustments described.

      SECTION 5.  NOTICE TO HOLDERS

      If, prior to the expiration of this Warrant either by its terms or by its
exercise in full, any of the following shall occur:

            (a)   the Company shall  declare  a dividend or authorize any other
      distribution on its Common Stock; or

            (b)   the Company shall authorize the  granting to the shareholders
      of its Common Stock of rights to subscribe for or purchase any securities
      or any other similar rights; or

            (c)   any reclassification, reorganization or similar change of the
      Common Stock, or any consolidation or merger to  which  the  Company is a
      party, or the sale, lease, or exchange of any significant portion  of the
      assets of the Company; or

            (d)   the  voluntary  or  involuntary  dissolution,  liquidation or
      winding up of the Company; or

            (e)   any purchase, retirement or redemption by the Company  of its
      Common Stock;

then,  and in any such case, the Company shall deliver to the Holder or Holders
written  notice  thereof at least 30 days prior to the earliest applicable date
specified below with respect to which notice is to be given, which notice shall
state the following:

            (x)   the  date on which a record is to be taken for the purpose of
      the dividend, distribution or rights, or, if a record is not to be taken,
      the date as of which  the  holders  of Common Stock of record entitled to
      the dividend, distribution or rights will be determined;

            (y)   the  date  on  which  any  reclassification,  reorganization,
      consolidation, merger, sale, transfer, dissolution,  liquidation, winding
      up or purchase, retirement or redemption is expected to become effective,
      and the date, if any, as of which the Company's holders  of  Common Stock
      of record shall be entitled to exchange their Common Stock for securities
      or  other property deliverable upon the reclassification, reorganization,
      consolidation,  merger, sale, transfer, dissolution, liquidation, winding
      up, purchase, retirement or redemption; and

            (z)   if any  matters  referred to in the foregoing clauses (x) and
      (y) are to be voted upon by holders of Common Stock, the date as of which
      the shareholders entitled to vote will be determined.

      SECTION 6.  OFFICERS' CERTIFICATE

      Whenever the Exercise Price or  the  aggregate  number  of Warrant Shares
purchasable  pursuant  to  this  Warrant shall be adjusted as required  by  the
provisions  of  Section 4 above, the  Company  shall  promptly  file  with  its
Secretary or an Assistant  Secretary  at  its  principal  office,  and with its
transfer  agent,  if  any,  an  officers' certificate executed by the Company's
President and Secretary or Assistant  Secretary,  describing the adjustment and
setting forth, in reasonable detail, the facts requiring the adjustment and the
basis for and calculation of the adjustment in accordance  with  the provisions
of  this  Warrant.  Each such officers' certificate shall be made available  to
the Holder  or  Holders of this Warrant for inspection at all reasonable times,
and the Company,  after  each  adjustment, shall promptly deliver a copy of the
officers' certificate relating to  that  adjustment to the Holder or Holders of
this Warrant.  The officers' certificate described  in  this Section 6 shall be
deemed  to  be  conclusive  as  to the correctness of the adjustment  reflected
therein if, and only if, no Holder  of  this Warrant delivers written notice to
the  Company  of  an  objection to the adjustment  within  30  days  after  the
officers' certificate is  delivered  to  the Holder or Holders of this Warrant.
The  Company  will  make its books and records  available  for  inspection  and
copying  during normal  business  hours  by  the  Holder  so  as  to  permit  a
determination  as  to the correctness of the adjustment.  Failure to prepare or
provide  the  officers'  certificate  shall  not  modify  the  parties'  rights
hereunder.

      SECTION 7.  RESERVATION OF WARRANT SHARES

      There has been reserved, and the Company shall at all times keep reserved
so long as this Warrant remains outstanding, out of its authorized and unissued
Common Stock, a number of shares of Common Stock sufficient to support the full
exercise  hereof.   Every  transfer  agent  for  the  Common  Stock  and  other
securities  of  the  Company issuable upon the exercise of this Warrant will be
irrevocably authorized  and  directed  at  all  times  to  reserve  a number of
authorized shares and other securities as shall be requisite for such  purpose.
The Company will keep a copy of this Warrant on file with every transfer  agent
for  the  Common  Stock  and  other securities of the Company issuable upon the
exercise of this Warrant.  The  Company  will  supply every transfer agent with
duly executed stock and other certificates, as appropriate,  for  such  purpose
and  will provide or otherwise make available any cash which may be payable  as
provided in Section 11 hereof.

      SECTION 8.  RESTRICTIONS ON TRANSFER.

