-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SL8jcNgeion3FO1wsjh6VspctyLrSUocXwcQObDt2idiYsvSmh2EQA+rzOhQDf6e ++Gx81+5eF/nUkUXkbjdQw== 0000950137-97-003056.txt : 19970918 0000950137-97-003056.hdr.sgml : 19970918 ACCESSION NUMBER: 0000950137-97-003056 CONFORMED SUBMISSION TYPE: 10KSB/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970912 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACCUMED INTERNATIONAL INC CENTRAL INDEX KEY: 0000888335 STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [2835] IRS NUMBER: 364054899 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB/A SEC ACT: SEC FILE NUMBER: 000-20652 FILM NUMBER: 97679792 BUSINESS ADDRESS: STREET 1: 920 N FRANKLIN ST STREET 2: STE 402 CITY: CHICAGO STATE: IL ZIP: 60610 BUSINESS PHONE: 3126429200 MAIL ADDRESS: STREET 1: 920 N FRANKLIN STREET STREET 2: SUITE 402 CITY: CHICAGO STATE: IL ZIP: 60610 FORMER COMPANY: FORMER CONFORMED NAME: ALAMAR BIOSCIENCES INC DATE OF NAME CHANGE: 19950504 10KSB/A 1 AMENDMENT #3 TO FORM 10-KSB 1 U.S. Securities and Exchange Commission Washington, D.C. 20549 FORM 10-KSB AMENDMENT NO. 3 [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996. [ ] TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1943 Commission file number 0-20652 AccuMed International, Inc. ------------------------------------------------------ (Name of small business issuer in its charter) Delaware 36-4054899 - ---------------------------------- ------------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 900 N. Franklin Street, Suite 401, Chicago, IL 60610 Issuer's telephone number: (312) 642-9200 (Address of principal (Zip Code) executive offices)
Securities registered under Section 12(b) of the Exchange Act: None Securities registered under Section 12(g) of the Exchange Act: Common Stock, par value $0.01 per share ------------------------------------------------------ (Title of Class) Common Stock purchase warrants ------------------------------------------------------ (Title of Class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------- ------ Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ] Issuer's revenues for the year ended December 31, 1996: $6,222,000 Aggregate market value of the voting stock held by non-affiliates as of March 26, 1997: $70,561,000 Number of shares of Common Stock outstanding as of March 26, 1997: 22,073,939 Transitional Small Business Disclosure Format (check one): Yes No X ---- ---- 2 ITEM 6 OF THIS FORM 10-KSB ENTITLED "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27a OF THE SECURITIES ACT OF 1933 AND SECTION 21e OF THE SECURITIES EXCHANGE ACT OF 1934. FORWARD-LOOKING STATEMENTS ARE INHERENTLY UNCERTAIN AND ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE EXPRESSED IN OR IMPLIED BY THE FORWARD-LOOKING STATEMENTS. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW Effective December 29, 1995, AccuMed, Inc. was merged with and into the Company. The results of operations reflected in the Company's consolidated statement of operations for 1996 include the operations of the two merged businesses, whereas results of operations from prior periods and years reflect the operations and sales of the Alamar microbiology product line only. The historical results of operations of the Company presented herein are not necessarily indicative of future results of operations of the Company. 3 The Merger has been accounted for as a purchase, which resulted in certain charges. The value of the securities not subject to contingencies issued by the Company upon consummation of the Merger exceeded the value of the assets acquired by $6.6 million. At December 31, 1995, $4.0 million of such amount was allocated to acquired in-process research and development and written off immediately as a non-cash charge against operations. The remaining $2.6 million was recorded as purchased technology and is being amortized over ten years beginning December 31, 1995. Certain of the securities issued by the Company upon consummation of the Merger were subject to forfeiture if specified earnings per share or stock price performance goals were not met following the Merger. During the quarter ended March 31, 1996, the contingencies were satisfied with respect to a portion of such securities having a then current fair market value of $5.4 million. Of such amount, $3.5 million was allocated to acquired in-process research and development and written off immediately as a non-cash charge against operations. The remaining $1.9 million was recorded as purchased technology and is being amortized over ten years beginning March 31, 1996. During the quarter ended March 31, 1997, specified contingencies applicable to the remaining 940,955 shares of Common Stock and warrants to purchase up to 63,472 shares of Common Stock issued in the Merger were met. Therefore, in accordance with the accounting treatment required with respect to the Merger transaction, an amount equal to the fair market value of such securities at the time such contingencies were satisfied was recorded as goodwill. Management believes that the profitability and cash flow generated by products being manufactured by the Company at the time of the Merger are not sufficient to provide adequate recoverability of this recorded higher level of goodwill as prescribed by the Company's accounting policies and, therefore, an impairment of said goodwill exists. As a result of this impairment the Company has written-off the recorded goodwill as a charge against operations during the first quarter of 1997. Pending consummation of the Merger, the Company took various actions to streamline and relocate its operations. The Company's manufacturing facility in Sacramento, California was closed in August 1995, and all obligations under its lease were satisfied during the second quarter of 1996. During the summer and fall of 1995, the Company terminated the employment of all its employees, other than two officers. From July 1, 1995 until consummation of the Merger, the Company's manufacturing, marketing, sales, distribution and research and development functions were performed by AccuMed, Inc. under contracts. After consummation of the Merger, the Company resumed research and development, manufacturing and marketing and sales activities, and hired a significant number of employees. On October 15, 1996, the Company acquired a two-thirds interest in Oncometrics for aggregate consideration of $4.0 million in cash. Of such consideration, $2.0 million was paid to Oncometrics' parent company, Xillix for outstanding Oncometrics stock and $2.0 million was paid to Oncometrics for newly issued Oncometrics stock. On October 15, 1996, the Company also acquired all the outstanding RADCO Stock not already 2 4 owned by the Company of RADCO and retired approximately $1.2 million in aggregate principal amount of RADCO Notes sold by RADCO to its initial investors at an aggregate cost to the Company of approximately $1.4 million in cash. Effective on November 15, 1996, RADCO, which became a wholly-owned subsidiary of the Company upon consummation of the RADCO Acquisition, was merged with and into the Company pursuant to a Merger Agreement between the Company and RADCO. At the effective time of the Merger, the Company assumed all the assets, rights and liabilities of RADCO which ceased to exist as a separate corporate entity. At December 31, 1996, the Company had an accumulated deficit of $27.2 million. On December 31, 1995, the Company changed its fiscal year end from September 30 to December 31. RESULTS OF OPERATIONS Year Ended December 31, 1996 as Compared to the Year Ended September 30, 1995. Revenues. The Company's revenues for the year ended December 31, 1996 were $6.2 million compared to $515,000 for the year ended September 30, 1995. The increase in 1996 revenues is the result of sales of Microbiology Division products acquired by the Company as a result of the Merger, expansion of the microbiology sales base, and the initial commercial shipments of newly developed products of the Company's Cytopathology Division. These increases were offset somewhat by a decline in the sales of original Alamar microbiology products. Cost of Sales. Cost of sales increased to $4.0 million for the year ended December 31, 1996 from $1.4 million in the year ended September 30, 1995. The primary reason for the 1996 increase was the expansion in volume and type of products sold by the Company. In addition, the 1996 amount reflects costs related to the ramp-up of cytopathology instrument manufacturing and costs related to the transfer of manufacturing for certain Alamar microbiology products to a third party. Costs reflecting manufacturing capacity problems were reduced from 1995 levels. Operating Expenses. General and administrative expenses were $4.9 million for the year ended December 31, 1996 compared to $2.0 million for the year ended September 30, 1995. The current year increase is the result of an increase in administrative staff needed to manage a larger business, costs of consolidating staff and relocating operations, recognition of a non-cash charge related to the issuance of warrants to purchase Common Stock, and increased investor relations efforts. Research and development expenses increased to $3.1 million for the year ended December 31, 1996 from $387,000 for the year ended September 30, 1995. The increase reflects the reinstatement of an active research and development program which had been curtailed in 1995. Research programs covering newly acquired AccuMed microbiology and cytopathology products, were continued and expanded during 1996. 3 5 Acquired research and development expenses for the year ended December 31, 1996 were $6.0 million. These expenses represent the write off of $3.5 million of in-process research and development which arose as a result of the Merger and an additional $2.5 million of in-process research and development which arose as a result of the acquisition of RADCO and the acquisition of the two-thirds interest in Oncometrics. There were no such expenses incurred in the year ended September 30, 1995. Sales and marketing expenses were $2.5 million for the year ended December 31, 1996 compared to $309,000 for the year ended September 30 1995. The primary reason for the increase was the expansion of the sales staffs for both the microbiology and cytopathology product lines, additional support technical support staff to service the new distribution relationships, and the establishment of a client services organization. The amounts for 1995 reflect the curtailment of selling efforts as the company sought to focus its resources in pursuing a patent infringement litigation. Other Income (Expense). The Company realized net other income in the amount of $2.7 million for the year ended December 31, 1996 compared to net other expenses of $52,000 for the year ended September 30, 1995. The $2.9 million reported as other income represents a net amount consisting of the full recognition of a $3.5 million licensing fee for certain technology related to microbiology products and certain other individual income items of a non-material nature offset by a charge of $852,000, which represents the calculated fair value of warrants issued in conjunction with the formation RADCO Ventures, Inc. Of the licensing fee, $1.5 million was received in 1995 subject to certain contingencies which were satisfied in 1996. Of the total licensing amount, $3.0 million represents a one-time license fee and $500,000 represents advance royalty payments. The Company is under no obligation to refund any of the license fee or royalty payments should the licensed technology not be used to create a marketable product. In addition, the 1996-year amount also reflects the $124,000 one-third minority interest share in the net operating loss of Oncometrics, offset by an increase of $412,000 in interest expense for the period. Net Loss. The net loss for the year ended December 31, 1996 was $11.6 million or $0.68 per share on 16,975,000 weighted average shares outstanding, compared to a net loss for the year ended September 30,1995 of $3.8 million or $0.59 