      The  Warrantholder  agrees  that  prior to making any disposition of this
Warrant or the Warrant Shares, the Warrantholder  shall  give written notice to
the Company describing briefly the manner in which any proposed  disposition is
to  be  made; and no disposition shall be made if the Company has notified  the
Warrantholder  that,  in  the opinion of counsel reasonably satisfactory to the
Warrantholder, a registration statement or other notification or post-effective
amendment thereto (hereinafter  collectively  a "Registration Statement") under
the  Act  is  required  with  respect to the disposition  and  no  Registration
Statement  has been filed by the  Company  with,  and  declared  effective,  if
necessary, by, the Commission.

      SECTION 9.  PAYMENT OF TAXES

      The Company will pay all documentary stamp taxes, if any, attributable to
the initial  issuance  of this Warrant or the shares of Common Stock comprising
the Warrant Shares; provided, however, the Company shall not be required to pay
any tax that may be payable  in  respect  of  any  transfer  of the Warrants or
Warrant Shares.

      SECTION 10. TRANSFER TO COMPLY WITH THE SECURITIES ACT OF 1933

      This  Warrant,  the  Warrant Shares, and any other securities  issued  or
issuable  upon  exercise  of  this   Warrant,  may  not  be  offered,  sold  or
transferred, in whole or in part, except in compliance with the Act, and except
in compliance with all applicable state securities laws.  The Company may cause
substantially the following legends, or  their  equivalents, to be set forth on
each certificate representing the Warrant Shares  and any other security issued
or issuable upon exercise of this Warrant, not theretofore  distributed  to the
public or sold to underwriters, as defined by the Act, for distribution to  the
public:

            (a)   "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
      BEEN  REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES
      LAWS AND  MAY  NOT BE SOLD, EXCHANGED, HYPOTHECATED OR TRANSFERRED IN ANY
      MANNER EXCEPT IN  COMPLIANCE  WITH  SUCH LAWS AND THE WARRANT PURSUANT TO
      WHICH THEY WERE ISSUED."

            (b)   Any legend required by applicable state securities laws.

      Any certificate issued at any time in  exchange  or  substitution for any
certificate  bearing  such  legends  (except  a  new  certificate  issued  upon
completion of a public distribution pursuant to a registration statement  under
the  Securities  Act  of  1933,  as  amended  (the  "Act"),  or  the securities
represented thereby) shall also bear the above legends unless, in  the  opinion
of the Company's counsel, the securities represented thereby need no longer  be
subject to such restrictions.

      SECTION 11. FRACTIONAL SHARES

      No  fractional  shares  or  scrip representing fractional shares shall be
issued upon the exercise of all or  any  part of this Warrant.  With respect to
any fraction of a share of any security called  for  upon  any exercise of this
Warrant, the Company shall pay to the Holder an amount in money  equal  to that
fraction multiplied by the Current Market Price of that share.

      SECTION 12. NO RIGHTS AS STOCKHOLDER; NOTICES TO WARRANTHOLDER

      Nothing  contained in this Warrant shall be construed as conferring  upon
the Warrantholder  or  its  transferees  any  rights  as  a  stockholder of the
Company,  including  the right to vote, receive dividends, consent  or  receive
notices as a stockholder  in  respect  to  any  meeting of stockholders for the
election  of  directors  of  the  Company  or any other  matter.   The  Company
covenants, however, that for so long as this  Warrant  is  at  least  partially
unexercised,  it  will  furnish  any Holder of this Warrant with copies of  all
reports and communications furnished  to  the  shareholders of the Company.  In
addition, if at any time prior to the expiration  of  the Warrants and prior to
their exercise, any one or more of the following events shall occur:

            (a)   any  action  which  would require an adjustment  pursuant  to
      Section 4.1 (except subsections 4.1(e) and 4.1(h) or 4.4; or

            (b)  a dissolution, liquidation,  or  winding  up  of  the  Company
      (other  than  in connection with a consolidation, merger, or sale of  its
      property, assets,  and  business  as  an  entirety or substantially as an
      entirety) shall be proposed:

then  the  Company  shall  give  notice  in  writing  of   the   event  to  the
Warrantholder, as provided in Section 15 hereof, at least 20 days  prior to the
date fixed as a record date or the date of closing the transfer books  for  the
determination   of   the   stockholders  entitled  to  any  relevant  dividend,
distribution, subscription rights  or  other rights or for the determination of
stockholders  entitled to vote on such proposed  dissolution,  liquidation,  or
winding up.  The  notice  shall  specify the record date or the date of closing
the transfer books, as the case may  be.   Failure to mail or receive notice or
any  defect therein shall not affect the validity  of  any  action  taken  with
respect thereto.