per share on 6,376,000 weighted average shares outstanding. The primary reason for the increase in the net loss was the write off of $6.0 million in acquired research and development costs and the increase in expenses related to the expansion of administration, sales and marketing and research and development necessary to support a larger growing business. These increased expenses were offset in part by the licensing fees received during the year. Three Months Ended December 31, 1994 and 1995 The three months ended December 31, 1995 represent the transition period resulting from the change in the Company's fiscal year end from September 30 to December 31. While revenues remained virtually unchanged, cost of sales increased from $227,000 in the 1994 quarter to $339,000 in the 1995 period. General and administrative costs increased substantially from $384,000 in the 1994 quarter to $1.4 million in the 1995 period, primarily due to (i) legal expenses related to subsequently resolved litigation, (ii) expenses of relocating the Company's operations, and (iii) payments to AccuMed, Inc. for its services pursuant to manufacturing, distribution and research and development agreements pending consummation of the Merger. Research and development expenses decreased from $151,000 in the 1994 quarter to $32,000 reflecting the continued curtailment of programs. Acquired research and development expenses for the 1995 period were $4.0 million which represented the write off of the on-process research and development arising from the Merger of AccuMed, Inc. into the Company in December 1995. Sales and marketing expenses decreased from $171,000 in the 1994 period to $7,000 in the 1995 period, as the sales and marketing activities were performed by AccuMed, Inc. prior to the Merger pursuant to a distribution agreement. 4 6 The net loss increased from $846,000 for the 1994 period to $5.7 million for the 1995 period. The increase resulted primarily from a non-cash charge against operations relating to the write-off of in-process research and development acquired in connection with the Merger, and increased administrative expense. The net loss per share for the 1994 period was $0.17 compared to $0.49 for the 1995 period. Fiscal Years Ended September 30, 1994 and 1995 Revenues for the fiscal years ended September 30, 1994 and 1995 were $1.2 million and $515,000, respectively. Revenues in fiscal 1994 included approximately $473,000 of international instrument shipments and $92,000 of contract research, both of which were absent from the fiscal 1995 year and account for the decrease in revenues from fiscal 1994 to fiscal 1995. Cost of sales decreased from $1.5 million in fiscal 1994 and to $1.4 million in fiscal 1995. The cost of sales relative to revenues was higher in 1995 as compared to 1994 due to increased sales of instruments in 1994 which carry a higher margin as compared to the test panels to which the 1995 revenues related. General and administrative expenses increased from $1.2 million in fiscal 1994 to $2.1 million in fiscal 1995. The increase from fiscal 1994 to fiscal 1995 was primarily due to legal and accounting expenses related to the Merger and subsequently resolved litigation. Research and development expenses decreased from $580,000 in fiscal 1994 to $387,000 in fiscal 1995, primarily due to the suspension of virtually all research and development activities during the 1995 fiscal year. Sales and marketing expenses decreased from $960,000 in fiscal 1994 to $309,000 in fiscal 1995, due to suspension of virtually all of the Company's domestic sales and marketing efforts beginning in November 1994. The net loss increased from $3.1 million for fiscal 1994 to $3.8 million for fiscal 1995, primarily due to increased legal and administrative expenses associated with subsequently resolved litigation. The net loss per share decreased from $0.65 in 1994 to $0.59 in 1995, primarily due to increases in the weighted average shares outstanding offset in part by a lower net loss in fiscal 1994 compared to fiscal 1995. LIQUIDITY AND CAPITAL RESOURCES The Company has been substantially dependent on the private placements of its debt and equity securities and the proceeds of its initial public offering of securities consummated in October 1992 to fund its cash requirements through September 1996. Pursuant to the Becton Agreement, Becton paid to the Company $3.5 million in cash for use of the Licensed Technology, of which $1.5 million was received during 1995 and $2.0 million was received during the first quarter of 1996. Of such amount, $500,000 will be creditable against future royalty payments, if any, resulting from sales of products incorporating the Licensed Technology. To the Company's knowledge, as of the date of this Report, Becton has not produced or sold any products incorporating the Licensed Technology. In October 1996, the Company consummated an underwritten public offering of 3,000,000 shares of Common Stock for net proceeds of approximately $11.7 million (the "Underwritten Offering"). Of such proceeds, $4.0 million was used to fund the acquisition of the two-thirds interest in Oncometrics and $1.4 million was used to fund the RADCO Acquisition, including repayment of the RADCO Notes. Additional proceeds were expended to reduce past due payable balances, and to fund 5 7 the initial expansion of the Company's cytopathology manufacturing facilities. The balance of such proceeds will be used for working capital and to fund on-going research and development programs. In March 1997, AccuMed acquired from Difco the ESP Assets relating to the ESP Product Line, consisting of accounts receivable, finished product inventories, production equipment, and a portfolio of rental instruments. The Company also assumed certain liabilities related to instrument warranties, contracted product studies, and vacation and incentive accrued liabilities for former Difco employees who were offered positions with the Company. The aggregate purchase price of $6.0 million in cash was funded from the proceeds of a loan (the "Bridge Loan") in the principal amount of $6.0 million made pursuant to a Loan Agreement dated as of February 19, 1997 among the Company and Robert L. Priddy and Edmund H. Shea, Jr. (collectively, the "Lender"), evidenced by a Convertible Promissory Note dated as of February 19, 1997 made by the Company in favor of the Lender. Interest on the indebtedness under the Bridge Loan accrued at a rate of 12% per annum payable at maturity. All amounts owed to the Lender by the Company pursuant to the Bridge Loan, including an aggregate of $130,000 representing the loan origination fee, interest and the prepayment premium were paid in full as of March 14, 1997 with a portion of the proceeds of a private placement of the Company's securities. On March 14, 1997, the Company consummated a private placement (the "Private Placement") an aggregate original principal amount $8.5 million of 12% Convertible Promissory Notes (the "Notes") and Warrants (the "Warrants") to purchase an aggregate of 850,000 shares of Common Stock. The Company received net proceeds of approximately $7.8 million from the Private Placement after deducting commissions and related expenses. The Notes bear interest at the rate of 12% per annum, payable semi-annually in arrears on August 15 and February 15 of each year during the term of the Notes. Principal under the Notes is due March 14, 2000. Commencing three months following the date of issuance, and subject to shareholder approval of an amendment to the Certificate of Incorporation to increase the authorized shares of Common Stock by an amount sufficient to permit the Company to reserve for issuance a sufficient number of shares to allow for the conversion of the Notes, the Notes will become convertible at the option of the holder into shares of Common Stock at a conversion price equal to $3.125 (the "Conversion Price"). If the Company does not have sufficient authorized shares to accommodate conversion of the Notes by May 31, 1997, (i) the Notes will become due and payable 30 days thereafter at an amount equal to 150% of the outstanding principal amount, and (ii) the Conversion Price will be reduced by 20%. If the Company defaults on its obligations to pay interest or principal under the Notes, (i) the interest rate thereunder will increase to 16% per annum during the continuance of such default, (ii) the Conversion Price will be reduced by 20%, and (iii) the holders will have the right to accelerate the Notes. During the three months beginning March 14, 1997, the Company may redeem the Notes at an amount equal to 110% of the outstanding principal amount; if the Company so redeems the Notes, the term of the Warrants will be extended from six months to five years following March 14, 1997. Thereafter, the Company may redeem the Notes at the amount of outstanding principal if the Common Stock has traded for a minimum of 20 consecutive days trading days at a minimum price of 175% of the Conversion Price, if the Notes are then convertible. The Warrants are exercisable to purchase Common Stock at an exercise price of $3.125 per share. In connection with the Company's initial public offering and certain private placements, the Company issued warrants to purchase an aggregate of 2,702,905 shares of Common Stock (the 6 8 "Redeemable Warrants"). As of April 1, 1997, 200 shares of Common Stock had been issued as a result of the exercise of Redeemable Warrants. If the closing price per share of Common Stock exceeds $7.50 per share (subject to adjustment) for a minimum of 20 consecutive trading days, the Company would have the right to redeem the Redeemable Warrants, upon notice of not less than 60 days given to holders within three days following any such 20 day period, at a redemption price of $0.25 per underlying share. The exercise price of the Redeemable Warrants, which expire October 1, 1997, is $5.00 per share. If all Redeemable Warrants were exercised, of which there can be no assurance, the Company would receive approximately $13.5 million in gross proceeds. The Company has agreed not to redeem the Redeemable Warrants without the consent of the representatives of the several underwriters in the public offering consummated in October 1996 prior to October 3, 1997. The Company's future liquidity and capital requirements will depend upon numerous factors, including the costs and timing of expansion of manufacturing capacity, the costs, timing and success of the Company's product development efforts, the costs and timing of potential acquisitions, the extent to which the Company's existing and new products gain market acceptance, competing technological and market developments, the progress of commercialization efforts of the Company and its distributors, the costs involved in preparing, filing, prosecuting, maintaining, enforcing and defending patent claims and other intellectual property rights, developments related to regulatory and third party reimbursement matters, including CLIA, and other factors. The Company believes that through its expanded direct sales efforts, relationships with new distribution partners, and new products introduced into the market by both the microbiology and cytopathology divisions, its on-going operations will be able to generate sufficient cash to fund its business in the future. ITEM 7. FINANCIAL STATEMENTS. Consolidated Balance Sheets dated December 31, 1996, December 31, 1995 and September 30, 1995. Consolidated Statements of Operations for the year ended December 31, 1996, the three months ended December 31, 1995 and the year ended September 30, 1995. Consolidated Statements of Shareholders Equity (Deficit) for the year ended December 31, 1996, the three months ended December 31, 1995 and the year ended September 30, 1995. Consolidated Statements of Cash Flows for the year ended December 31, 1996, the three months ended December 31, 1995 and the year ended September 30, 1995. Notes to the Consolidated Financial Statements. 7 9 ITEM 13. EXHIBITS LIST AND REPORTS OF FORM 8-K. (a) Exhibits. The following exhibits are filed herewith.
Exhibit No. Description of Exhibit - ------- ---------------------- 3.1 Certificate of Incorporation of the Registrant. (1) 3.2 Bylaws of the Registrant. (1) 4.1 Specimen stock certificate for Common Stock. (1) 4.2 Certificate of Appointment of American Stock Transfer & Trust Company as Transfer Agent and Registrar. (2) 10.1 Agreement and Plan of Reorganization dated as of April 21, 1995 between the Registrant and AccuMed, Inc., as amended by Amendment No. 1 dated as of August 1, 1995 and Amendment No. 2 dated as of October 6, 1995. (3) 10.2 The Registrant's Board of Directors Compensation Plan (the "Plan") as amended by Minutes of Board of Directors meeting dated January 18, 1996 authorizing grants of stock options to non-employee directors. (1)(4) 10.3 Employment Agreement between the Registrant and Peter P. Gombrich dated August 1, 1994. (1)(4) 10.4 Employment Letter between the Registrant and Donald M. Dorfman dated as of October 14, 1996. (4) 10.5 Employment Letter between the Registrant and Joyce L. Wallach dated as of November 25, 1996. (4) 10.6 Employment Letter between the Registrant and Michael D. Burke dated April 21, 1995. (1)(4) 10.7 Employment Agreement between the Registrant and Norman J. Pressman dated June 13, 1996 and Addendum to Employment Agreement between the Registrant and Norman J. Pressman dated July 16, 1996. (4)(5) 10.8 Escrow Agreement dated as of March 22, 1994, between the Registrant and G&G Dispensing, Inc. (3) 10.9 License Agreement between the Registrant and Becton, Dickinson and Company effective as of October 11, 1995. (3)
8 10 10.10 License and Distribution Agreement dated February 20, 1996 between the Registrant and BioKit, S.A. (1) 10.11 1995 Stock Option Plan. (1)(4) 10.12 Amendment No. 1 to the Registrant's 1995 Stock Option Plan. (4)(8) 10.13 Amendment No. 2 to the 1995 Stock Option Plan. (4) 10.14 Form of Non-Qualified Stock Option Agreement governing options granted to former employees of AccuMed, Inc. pursuant to the Agreement and Plan of Reorganization dated as of April 21, 1995, as amended. (1)(4) 10.15 Form of Non-Qualified Stock Option Agreement governing options granted to employees and consultants under the 1995 Stock Option Plan. (1)(4) 10.16 Form of Incentive Stock Option Agreement governing options granted to employees under the 1995 Stock Option Plan. (1)(4) 10.17 Amended and Restated 1990 Stock Option Plan. (4)(9) 10.18 Amendment No. 1 to Amended and Restated 1990 Stock Option Plan. (4) 10.19 The Registrant's Amended and Restated 1992 Stock Option Plan. (11)(4) 10.20 Amendment No. 1 to Amended and Restated 1992 Stock Option Plan. (4) 10.21 Lease between the Registrant and NCP, LTD dated February 20, 1995 pertaining to the offices located at 29299 Clemens, Suite I-K, Westlake, Ohio 44145. (1) 10.22 Franklin Square Commercial Lease dated July 13, 1994 between the Registrant and the Lumber Company as Agent for the Beneficiary of LaSalle National Trust, N.A. pertaining to the premises located at Suite 401, 4th Floor North, 900 North Franklin Street, Chicago, Illinois. (1) 10.23 Rider 1 to Franklin Square Commercial Lease between the Registrant and the Lumber Company dated May 30, 1996.(5) 10.24 Collaboration Agreement and Worldwide Exclusive License between the Registrant and G&G Dispensing, Inc. dated March 22, 1994. (5) 10.25 Amendment No. 2 effective as of August 6, 1996 to the Collaboration Agreement and Worldwide Exclusive License between the Registrant and G&G Dispensing, Inc. dated March 22, 1994. (6) 10.26 O.E.M. Supply Agreement between Olympus America, Inc., Precision Instrument division and
9 11 the Registrant dated May 31, 1996.(12) 10.27 Securities Purchase Agreement dated May 31, 1996 among the Registrant, Kingdon Associates, L.P., Kingdon Partners, L.P., and Kingdon Offshore N.V. (13) 10.28 Share Purchase Agreement between the Registrant and Xillix Technologies Corp. dated as of August 16, 1996.(11) 10.29 Subscription Agreement between the Registrant and Oncometrics Imaging Corp. dated as of August 16, 1996.(11) 10.30 Stock Purchase Agreement by and among the Registrant, RADCO Ventures, Inc. and the Selling Stockholders named therein dated as of August 15, 1996. (10) 10.31 Distribution Agreement by and between the Registrant and Fisher Scientific Company, dated September 10, 1996. (12)+ 10.32 Employment Agreement between the Registrant and Leonard R. Prange dated September 9, 1996. (4)(10) 10.33 Promissory Note dated as on February 11, 1997 made by the Registrant in favor of Oncometrics Imaging Corp. evidencing indebtedness in the original principal amount of $500,000. (6) 10.34 Security Agreement dated as of February 11, 1997 between the Registrant and Oncometrics Imaging Corp. (6) 10.35 Convertible Promissory Note made as of February 19, 1997 by the Registrant in favor of Robert L. Priddy and Edmund H. Shea, Jr. as Payees evidencing indebtedness in the original principal amount of $6.0 million. (6) 10.36 Loan Agreement dated as of February 19, 1997 among the Registrant and Robert L. Priddy and Edmund H. Shea, Jr. (6) 10.37 Agency Agreement between the Registrant and Commonwealth Associates dated as of March 3, 1997. (6) 10.38 Warrant Agreement among the Registrant, Commonwealth Associates and American Stock Transfer and Trust Company as transfer agent relating to Warrants to purchase an aggregate of 850,000 shares of Common Stock dated March 13, 1997. (6) 10.39 Form of Warrant Certificate dated as of March 13, 1997 evidencing right to acquire an aggregate of 850,000 shares of Common Stock issued to several investors in a private placement consummated March 13, 1997. (6) 10.40 Form of Subscription Agreement between the Registrant and several investors in the private
10 12 placement consummated on March 13, 1997. (6) 10.41 Form of 12% Convertible Promissory Note evidencing indebtedness in the original aggregate principal amount of $8.5 million made by the Registrant in favor of several investors in the private placement consummated on March 13, 1997. (6) 10.42 Stock Purchase Warrant between the Registrant and Commonwealth Associates dated as of March 13, 1997 pertaining to Warrants to purchase an aggregate of 200,000 shares of Common Stock and Form of Warrant Certificate dated as of March 13, 1997 evidencing the right to acquire an aggregate of 200,000 shares of Common Stock issued to Commonwealth Associates and/or its designees, issued in connection with the private placement consummated March 13, 1997. (6) 10.43 Manufacturing and License Agreement dated December 30, 1996, between the Registrant and Salcom S.r.l. (6) 10.44 Asset Purchase Agreement dated as of March 3, 1997 between the Registrant and Difco Microbiology Systems, Inc. (14) 10.45 Manufacturing Agreement dated as of March 3, 1997 among the Registrant, Difco Laboratories Incorporated, a Michigan corporation, and Difco Laboratories Incorporated, a Wisconsin corporation, as amended by Amendment No. 1 dated as of March 10, 1997. (6) 10.46 Transition Services and Facilities Agreement dated as of March 3, 1997 between the Registrant and Difco Laboratories Incorporated, a Michigan corporation. (6) 10.47 Base Media License Agreement dated as of March 3, 1997 between the Registrant and Difco Laboratories Incorporated. (6) 10.48 Sale and Leaseback Agreement between the Registrant and Leasetec, Inc. (9) 10.49 License Agreement dated July 6, 1994, between the Registrant, Vanellus AB, and Uppsala Bildbehandlings AB. (1) 10.50 Promissory Note dated December 30, 1996 made by Dr. Norman Pressman in favor of the Registrant evidencing indebtedness in the original principal amount of $64,409.20. (4)
11 13 10.51 Promissory Note dated December 30, 1996 made by Dr. Norman Pressman in favor of the Registrant evidencing indebtedness in the original principal amount of $100,000. (4) 22.1 Subsidiaries of the Registrant. (6) 23.1 Consent of KPMG Peat Marwick LLP. 23.2 Consent of Coopers & Lybrand LLP. 27.1 Financial Data Schedule. - ----------------
+ Confidential treatment granted as to certain portions. (1) Incorporated by reference to the Registrant's Transition Report on Form 10-KSB for the transition period ended December 31, 1995. (2) Incorporated by reference to Pre-Effective Amendment No. 4 to the Registration Statement on Form S-1 (Reg. No. 33-48302), filed with the Commission on October 9, 1993. (3) Incorporated by reference to the Registrant's Registration Statement on Form S-4 (File No. 33-99680), filed with the Commission on November 22, 1995. (4) Represents a management contract or compensatory plan or arrangement required to be filed as an exhibit to this Registration Statement. (5) Incorporated by reference to the Registrant's Registration Statement Form S-2 (Regis. No. 333-09011) filed with the Commission on July 26, 1996. (6) Incorporated by reference to the Registrant's Annual Report on Form 10-KSB for the year ended December 31, 1996. (7) Incorporated by reference to the Registrant's Annual Report on Form 10-KSB for the year ended September 30, 1994. (8) Incorporated by reference to Pre-effective Amendment No. 1 to the Registration Statement on Form S-2 (Regis. No. 333-09011) filed with the Commission on August 29, 1996. (9) Incorporated by reference to the Registrant's Registration Statement on Form S-1 (Reg. No. 33-48302), filed with the Commission on June 3, 1992. (10) Incorporated by reference to Pre-effective Amendment No. 4 to the Registration Statement of Form S-2 (Regis. No. 333-09011) filed with the Commission on October 3, 1996. (11) Incorporated by reference to Pre-Effective Amendment No. 1 to Form SB-2, filed with the Commission on November 8, 1993). (12) Incorporated by reference to Pre-effective Amendment No. 2 to the Registration Statement on 12 14 Form S-2 (Regis. No. 333-09011) filed with the Commission on September 23, 1996. (13) Incorporated by reference to the Registrant's Registration Statement on Form S-3 (Reg. No. 333-07681), filed with the Commission on July 3, 1996. (14) Incorporated by reference to the Registrant's Current Report on Form 8-K dated March 3, 1997. (b) Reports on Form 8-K. During the fourth quarter of 1996, the Company filed with the Securities and Exchange Commission the following Current Reports on Form 8-K. 1. On October 30, 1996, a Current Report on Form 8-K dated October 15, 1996: Item 2- Acquisition or Disposition of Assets - reporting the acquisition of (i) a two-thirds equity interest in Oncometrics Imaging Corp. and (ii) of all of the outstanding shares of common stock of RADCO Ventures, Inc. and Item 7 - Financial Statements and Exhibits. 2. On December 24, 1996, a Current Report on Form 8-K/A dated October 15, 1996, amending Item 7 - Financial Statements and Exhibits of the above mentioned Current Report on Form 8-K to include the following financial statements: Oncometrics Imaging Corp.: 1. Auditors' Report. 