      SECTION 13. CHARGES DUE UPON EXERCISE

      The Company shall pay any and all issue or transfer taxes, including, but
not limited to, all federal or state taxes, that may be payable with respect to
the transfer  of  this  Warrant or the issue or delivery of Warrant Shares upon
the exercise of this Warrant.

      SECTION 14. WARRANT SHARES TO BE FULLY PAID

      The Company covenants  that  all  Warrant  Shares  that may be issued and
delivered  to a Holder of this Warrant upon the exercise of  this  Warrant  and
payment of the  Exercise  Price  will  be, upon such delivery, validly and duly
issued, fully paid and nonassessable.

      SECTION 15. NOTICES

      Any notice pursuant to this Warrant  by the Company or by a Warrantholder
or a holder of Shares shall be in writing and shall be deemed to have been duly
given if delivered or mailed by certified mail, return receipt requested:

      (i)   If  to a Warrantholder or a holder  of  Shares,  addressed  to  the
address set forth above.

      (ii)  If to  the  Company  addressed  to  it at 414 North Orleans Street,
Suite 510, Chicago, Illinois 60610, Attention:  President.

      Each party may from time to time change the  address  to which notices to
it are to be delivered or mailed hereunder by notice in accordance  herewith to
the other party.

      SECTION 16. MERGER OR CONSOLIDATION OF THE COMPANY

      The  Company  will  not  merge  or  consolidate  with  or  into any other
corporation  or  sell  all  or  substantially  all  of  its property to another
corporation,  unless  in connection therewith, the Company  complies  with  the
provisions of Section 4.4 hereof.

      SECTION 17. APPLICABLE LAW

      This Warrant shall  be  governed  by and construed in accordance with the
internal laws (as opposed to conflicts of  law  provisions)  of  the  State  of
Illinois, and courts located in Illinois shall have exclusive jurisdiction over
all disputes arising hereunder.

      SECTION 18. ACCEPTANCE OF TERMS; SUCCESSORS.

      By  its  acceptance  of  this  Warrant,  the Holder accepts and agrees to
comply  with all of the terms and provisions hereof.   All  the  covenants  and
provisions  of  this Warrant by or for the benefit of the Company or the Holder
shall bind and inure  to the benefit of their respective successors and assigns
hereunder.

      SECTION 19. MISCELLANEOUS PROVISIONS

      (a)   Subject to  the terms and conditions contained herein, this Warrant
shall be binding on the Company  and  its  successors  and  shall  inure to the
benefit  of the original Holder, its successors and assigns and all holders  of
Warrant Shares and the exercise of this Warrant in full shall not terminate the
provisions of this Warrant as it relates to holders of Warrant Shares.

      (b)   If  the  Company fails to perform any of its obligations hereunder,
it shall be liable to  the Holder for all damages, costs and expenses resulting
from the failure, including, but not limited to, all reasonable attorney's fees
and disbursements.

      (c)   This Warrant  cannot be changed or terminated or any performance or
condition waived in whole or  in  part except by an agreement in writing signed
by the party against whom enforcement  of  the change, termination or waiver is
sought; provided, however, that any provisions  hereof  may be amended, waived,
discharged  or  terminated  upon  the written consent of the  Company  and  the
Company.

      (d)   If any provision of this  Warrant  shall  be  held  to  be invalid,
illegal  or  unenforceable,  the  provision  shall be severed, enforced to  the
extent possible, or modified in such a way as  to  make it enforceable, and the
invalidity, illegality or unenforceability shall not  affect  the  remainder of
this Warrant.

      (e)   The  Company agrees to execute any further agreements, conveyances,
certificates and other  documents  as may be reasonably requested by the Holder
to effectuate the intent and provisions of this Warrant.

      (f)   Paragraph headings used  in  this  Warrant are for convenience only
and shall not be taken or construed to define or  limit  any  of  the  terms or
provisions  of  this Warrant.  Unless otherwise provided, or unless the context
shall otherwise require,  the  use of the singular shall include the plural and
the use of any gender shall include all genders.

      IN  WITNESS WHEREOF, the Company  has  caused  this  Warrant  to  be duly
executed and issued as of the Issue Date first set forth above.



                                    MOLECULAR DIAGNOSTICS, INC.


                                    By:   _______________________________
                                          Peter P. Gombrich
                                          Chief Executive Officer



                                 PURCHASE FORM

                                                         Dated  _________, ____


      The undersigned hereby irrevocably elects to exercise this Warrant to the
extent  of  purchasing  ______________  shares of the Common Stock of Molecular
Diagnostics, Inc. and tenders payment of the exercise price thereof.