2. Balance Sheets as of August 31, 1995, December 31, 1995, May 31, 1996 and September 30, 1996 (unaudited). 3. Statements of Operations and Deficit for the 12 months ended September 30, 1996 (unaudited). 4. Statement of Changes in Financial Position for the 12 months ended August 31, 1995, the four months ended December 31, 1995, the five months ended May 31, 1996 and the four months ended September 30, 1996 (unaudited). 5. Notes to financial statements. 13 15 RADCO Ventures, Inc.: 1. Independent Auditors' Report. 2. Balance Sheet as of September 30, 1996. 3. Statement of Operations for the period from March 6, 1996 (date of incorporation) thorough September 30, 1996. 4. Statement of Stockholders' Equity (Deficit) for the period from March 6, 1996 (date of incorporation) through September 30, 1996. 5. Statement of Cash Flows for the period form March 6, 1996 (date of incorporation) through September 30, 1996. 6. Notes to financial statements. AccuMed International, Inc. and its subsidiaries: 1. Pro forma Condensed Combing Balance Sheet as of September 30, 1996. 2. Pro Forma Condensed Combing Statements of Operations for the nine months ended September 30, 1996. 3. Pro Forma Condensed Combing Statements of Operations forth the three months ended December 31, 1995. 14 16 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has caused this Amendment No. 2 to the Report to be signed on its behalf by the undersigned, thereunto duly authorized. ACCUMED INTERNATIONAL, INC. By: /s/ Leonard R. Prange -------------------------------------------- Leonard R. Prange Chief Operating Officer and Chief Financial Officer (principal financial officer and principal accounting officer) Date: September 12, 1997 15 17 INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders AccuMed International, Inc. We have audited the accompanying consolidated balance sheet of AccuMed International, Inc. as of December 31, 1996 and December 31, 1995, and the related consolidated statements of operations, shareholders' equity, and cash flows for the year ended December 31, 1996 and the three months ended December 31, 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of AccuMed International, Inc. as of December 31, 1996, and December 31, 1995, and the results of their operations and their cash flows for the year ended December 31, 1996, and the three months ended December 31, 1995 in conformity with generally accepted accounting principles. /S/ KPMG Peat Marwick LLP Chicago, IL March 28, 1997 18 INDEPENDENT ACCOUNTANTS' REPORT The Shareholders Alamar Biosciences, Inc. We have audited the accompanying balance sheet of Alamar Biosciences, Inc., as of September 30, 1995, and related statement of operations, shareholders' equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. 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 the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provided 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 Alamar Biosciences, Inc., at September 30, 1995, and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3, the Company is involved in litigation and is proposing to merge with another company. The Company has taken certain actions to meet cash flow requirements, including a reduction in work force, overhead and product development, until the disputes can be resolved. There can be no assurance that the Company's efforts related to the lawsuits will be successful. In addition, there can be no assurance that combined operations of the proposed merger will produce the necessary cash flow required. These factors raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. /s/ COOPERS & LYBRAND L.L.P. Sacramento, California November 19, 1995 19 ACCUMED INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS -----------------------
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, 1996 1995 1995 ----------- ----------- ----------- ASSETS Current assets: Cash and cash equivalents $ 2,801,359 $ 180,508 $ 716,211 Restricted cash 100,000 363,000 185,000 Accounts receivable 2,143,596 874,712 245,092 Prepaid expenses and deposits 217,198 124,836 73,260 Production inventory 1,772,127 1,143,120 314,006 ----------- ---------- ---------- Total current assets 7,034,280 2,686,176 1,533,569 ----------- ---------- ---------- Fixed assets, net 1,696,071 528,402 411,126 ----------- ---------- ---------- Notes receivable 214,273 -- 700,000 Deferred merger cost -- -- 299,650 Intangible assets 5,340,411 2,644,556 -- Other assets 194,507 115,069 44,621 ----------- ---------- ---------- $14,479,542 $5,974,203 $2,988,966 =========== ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 2,340,769 $2,005,861 $1,017,103 Other current liabilities 879,808 880,591 203,497 Deferred revenue 146,968 1,454,450 470,238 Notes payable 198,555 726,514 -- Capital lease obligation due within one year 89,810 88,270 89,406 ----------- ---------- ---------- Total current liabilities 3,655,910 5,155,686 1,780,244 ----------- ---------- ---------- Long term portion of capital lease obligation -- 89,810 110,806 Long term debt 230,795 -- -- Minority interest 456,841 -- -- Stockholders' equity Common stock, $0.01 par value, 30,000,000 shares authorized, 20,854,157 shares issued and outstanding at December 31, 1996, 15,571,184 at December 31, 1995 and 10,929,339 at September 30, 1995 208,542 155,712 109,293 Additional paid-in capital 44,424,646 23,334,495 18,008,086 Cumulative translation adjustment 32,586 -- -- Accumulated deficit (34,335,313) (22,761,500) (17,019,463) Less treasury stock, 31,812 shares at December 31, 1996, and 0 shares at December 31, 1995, and September 30, 1995, respectively (194,465) -- -- =========== ========== ========== Total stockholders' equity 10,135,996 728,707 1,097,916 ----------- ---------- ---------- $14,479,542 $5,974,203 $2,988,966 =========== ========== ==========
See accompanying notes to the consolidated financial statements. 2 20 ACCUMED INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF OPERATIONS -----------------------
Three Months Year Ended Ended Year Ended December 31, December 31, September 30, 1996 1995 1995 ------------ ------------ ------------- Sales $ 6,222,449 $ 100,130 $ 514,776 Less Cost of sales (3,991,430) (338,730) (1,431,187) ------------ ----------- ----------- Gross profit (loss) 2,231,019 (238,600) (916,411) ------------ ----------- ----------- Operating expenses: General and administrative 4,927,657 1,418,797 2,094,890 Research and development 3,110,426 32,600 386,882 Acquired research and development 5,957,927 3,965,000 -- Sales and marketing 2,464,668 7,197 309,208 ------------ ----------- ----------- Total operating expenses 16,460,678 5,423,594 2,790,980 ------------ ----------- ----------- Operating loss (14,229,659) (5,662,194) (3,707,391) Other income (expense): Interest income 50,604 4,748 7,949 Interest expense (458,214) (10,862) (46,657) Other income (expense) 2,939,537 (72,929) (13,211) Minority interest 123,919 -- -- ------------ ----------- ----------- Total other income (expense) 2,655,846 (79,043) (51,919) ------------ ----------- ----------- Loss before income taxes (11,573,813) (5,741,237) (3,759,310) Income tax expense -- 800 800 ------------ ----------- ----------- Net loss $(11,573,813) $(5,742,037) $(3,760,110) ============ =========== =========== Net loss per share $ (0.68) $ (0.49) $ (0.59) ============ =========== =========== Weighted average common shares outstanding 16,975,470 11,742,980 6,375,627 ============ =========== ===========
See accompanying notes to the consolidated financial statements. 3 21 ACCUMED INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY -----------------------
COMMON STOCK ADDITIONAL CUMULATIVE TOTAL --------------------- PAID-IN ACCUMULATED TRANSACTION TREASURY SHAREHOLDERS' SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT STOCK EQUITY ---------- -------- ---------- ----------- ----------- -------- ------------- Balances at September 30, 1994 4,844,294 48,443 14,555,950 (13,259,353) - - 1,345,040 ---------- -------- ----------- ------------ ------- --------- ------------ Issuances of common stock 6,085,045 60,850 3,309,636 - - - 3,370,486 Issuances of warrants - - 142,500 - - - 142,500 Net loss - - - (3,760,110) - - (3,760,110) ---------- -------- ----------- ------------ ------- --------- ------------ Balances at September 30, 1995 10,929,339 109,293 18,008,086 (17,019,463) - - 1,097,916 ---------- -------- ----------- ------------ ------- --------- ------------ Issuances of common stock 4,501,845 45,019 4,984,557 - - - 5,029,576 Issuances of warrants - - 308,252 - - - 308,252 Warrants exercised 140,000 1,400 33,600 - - - 35,000 Net loss - - - (5,742,037) - - (5,742,037) ---------- -------- ----------- ------------ ------- --------- ------------ Balances at December 31, 1995 15,571,184 155,712 23,334,495 (22,761,500) - - 728,707 ---------- -------- ----------- ------------ ------- --------- ------------ Issuances of common stock 4,280,955 42,810 17,838,083 - - - 17,880,893 Issuances of warrants - - 1,689,464 - - - 1,689,464 Stock options exercised 578,732 5,787 744,587 - - - 750,374 Warrants exercised 256,700 2,567 741,558 - - - 744,125 Conversion of debt 166,586 1,666 76,459 - - - 78,125 Cumulative translation adjustment - - - - 32,586 - 32,586 Shares received for litigation settlement - - - - - (194,465) (194,465) Net loss - - - (11,573,813) - - (11,573,813) ---------- -------- ----------- ------------ ------- --------- ------------ Balances at December 31, 1996 20,854,157 $208,542 $44,424,646 $(34,335,313) $32,586 $(194,465) $ 10,135,996 ========== ======== =========== ============ ======= ========= ============
See accompanying notes to the consolidated financial statements. 4 22 ACCUMED INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF CASH FLOWS -----------------------
Three Months Year Ended Ended Year Ended December 31, December 31, September 30, 1996 1995 1995 -------------- ------------ ----------- Cash flows from operating activities: Net loss $(11,573,813) $(5,742,037) $(3,760,110) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,026,231 38,400 235,529 Write-off of in-process research and development 5,957,927 3,965,000 -- Minority interest (123,919) -- -- Expenses paid with issuance of warrants 1,184,390 -- 142,500 Expenses paid with issuance of stock 257,094 606,750 166,000 Shares received for litigation settlement (194,465) -- -- Loss on disposal of assets 74,706 -- 63,609 Changes in assets and liabilities: Decrease (Increase) in restricted cash 263,000 (178,000) (185,000) Decrease (Increase) in accounts receivable (1,268,884) 107,906 271,145 Decrease (Increase) in prepaid expenses and deposits (92,362) 1,833 20,035 Decrease (Increase) in production inventory (629,007) 64,999 193,796 Decrease (Increase) in other assets and intangible assets 64,928 80,059 (1,525) Increase in accounts payable 334,908 168,460 766,900 (Increase) in deferred merger cost -- (750,352) (299,650) Increase (decrease) in other current liabilities (688) 155,941 8,571 Increase (Decrease) in deferred revenue (1,307,482) 946,429 470,238 ------------ ----------- ----------- Net cash used in operating activities (6,027,436) (534,612) (1,907,962) ============ =========== =========== Cash used in investing activities: Purchase of fixed assets (1,479,694) (62,196) (49,834) Acquisition of business, net (3,854,737) 48,237 -- ------------ ----------- ----------- Net cash used in investment activities (5,334,431) (13,959) (49,834) ============ =========== =========== Cash flows from financing activities: Proceeds from issuances of common stock net 13,976,390 35,000 3,204,486 Notes receivable issued (214,273) -- (700,000) Payment of capital lease obligation (89,907) (22,132) (50,115) Proceeds from issuance of notes payable 1,025,000 -- -- Proceeds from Bank Loan 592,551 -- -- Payment of notes payable (1,339,629) -- -- ------------ ----------- ----------- Net cash provided by financing activities 13,950,132 12,868 2,454,371 ============ =========== =========== Effect of exchange rate changes on cash 32,586 -- -- ------------ ----------- ----------- Net increase (decrease) in cash and cash equivalents 2,620,851 (535,703) 496,575 Cash and cash equivalents at beginning of period 180,508 716,211 219,636 ------------ ----------- ----------- Cash and cash equivalents at end of period $ 2,801,359 $ 180,508 $ 716,211 ============ =========== ===========
See accompanying notes to the consolidated financial statements. 5 23 ACCUMED INTERNATIONAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. DESCRIPTION OF BUSINESS AccuMed International, Inc. develops, manufactures and markets state-of-the-art medical devices and instruments for laboratories, hospitals and others. The Company was founded in January 1988, incorporated in June 1988 and reincorporated in Delaware in 1995. 2. SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of AccuMed International, Inc. and its majority-owned subsidiaries ("the Company")(formerly Alamar Biosciences, Inc.). The Company's interest in Oncometrics Imaging Corporation (Oncometrics) was 66.7%, 0%, and 0% at December 31, 1996, 1995, and September 30, 1995. All significant intercompany accounts and transactions have been eliminated in consolidation. Revenue Recognition Revenue is recognized when the products are shipped. Contract revenue from research agreements is recorded when earned and as the related costs are incurred. Payments received which are related to future performance are deferred and recognized as revenue when earned over future performance periods. Cash and Cash Equivalents Cash and cash equivalents include cash in banks and money market fund investments with original maturities of three months or less. Restricted Cash Restricted cash as of December 31, 1996 consists of $100,000 as security deposit for a letter of credit to a vendor. The letter of credit agreement allows the vendor to draw upon the restricted cash if outstanding invoices to the Company exceeded specified time limits. As of December 31, 1996, no draws have been made and all invoices to the vendor are current. The restricted cash as of December 31, 1995 consists of $310,000 of certificates of deposit with maturities less than one year which were placed as collateral against a loan made by a financial institution and $53,000 held in an escrow account. Restricted cash as of September 30, 1995 includes an escrow deposit of $150,000 pursuant to an agreement entered into in 1995 between the Company and an outside legal counsel to the Company. Pursuant to the agreement the Company issued to their counsel 240,000 shares of common stock, net of issuance costs of $19,500, in exchange for a reduction of $150,000 in accounts payable. The escrow deposits were released in proportion to the amounts realized by the counsel from the sale of such shares in the public market. As of December 31, 1995 $97,000 had been released from the escrow account with the remaining $53,000 released in February 1996. Inventories Inventories consist primarily of raw materials and subassemblies and are stated at the lower of cost (average cost) or market. Cost is determined by the first-in first-out method (FIFO). 6 24 ACCUMED INTERNATIONAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Fixed Assets Fixed assets are stated at cost. Depreciation of plant and equipment is provided using the straight line method over the estimated useful lives of the assets. Amortization of leasehold improvements is provided on the straight-line method over the shorter of the estimated useful life of the improvement or the term of the lease. Expenditures for repairs and maintenance are charged to operations when incurred. Intangible Assets Intangible assets consists principally of values assigned to acquired proprietary technology and the excess of cost over the fair value of net assets acquired. Such amounts are being amortized on a straight-line basis over the expected periods to be benefited, generally 10 years. The Company assesses the recoverability of the excess of cost over the fair value of net assets acquired by determining whether the amortization of the balance over its remaining life can be recovered through undiscounted future operating cash flows of the acquired operation. The amount of impairment, if any, is measured based on projected discounted future operating cash flows of the related acquired businesses using a discount rate reflecting the Company's average cost of funds. The assessment of the recoverability of this asset will be impacted if the estimated future operating cash flows are not achieved. Research and Development Costs Research and development costs are charged to operations as incurred. Income Taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to the difference between the financial statement carrying amount of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Net Loss Per Share Net loss per share is computed using the weighted average number of common shares outstanding during each period. Common equivalent shares from stock options and warrants are excluded from the computation as their effect is anti-dilutive. Use of Estimates Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. 7 25 ACCUMED INTERNATIONAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. BASIS OF PRESENTATION FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1995. In November 1994, the Company filed a lawsuit in United States District Court against Difco, a competitor, alleging misappropriation of its trade secrets, and sought a constructive trust over a patent covering important aspects of the Company's technology issued to Difco. The patent, which was issued to Difco as a result of its alleged misappropriation, covers the basic technology used in the Company's manual testing kits. A hearing on Difco's summary judgment against the Company was held on September 8, 1995. Due to the discovery of the alleged misappropriation, the Company declined to accept the proceeds of a $2,500,000 financing scheduled to close on November 10, 1994 and implemented significant cutbacks in operations pending the outcome of the lawsuit, including the elimination of its domestic sales force and suspension of research and development efforts and contract research. (The above referenced litigation has been subsequently settled.) On May 2, 1995, the Company received notice that MicroScan, Inc., (MicroScan), a wholly-owned subsidiary of Dade International, Inc., filed an intervention complaint with the court against both the Company and Difco, which alleged that one of the Company's founders misappropriated confidential information of MicroScan while an employee of MicroScan prior to co-founding the Company in 1988, and used such information to develop the Company's technology. The Company filed a motion for summary judgment and, on October 17, 1995, the Court granted the Company's summary judgment motion and dismissed the intervention complaint with prejudice. On December 29, 1995, the Company acquired all of the common stock of AccuMed, Inc. and its wholly-owned subsidiary. (See Note 17.) The fiscal year ended September 30, 1995 financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. 4. CHANGE IN FISCAL YEAR In 1995, the Company changed to a fiscal year ending December 31. The consolidated statement of operations for the three months ended December 31, 1994 (unaudited) is presented for comparison purposes only. 8 26 ACCUMED INTERNATIONAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
Three Months Ended December 31, 1994 ------------------ Sales $ 100,614 Less cost of sales (227,300) ---------- (126,686) Operating expenses General and administrative 384,181 Research and development 150,983 Sales and marketing 171,420 ---------- Total operating expenses 706,584 ---------- Operating loss (833,270) Other income (expense) Interest income 664 Interest expense (13,267) ---------- Total other income (expense) (12,603) ---------- Loss before income taxes (845,873) Income tax expense 200 Net loss $ (846,073) ========== Net loss per share $ (0.17) ========== Weighted average common shares outstanding 4,894,294 ==========
5. ACCOUNTS RECEIVABLE Accounts receivable includes the following at:
December 31, --------------------- September 30, 1996 1995 1995 --------- ------- ------------- Trade receivables $2,269,688 $842,994 $221,767 Contract refunds due -- 43,050 43,050 Other receivables -- 6,600 -- Allowance for doubtful accounts (126,092) (17,932) (19,725) --------- ------- ------- Total $2,143,596 $874,712 $245,092 ========= ======= =======
9 27 ACCUMED INTERNATIONAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. FIXED ASSETS Fixed assets includes the following at:
December 31, Estimated useful ------------------------- September 30, life 1996 1995 1995 ---------------- -------------------------- ------------- Equipment 3 - 5 years $1,752,044 $ 871,595 $ 776,867 Leasehold improvements 5 - 13 years 544,892 60,947 -- Equipment under capital lease 5 years 299,090 299,090 299,090 ---------- ---------- ---------- 2,596,026 1,231,632 1,075,957 Less accumulated depreciation and amortization (899,955) (703,230) (664,831) ---------- ---------- ---------- $1,696,071 $ 528,402 $ 411,126 ========== ========== ==========
7. NOTES RECEIVABLE At December 31, 1996 notes receivable consisted of two notes from related parties in the aggregate amount of $214,273. Pursuant to the merger agreement (note 16), the Company extended the following loans, which bear interest at 10% per annum, to AccuMed Inc. to provide working capital.