                    INSTRUCTIONS FOR REGISTRATION OF STOCK


      Name  _______________________________________________________
                    (Please type or print in block letters)



      Address______________________________________________________

................................................................................

                                ASSIGNMENT FORM

      FOR  VALUE  RECEIVED,  _________________,   hereby   sells,  assigns  and
transfers unto



      Name  _______________________________________________________
                    (Please type or print in block letters)

      Address______________________________________________________



the right to purchase           shares  Common Stock of Molecular  Diagnostics,
Inc. (the "Company") represented by this  Warrant  and  does hereby irrevocably
constitute  and appoint the Company as its attorney-in-fact,  to  transfer  the
same on the books  of  the  Company  with  full  power  of  substitution in the
premises.

      Signature                                  Dated

NOTICE:  THE SIGNATURE ON THIS ASSIGNMENT MUST CORRESPOND WITH  THE  NAME AS IT
APPEARS  UPON  THE FACE OF THIS WARRANT IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.

EX-23.1

                                                                   Exhibit 23.1

                      CONSENT OF INDEPENDENT ACCOUNTANTS

We  consent to the incorporation by reference in the Registration Statement for
the registration  of  5,700,000  shares of common stock (Form S-8) of Molecular
Diagnostics, Inc. of our report dated  April  8,  2002,  with  respect  to  the
consolidated  financial  statements and schedule of Molecular Diagnostics, Inc.
included in its Annual Report  (Form  10-K),  as  amended  for  the  year ended
December 31, 2002, filed with the Securities and Exchange Commission.

                                              ERNST & YOUNG LLP

Chicago, Illinois
July 16, 2003

EX-23.2

                                                                   Exhibit 23.2

                        CONSENT OF INDEPENDENT AUDITORS


We have issued our report dated June 26, 2003, accompanying the consolidated
financial statements and schedule included in the Annual Report of Molecular
Diagnostics, Inc. and Subsidiaries on Form 10-K for the year ended December 31,
2002.  We hereby consent to the incorporation by reference of said report in
the Registration Statement of Molecular Diagnostics, Inc. on Form S-8 (File No.
333-97863 effective August 9, 2002).



Altschuler, Melvoin and Glasser LLP

Chicago, Illinois
June 26, 2003

EX-99.1

                                                                   Exhibit 99.1




                 Certification of Principal Executive Officer
                          Pursuant to 18 U.S.C. 1350
                (Section 906 of the Sarbanes-Oxley Act of 2002)


I, Peter P. Gombrich, Chief Executive Officer (principal executive officer) of
Molecular Diagnostics, Inc. (the "Registrant"), certify, to the best of my
knowledge, based upon a review of the Annual Report on Form 10-K for the period
ended December 31, 2002 of the Registrant (the "Report"), 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 represents, in all
            material aspects, the financial condition and results of operations
            of the Registrant.

Date:  July 18, 2003

                                                 /s/  Peter P. Gombrich
                                                 ------------------------------
                                                 Peter P. Gombrich


NOTE:  A signed original of this written statement required by Section 906 has
been provided to Molecular Diagnostics, Inc. and will be retained by Molecular
Diagnostics, Inc. and furnished to the Securities and Exchange Commission or
its staff upon request.

This certification accompanies the Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by law,
be deemed filed by the Company for purposes of Section 18 of the Securities
Exchange Act of 1934, as amended.

EX-99.2

                                                                   Exhibit 99.2




                 Certification of Principal Financial Officer
                          Pursuant to 18 U.S.C. 1350
                (Section 906 of the Sarbanes-Oxley Act of 2002)


I, Dennis L. Bergquist, Chief Financial Officer (principal financial officer)
of Molecular Diagnostics, Inc. (the "Registrant"), certify, to the best of my
knowledge, based upon a review of the Annual Report on Form 10-K for the period
ended December 31, 2002 of the Registrant (the "Report"), 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 represents, in all
            material aspects, the financial condition and results of operations
            of the Registrant.

Date:  July 18, 2003
                                                 /s/ Dennis L. Bergquist
                                                 ------------------------------
                                                 Dennis L. Bergquist


NOTE:  A signed original of this written statement required by Section 906 has
been provided to Molecular Diagnostics, Inc. and will be retained by Molecular
Diagnostics, Inc. and furnished to the Securities and Exchange Commission or
its staff upon request.

This certification accompanies the Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by law,
be deemed filed by the Company for purposes of Section 18 of the Securities
Exchange Act of 1934, as amended.