DATE AMOUNT - ---- ------ May 9, 1995..................................................... $150,000 May 31, 1995.................................................... 125,000 June 28, 1995................................................... 125,000 August 7, 1995.................................................. 125,000 August 29, 1995................................................. 175,000 -------- $700,000 ========
On November 20, 1995, the Company's Board of Directors agreed to consolidate the various notes above into a single $700,000 note. Upon consummation of the merger on December 29, 1995, such amounts were eliminated in consolidation at December 31, 1995. 10 28 ACCUMED INTERNATIONAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. OTHER CURRENT LIABILITIES Other current liabilities consist of the following at:
December 31, ----------------------- September 30, 1996 1995 1995 ------- ------- ------------- Payroll and related costs 95,211 286,998 84,970 Sales & use taxes -- -- 908 Customer deposits 94,333 47,169 2,169 Accrued rent -- 64,255 89,750 Other accrued expenses 690,264 482,169 25,700 ------- ------- ------------- Total 879,808 880,591 203,497 ------- ------- -------------
9. DEFERRED REVENUE Deferred revenue of $146,968 at December 31, 1996 consists of deposits recorded during 1996 for research projects to be performed during 1997. The Company will recognize revenue when performance milestones are met in future periods. On May 3, 1995, the Company entered into a letter of intent with Becton Dickinson, Inc., (Becton) pursuant to which the Company agreed to grant Becton a semi-exclusive, worldwide license of the Company's alamarBlue(TM) technology for a specific field of use. On October 10, 1995, the license agreement (License) between the Company and Becton was executed. On signing the letter of intent, Becton paid the Company $100,000. On June 28, 1995, Becton paid an additional $400,000 to the Company. In October 1995, the Company received $250,000 for executing the license agreement, and $750,000 upon the initial favorable resolution of the MicroScan lawsuit. In February 1996, Becton paid an additional $1,000,000 upon final favorable resolution of the MicroScan lawsuit and $1,000,000 in March 1996 upon final favorable resolution of the Difco lawsuit. Of this last amount, $500,000 is creditable against future royalties. The $1,500,000 received by the Company through December 31, 1995 was deferred pending resolution of the above mentioned lawsuits. Due to the settlement of the lawsuits in February and March 1996, all of the remaining deferred revenues became income during the quarter ending March 31, 1996. 10. LONG-TERM DEBT Long-term debt of $230,795 at December 31, 1996 consists of the Company's portion of Oncometrics repayable contribution from the Western Economic Diversification Program. The debt does not bear interest and is repayable in semi-annual payments based on future sales of the Access device. 11 29 ACCUMED INTERNATIONAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 11. NOTES PAYABLE
DECEMBER 31, ------------------------ 1996 1995 -------- --------- Notes payable consist of the following at: Note payable to bank, guaranteed by $ -- $100,000 stockholders, interest at 11.75% payable monthly with principal payment due on April 30, 1996 Note payable to bank, guaranteed by -- 455,000 stockholders, interest at 10.75% payable monthly with principal payment due on April 30, 1996 Notes payable to stockholders, interest 25,100 90,610 at 10%, due on demand Bank line of credit, collateralized by 173,455 80,904 substantially all assets of AccuMed International Limited, a wholly-owned subsidiary of the Company, due on demand -------- -------- $198,555 $726,514 ======== ========
12. STOCKHOLDERS' EQUITY The Board of Directors is authorized to issue 5,000,000 shares of preferred stock, the terms and rights to be established upon issuance. Of these shares, 382,500 have been designated as Series A 8% Cumulative Preferred Stock. None of these shares have been issued. Warrants In March 1996, the Company granted to certain investors in a related party in exchange for 10% of the outstanding common stock of such related party warrants to purchase 687,500 shares of common stock at a price of $3.42 to $3.87 per share. These warrants expire in March 1999. The fair market value of these warrants of $852,390 has been recorded as issuance of common stock warrants with an offsetting charge reflected as other expense in the Consolidated Statements of Operations. The Company utilized the Black Scholes pricing model to determine the fair value of the warrants granted. The following assumptions were incorporated into the model: risk free rate 7.5%, expected life of warrant 3 years, expected volatility 20%, and expected dividends 0. In March 1996, the contingency associated with the issue of warrants was resolved in the issuance of 63,472 warrants. The market value of these warrants of $255,074 was included in consideration received from the resolution of the contingency. The Company utilized the Black Scholes pricing model to determine the fair value of the warrants granted. The following assumptions were incorporated into the model: risk free rate 7.5%, expected life of warrant 1 year, expected volatility 20%, and expected dividends 0. (Note 17). In January 1996, the Company granted to an individual in exchange for consulting services rendered warrants to purchase 100,000 shares of common stock at a price of $2.125 per share. These warrants expire in January 2001. The fair market value of these warrants of $230,000 has been recorded as issuance of common stock warrants with an offsetting charge reflected as administration expense in the Consolidated Statement of Operations. The Company utilized the Black Scholes pricing model to determine the fair value of the warrants granted. The following assumptions were incorporated into the model: risk free rate 7.5%, expected life of warrant 2 years, expected volatility 20%, and expected dividends 0. In January 1996, the Company received $250,000 cash in exchange for a note payable bearing interest at 11% due in April 1996, and warrants to purchase 100,000 shares of common stock at $1.25 per share. The warrants have been recorded at their estimated fair market value of $352,000. The Company utilized the Black Scholes pricing model to determine the fair value of the warrants granted. The following assumptions were incorporated into the model: risk free rate 7.5%, expected life of warrant 5 years, expected volatility 20%, and expected dividends 0. This note payable was paid in 1996, resulting in a charge of $352,000 reflected as interest expense in the Consolidated Statement of Operations for the year ended December 31, 1996. During 1996 56,500 warrants were exercised at $0.25 and 200 at $5.00. 12 30 ACCUMED INTERNATIONAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) At December 31, 1996, outstanding warrants to purchase shares of common stock at any time through the expiration date were as follows:
Shares Price Expiration Date --------- ----- --------------- 2,702,705 $5.00 10/97 104,000 2.13 10/97 120,000 3.42 3/99 367,500 3.87 3/99 400,000 0.25 12/99 175,000 5.00 12/99 25,275 5.00 4/00 264,840 0.63 5/00 100,438 0.82 8/00 100,437 1.64 8/00 100,437 2.47 8/00 300,000 0.63 8/00 63,500 0.25 9/00 75,000 1.13 12/00 750,000 1.25 12/00 100,000 1.25 1/01 100,000 $2.13 3/01 --------- 5,849,132 =========
In February 1995, the Company granted warrants to a consulting firm for the right to purchase 140,000 shares of the Company's common stock at a price of $.25 per share in lieu of the Company's liability of $105,000 to the consulting firm. These warrants were exercised in December 1995. In May 1995, the Company granted warrants to a placement agent for the right to purchase 100,000 shares of the Company's common stock at a price of $.25 per share as compensation for services performed relating to the canceled $2.5 million financing in November 1994. The warrants expire in August 2000. The difference between the fair market value of the stock and the common stock purchase price has been recorded as issuance of common stock warrants. Additionally, contingent upon consummation of the merger, a consulting firm was granted a five year warrant to purchase up to 750,000 shares of common at a price of $1.25 per share, subject to certain limitations. The fair value of these warrants has been recorded as issuance of common stock warrants. (Note 17) 13 31 ACCUMED INTERNATIONAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) At December 31, 1995, outstanding warrants to purchase shares of common stock at any time through the expiration date were as follows: Stock Option Plan The Company has in effect three stock options plans for certain employees. On October 15, 1990, the Company adopted the 1990 Stock Option Plan (1990 Plan). The Company's employees, directors, and consultants are eligible to participate in the Plan. The Company has reserved shares of authorized but unissued common stock for issuance under the 1990 Plan. On February 4, 1992, the Company adopted the 1992 Stock Option Plan (1992 Plan), for which the Company has reserved shares of authorized but unissued common stock. Options issued under the 1992 Plan are issued, exercisable, and governed by substantially the same terms as options issued under the 1990 Plan, with the exception of provisions in the 1990 Plan accelerating the vesting of options in instances of acquisition or liquidation, which have been deleted from the 1992 Plan. On November 17, 1992 the Board of Directors also approved an increase, approved by the stockholders on March 2, 1993, of the number of shares of common stock reserved for issuance under the 1992 Plan from 405,000 to 505,000 shares. On December 29, 1995, the Company adopted the 1995 Stock Option Plan (1995 Plan), for which the Company has reserved an additional 1,832,483 shares of authorized but unissued common stock. Options issued under the 1995 Plan are issued, exercisable, and governed by substantially the same terms as options issued under the 1992 Plan. Terms of the Plans include: Exercise Price _ For the 1990 Plan, fair market value determined by the Board of Directors and not less than 110% of the determined fair market value in certain instances. For the 1992 Plan and the 1995 Plan fair market value as determined by the closing price of the Common Stock on the date of issuance as reported by NASDAQ. 14 32 ACCUMED INTERNATIONAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Vesting Period _ A portion of the options granted to participants vested immediately with the remaining options vesting on varying schedules not exceeding five years from date of grant. The Company applies APB Opinion No. 25 and related interpretations in accounting for its Stock Option Plans. Accordingly, no compensation cost has been recorded with the exception of stock options granted to consultants, which are recorded at fair value. Had compensation cost for the Company's Stock Option Plans been determined consistent with FASB Statement No. 123, the Company's net loss and loss per share would have been increased to the pro forma amounts indicated below.
THREE MONTHS YEAR ENDED ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, SEPTEMBER 30, 1996 1995 1995 ------------ ------------ ------------- Net loss As reported $(11,573,813) $(5,742,037) $(3,760,110) Pro forma (11,892,012) (5,761,210) (3,765,640) Net loss per share As reported $ (0.68) $ (0.49) $ (0.59) Pro forma (0.70) (0.49) (0.59)
Pro forma net loss and loss per share reflect only options granted in 1996 and 1995. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the pro forma net loss amounts presented above because compensation cost is reflected over the options' vesting period of up to 10 years and compensation cost for options granted prior to January 1, 1995 is not considered. The compensation cost of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 1996 and 1995.
THREE MONTHS YEAR ENDED ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, SEPTEMBER 30, 1996 1995 1995 ------------ ------------ ------------- Dividend yield 0% 0% 0% Volatility 20% 30% 10% Risk free interest rate 7% 7% 7% Expected term in years 9.13 9.57 9.57
15 33 ACCUMED INTERNATIONAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) A summary of the status of the Company's Stock Option Plans as of September 30, 1995 and as of December 31, 1995 and 1996 and changes during the periods then ended is presented below:
Weighted Average Shares Exercise Price --------- -------------- Outstanding at September 30, 1994 532,855 $ 4.96 Granted 106,020 $ 1.07 Exercised -- $ -- Expired (cancelled) (123,023) $ 1.07 --------- Outstanding at September 30, 1995 515,852 $ 1.32 Granted 1,103,910 $ 1.11 Exercised -- $ -- Expired (cancelled) (32,917) $ 1.39 --------- Outstanding at December 31, 1995 1,586,845 $ 1.23 Granted 909,000 $ 4.99 Exercised (578,732) $ 1.30 Expired (cancelled) (182,084) $ 1.13 --------- Outstanding at December 31, 1996 1,735,029 $ 3.15 =========
The following table summarizes information about stock options outstanding as of December 31, 1996:
Options outstanding Options exercisable -------------------------------------------- ---------------------------- Weighted avg remaining Weighted avg Weighted avg Number contractual exercise Number exercise Range of exercise prices outstanding life price exercisable price - ------------------------ ----------- ------------ ------------ ----------- ------------ $0.63 to $1.13 881,779 8.26 $1.11 650,439 $1.11 $1.44 to $3.75 259,250 6.12 2.57 185,917 2.11 $5.38 to $8.38 594,000 4.56 6.41 186,335 6.54 --------- --------- $0.63 to $8.38 1,735,029 6.67 $3.15 1,022,691 $1.34 ========= =========
16 34 ACCUMED INTERNATIONAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Common Stock A registration statement on Form SB-2 was declared effective by the Securities and Exchange Commission on October 3, 1996, and net proceeds of the offering approximating $11,700,000 were received by the Company on October 8, 1996. In July 1996 the Company issued 25,000 shares of the Company's common stock at a price of $6.25 per share to a related party. Administrative expense in the amount of $156,250 has been recorded in the Consolidated Statement of Operations. In June 1996 the Company issued 255,000 shares of common stock in private placements with net proceeds of $1,409,665. In June 1996, 166,586 shares of common stock were issued to a related party pursuant to an agreement requiring conversion of the outstanding principal and the accrued and unpaid interest totaling $78,125 into 68,500 shares of common stock of AccuMed, Inc. prior to the merger. In January 1996, the Company issued 60,000 shares of common stock at a price of $1.125 per share to related parties. Administrative expense in the amount of $67,500 has been reflected in the Consolidated Statement of Operations. In November 1995, the Company issued 20,000 shares of the Company's common stock at a price of $.625 per share to a director for consulting services performed related to the merger. Consulting expense in the amount of $12,500 has been reflected in the Consolidated Statements of Operations. In October 1995, the Company issued to each non-employee director of the Company 10,000 shares of the Company's common stock at a price of $.625 per share as compensation for services performed. Compensation expense in the amount of $31,250 has been reflected in the Consolidated Statements of Operations. In August 1995, the Company issued 16,000 shares of the Company's common stock at a price of $1 per share to a vendor as compensation for services performed in lieu of the Company's liability of $16,000 to the vendor. During May and August 1995, the Company completed two separate private offerings for an aggregate of 5,648,400 shares of the Company's common stock providing net proceeds of $2,931,486 (net of $598,764 of financing expenses). Also, the Company's placement agent received warrants for the future purchase of 564,840 shares of the Company's common stock at an exercise price of $0.625. Such warrants expire from May through August 2000. In March 1995, the Company issued 80,645 shares of the Company's common stock at a price $0.62 per share for a total of $42,500 (net of financing costs of $7,500) to a private investor. In March 1994, the Company finalized an agreement with one of the Company's distributors, to purchase the Company's securities in exchange for certain distribution, licensing and product development rights. Under the terms of the agreement, the Company was obligated to issue 200,000 shares of common stock for a total consideration of $500,000. At September 30, 1994, the distributor had purchased $250,000 in common stock. In November 1994, the distributor purchased the remaining $250,000 in common stock and was issued warrants to purchase 166,667 additional shares of stock at an exercise price of $3.00 per share, which warrants expired in December 1995. In March 1996, the contingency associated with 940,955 shares of common stock was resolved, and the shares were subsequently issued. The fair value of these shares of $5,175,252 was included in consideration received from the resolution of the contingency, see Note 16. 17 35 ACCUMED INTERNATIONAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 13. INCOME TAXES The net deferred tax assets and liabilities consist of the following at:
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, 1996 1995 1995 ---- ---- ---- Deferred tax assets: Net operating loss carryforwards.............. $8,165,000 $ 6,520,000 $5,460,000 Research and development credits.............. 479,000 300,000 295,000 Capitalized research and development costs.... -- -- 280,000 Depreciation.................................. 420,000 162,000 175,000 Other......................................... 184,000 114,000 65,000 ---------- ----------- ---------- Total $9,248,000 7,096,000 6,275,000 Valuation allowance (9,248,000) (7,096,000) (6,275,000) ---------- ----------- ---------- Net deferred tax assets and liabilities $ -- $ -- $ -- ========== =========== ==========
At December 31, 1996, the Company had approximately $22,931,000 and $7,966,000 in net operating losses for federal and state tax purposes, respectively, available to be carried forward to future periods. The carryforwards expire from 2004 to 2012 for federal purposes and from 2011 to 2012 for state purposes. The Company also has credits for research and development of $479,000 available to offset future federal income taxes, which expire from 2004 to 2012. As a result of providing a valuation allowance equal to the deferred tax assets, there is no federal tax provision. The provision for tax for the three months ended December 31, 1995 and the year ended September 30, 1995 is the state minimum tax. During the last three years, the Company has had more than a 50% change in ownership. Section 382 of the Internal Revenue Code and comparable state statutes impose certain annual limitations on the utilization of net operating loss carryforwards and research and development credits that can be used to offset income in future periods. 14. LEASES Operating Leases The Company leased its facilities and one automobile under operating leases. Rental expense is recognized on a straight-line basis over the life of the lease. Rental expense for the year ended December 31, 1996, the three months ended December 31, 1995 and the year ended September 30, 1995 was $380,205, $71,000, and $156,000, respectively. 18 36 ACCUMED INTERNATIONAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Minimum future annual rent payments are as follows for years ending December 31:
YEAR AMOUNT ---- ------ 1997 $325,321 1998 269,125 1999 269,125 2000 205,775 2001 143,198 Thereafter 1,288,000 ---------- Total $2,500,544 ==========
Capital Leases In July and September 1994, the Company entered into capital leases for production equipment in the total amount of $231,693, with principal and interest payable monthly, interest at approximately 21%, and total residuals of $34,754 due in July and September 1997. In October 1994, the Company entered into a capital lease for office equipment in the total amount of $29,000, with principle and interest payable monthly, interest at 8.71%, and a residual of $4,350, due in October 1997. Future minimum lease payments under capital lease obligations for the year ending December 31, 1996 are as follows:
YEAR AMOUNT ---- ------ 1997 97,958 Less amount representing interest (8,148) ------ 89,810 ======
15. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Non-cash investing and financing activities: During the year ended December 31, 1996, the Company issued common stock and warrants for the payment of expenses. The value of common stock and warrants issued was $257,094 and $1,184,390, respectively. A shareholder returned previously issued shares to the Company as compensation for the settlement of litigation which amounted to $194,465. During the three month period ending December 31, 1995 and the year ended September 30, 1995 the Company acquired assets under capital leases in the amounts of $0 and $21,341, respectively. During the three months ended December 31, 1995, the Company acquired all of the outstanding shares of AccuMed, Inc. in exchange for common stock of the Company. The fair value of net liabilities assumed was $828,476. Cash acquired totaled $48,237. 19 37 ACCUMED INTERNATIONAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Cash paid for interest and income taxes:
YEAR ENDED THREE MONTHS ENDED YEAR ENDED DECEMBER 31, 19996 DECEMBER 1, 1995 SEPTEMBER 30, 1995 ------------------ ---------------- ------------------ Cash paid during the period for: Interest 76,350 19,122 46,657 Income taxes -- -- 800
16. COMMITMENTS Pfizer Agreement In October 1992, the Company entered into an agreement to conduct a research project for the purpose of developing a testing procedure for another entity. The maximum payments the Company may receive for completion of the agreement are $246,000. As of December 31, 1996, the Company had received payments of $184,500 based on procedures completed to date. 17. MERGER AND RELATED TRANSACTIONS On December 29, 1995, the Company acquired all of the common stock of AccuMed, Inc. and its wholly owned subsidiary ("AccuMed"). AccuMed is primarily engaged in the research and development of diagnostic screening products for the cytopathology and microbiology clinical laboratory, pharmaceutical and veterinary segments of the health care industry. Following the acquisition, AccuMed ceased to exist as a legal entity and the merged entity was renamed AccuMed International, Inc. Pursuant to the terms of the merger agreement the Company issued 3,931,401 unconditional shares of common stock valued at $4,422,826 and 237,840 warrants valued at $68,252 on December 29, 1995. An additional 1,881,910 shares and 126,945 warrants were issued to AccuMed stockholders on December 29, 1995, however, such shares and warrants are contingent and subject to forfeiture if specified performance goals are not achieved by the merged entity during the 24 months beginning January 1, 1996. The contingent consideration will be recorded when the goals are achieved and will be computed based upon the stock price on such date. The acquisition has been accounted for using the purchase method of accounting, and, accordingly, the purchase price has been allocated to the assets purchased and liabilities assumed based upon the fair values at the date of acquisition. The excess of the purchase price over the fair value of the tangible assets has been allocated to identifiable intangibles of acquired proprietary technology ($2,644,556) and in-process research and development ($3,965,000). The acquired proprietary technology will be amortized over the expected period to be benefited, which is estimated to be 10 years with the in-process research and development charged to operations at the date of acquisition. The contingency associated with 940,955 shares and 63,472 warrants was resolved (performance goal achieved) in March 1996 resulting in contingent consideration of approximately $5,273,000. Such amount has been allocated to acquired proprietary technology ($1,775,000) and in-process research and development ($3,498,000) and recorded in March 1996. 20 38 ACCUMED INTERNATIONAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The results of operations of AccuMed have not been included in the Consolidated Statements of Operations for the three months ended December 31, 1995 or for the year ended September 30, 1995 because the acquisition occurred at the end of the three month period ended December 31, 1995. The following pro forma information has been prepared assuming that the acquisition had taken place at the beginning of the respective periods. The pro forma information includes adjustments for the amortization of intangibles and write-off of in-process research and development arising from the transaction. The pro forma financial information is not necessarily indicative of the results of operations as they would have been had the transaction been effected on the assumed dates.
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, 1995 SEPTEMBER 30, 1995 ----------------- ------------------ (UNAUDITED) Sales............................................................. $1,109,506 $3,979,930 Net loss.......................................................... (7,016,824) (9,844,326) Net loss per share................................................ $(0.60) $(1.00)
The Company, AccuMed and AccuMed International Limited, a wholly-owned subsidiary of AccuMed, entered into a Manufacturing and Supply Agreement effective as of July 1, 1995, (the Manufacturing Agreement) pursuant to which the Company purchased ID/MIC panels from Sensititre Limited. The Manufacturing Agreement was terminated on December 29, 1995. Amounts paid to AccuMed for the year ended September 30, 1995 under the Manufacturing Agreement were $277,172. Additionally, the Company gave a deposit to AccuMed of $50,000 in October 1995, for the purchase of supplies and raw materials in relation to this agreement. Pursuant to a Distributor Agreement effective as of July 1, 1995 between AccuMed and the Company (the Distributor Agreement), the Company appointed AccuMed as its distributor for microbiology products. AccuMed was the exclusive distributor in the United States, Canada, Mexico, Puerto Rico, Japan, the Far East, Australia and Europe (except Italy, Portugal, Germany, Austria, Belgium, Cyprus, Greece, Luxembourg, The Netherlands, Switzerland and Turkey), and a non-exclusive distributor in Central America, South America, Africa, South Africa, Korea, East Europe, the Middle East, China and Taiwan. The Distributor Agreement was terminated on December 29, 1995. Amounts paid to AccuMed for the year ended September 30, 1995 under the Distributor Agreement were $35,677. Pursuant to an oral agreement (the Oral Agreement), the Company paid AccuMed an amount equal to 30% of AccuMed's lease payment (approximately $2,500 per month) for its manufacturing facility in Cleveland, Ohio and 30% of AccuMed's general overhead expenses in consideration for AccuMed providing sales, marketing and distribution services on behalf of the Company. Such arrangement terminated on December 29, 1995. Amounts paid to AccuMed for the year ended September 30, 1995, under this Oral Agreement were $67,508. Pursuant to a Research and Development Agreement, effective as of July 1, 1995, (the R&D Agreement) between the Company and AccuMed the Company granted to Sensititre Limited, a wholly-owned subsidiary of AccuMed, a non-exclusive license to use the Company's intellectual property, including know-how, trade secrets and technology relating to alamarBlue(TM) for the sole purpose of conducting research and development activities using such intellectual property. Under the R&D Agreement, the Company paid the actual hourly wage per employee hour spent on such research and development and reimburses AccuMed for its expenses relating thereto. The R&D Agreement terminated on December 29, 1995. Amounts paid to AccuMed for the year-ended September 30, 1995, under this R&D Agreement were $20,000. At September 30, 1995, the Company had recorded an accounts receivable of $53,499 from AccuMed which resulted from the sale of inventory to AccuMed. Additionally, the Company had recorded approximately $123,000 of accounts payable to AccuMed for services received pursuant to the Manufacturing, Distributor and Oral Agreements. Upon consummation of the merger on December 29, 1995 such amounts were eliminated in consolidation. 21 39 ACCUMED INTERNATIONAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The Company recorded a deferred asset at September 30, 1995, of $299,650 relating to direct costs paid to unrelated entities for services performed related to the merger. These deferred costs have been included in determining the cost of AccuMed. In February 1995, the Company and AccuMed entered into an agreement with a consulting firm (Consulting Firm) to pay the Consulting Firm an aggregate finders fee for assistance with the merger, of which $50,000 was paid with proceeds from the Company's private offering in August 1995 and is non-refundable. The remaining obligation was satisfied through the issuance of 444,444 shares of common stock on December 29, 1995 and the issuance of a five-year warrant to purchase 750,000 shares of common stock at $1.25 per share. The total finders fee of $790,000 has been included as direct costs of the acquisition. The breakdown of the $790,000 is as follows: Cash $50,000, issuance of common stock $500,000 (444,444 x $1.25) and issuance of warrants $240,000 (750,000 x $.32). The Company entered into an agreement with Bridgemere Capital (Bridgemere), which has been acting as special advisor to the Company, pursuant to which the Company has paid to Bridgemere a fee of $50,000 and has agreed to pay an additional $55,000 in cash and issued 56,000 shares of common stock on December 29, 1995. The total finders fee of $168,000 has been included as direct costs of the acquisition. 18. RELATED-PARTY TRANSACTIONS In June 1996, 166,586 shares of common stock were issued to a related party upon conversion of a note with outstanding principal and accrued and unpaid interest totaling $75,000. In April 1996, the Company entered into a settlement agreement with several stockholders. Under the terms of this agreement, 31,812 shares of common stock held by these stockholders with a fair value of $194,468 were returned to the Company and are being held as treasury stock. An additional 6,144 shares of common stock contingent and subject to forfeiture if specified performance goals are not achieved in 1997 were also returned to the Company. In March 1996, the Company granted to certain investors in a related party warrants to purchase 687,500 shares of common stock at a price of $3.42 to $3.87 per share. These warrants expire in March 1999. The fair market value of these warrants of $852,390 has been recorded as issuance of common stock warrants with an offsetting charge reflected as other expense in the Consolidated Statement of Operations for the year ended December 31, 1996. In January 1996, the Company received $250,000 cash in exchange for a note payable bearing interest at 11% due in April 1996, and warrants to purchase 100,000 shares of common stock at $1.25 per share. The warrants have been recorded at their estimated fair value of $352,000. This note payable was paid in 1996, resulting in a charge of $352,000 reflected as interest expense in the Consolidated Statement of Operations for the year ended December 31, 1996. In January 1996, the Company granted to an individual in exchange for consulting services rendered warrants to purchase 100,000 shares of common stock at a price of $2.125 per share. These warrants expire in January 2001. The fair market value of these warrants of $230,000 has been recorded as issuance of common stock warrants with an offsetting charge reflected as administration expense in the Consolidated Statement of Operations for the year ended December 31, 1996. 22 40 ACCUMED INTERNATIONAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) In September 1995, the Company paid $12,500 to a director for consulting services performed related to the private financings in May and August 1995 and the proposed merger between the Company and AccuMed. Additionally, in November 1995, the Company issued 20,000 shares of the Company's common stock at a price of $.625 per share to the same director for the consulting services described above. In December 1994, the Company entered into a Consulting Services Agreement, effective January 1, 1995, with a Placement Agent, also a stockholder of the Company, pursuant to which the Placement Agent agreed to provide certain financial consulting services to the Company for a period of 12 months with an option to renew the agreement for an additional 12 months at the consent of both the Placement Agent and the Company. In exchange for the consulting services, the Company will pay the Placement Agent an aggregate sum of $58,500. At September 30, 1995, the Company had paid the Placement Agent $42,500. All non-employee directors have received an option to purchase 750 common shares and option to purchase 250 additional shares annually. In 1993 and 1994, all non-employee directors received an option to purchase 1,000 shares and 5,000 shares of the Company's common stock, respectively. In 1995, all non-employee directors received options to purchase 5,000 to 9,215 shares of the Company's common stock, contingent upon their length of service. These directors will receive options for 5,000 additional shares annually. All such awards are made pursuant to the 1992 Plan. 19. WARRANTY RESERVE The company provides a warranty reserve for costs associated with repair or replacement parts of cytopathology and microbiology products sold. The reserve at December 31, 1996 was $30,000. No reserve was recorded at December 31, 1995, or September 30, 1995 due to limited product sales for these periods. 20. ACQUISITIONS On October 15, 1996, the Company acquired a two-thirds interest in Oncometrics for a total purchase price of $4.0 million which includes $2.0 million to be used solely as working capital for Oncometrics. The purchase price was paid from the net proceeds of a public offering and has been reflected in the Consolidated Balance sheet as of December 31, 1996. The acquisition has been accounted for using the purchase method of accounting, and accordingly the purchase price has been allocated to assets purchased and liabilities assumed based on fair values at the date of acquisition. The excess purchase price consists of $1,645,200 million of acquired in process research and development and $1,096,000 million of purchased technology and reflects the 33% minority interest holding. The Consolidated Balance sheet reflects the $1,096,000 million of purchased technology as intangible assets. The $1,645,200 million in-process research and development was reported as acquired research and development in the Consolidated Statement of Operations during 1996. The financial results of Oncometrics have been translated from Canadian dollars to U.S. dollars using an exchange rate of 0.75 for the period October 15, 1996 through December 31, 1996 and 0.75 as of December 31, 1996. The Company's share of operations of Oncometrics from purchase date through December 31, 1996 have been recorded in the Consolidated Statement of Operations. The proforma consolidated results of operations giving effect to the acquisition of Oncometrics as if it had occured as of October 1, 1994 follows:
Three Months Year ended Ended Year Ended December 31, 1996 December 31, 1995 September 30, 1995 ----------------- ----------------- ------------------ Sales 6,235,892 247,089 679,328 Net loss (12,066,170) (5,876,285) (5,461,065) Net loss per share (0.71) (0.50) (0.86)
23 41 ACCUMED INTERNATIONAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) On October 10, 1996, the Company acquired the remaining 90% interest in Radco Ventures, Inc. ("Radco"), for $1.4 million in cash. Radco was formed to develop diagnostic microbiology test panels and automated reading instruments. The acquisition has been accounted for using the purchase method of accounting, and, accordingly the purchase price has been allocated to the assets purchased and liabilities assumed based on fair values at the date of acquisition. The excess purchase price over fair value of approximately $795,000 over tangible assets has been allocated to in-process research and development and recorded as acquired research and development in the Consolidated Statement of Operations. In August 1996, the Company acquired assets from Technostics Corp. in consideration for the issuance of 69,308 shares of common stock, which shares are being held in escrow pending resolution of a contingency regarding any challenge or claim filed in the succeeding twelve months calling into question the ownership rights to such patents. The assets to be acquired consist largely of U.S. and foreign patents in the areas of image analysis and automated cytology. The Company did not assume any liabilities of Technostics. The contingent consideration relating to the issuance of these shares will be recorded when the contingency is resolved and will be computed based upon the stock price on such date. 21. OPERATIONS BY GEOGRAPHIC AREA The following represents the Company's operations in different geographical areas for the year ended December 31, 1996: United United Total States Kingdom ----- ------ ------- Sales to unaffiliated customers $ 6,222,449 $ 4,550,671 $1,671,778 Total operating expenses 16,460,678 15,189,507 1,271,171 Operating loss 14,229,659 13,874,448 355,211 Identifiable assets 14,479,542 13,154,937 1,324,605 22. SUBSEQUENT EVENTS On March 3, 1997, the Company acquired certain assets and liabilities of Difco Microbiology Systems, Inc. (Difco) related to the manufacture and distribution of blood culture instruments. The acquisition will be recorded under the purchase method of accounting. As the fair value of the assets acquired and liabilities assumed exceeds the purchase price paid, the excess fair value will be allocated to reduce proportionately the values assigned to noncurrent assets with any remainder recorded as a deferred credit. The acquisition will be recorded by the Company during the first quarter of 1997. The Company funded the acquisition through a private placement to investors consisting of $8,500,000 of 12% convertible notes (notes) with a three year term. Investors also received warrants to purchase shares of the Company's common stock equal to 10% of the note with an expiration period dependent on conversion of the notes. The placement agent, a shareholder of the Company, received out of pocket expenses of $56,500, a placement fee equal to 7% of the proceeds of the offering, and warrants to purchase 200,000 shares of the Company's common stock. As the private placement did not close until March 14, 1997, the Company obtained a bridge loan to finance the acquisition during the interim period between acquisition of Difco and private placement. The two individual lenders, who are also shareholders of the Company, agreed to loan the Company $6,000,000 at an interest rate of 12% per annum. The Company repaid the bridge loan on the date on which proceeds of the notes were received in escrow. The Company incurred approximately $140,000 of origination fees and interest expense as a result of the bridge loan, and this amount will be expensed in the first quarter of 1997. 24 EX-23.1 2 CONSENT OF KPMG 1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT The Board of Directors AccuMed International, Inc. We consent to incorporation by reference in the registration statements (No. 333-04715, 033-98902, and 333-07681) on Form S-3 and (No. 333-04320 and 333-11219) on Form S-8 of AccuMed International, Inc. of our report dated March 28, 1997, relating to the consolidated balance sheets of AccuMed International, Inc. as of December 31, 1996 and 1995 and the related consolidated statements of operations, stockholders' equity, and cash flows for the year ended December 31, 1996 and the three months ended December 31, 1995, which report appears in the December 31, 1996 annual report on Form 10-KSB of AccuMed International, Inc. /s/ KPMG Peat Marwick LLP Chicago, Illinois September 12, 1997 EX-23.2 3 CONSENT OF COOPERS & LYBRAND 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements (No. 333-04715, 033-98902, 333-07681 and 333-28125) on Form S-3 and (No. 333-04320 and 333-11219) on Form S-8 of AccuMed International, Inc. of our report, which includes an explanatory paragraph related to substantial doubt about the ability of Alamar Biosciences, Inc. to continue as a going concern, dated November 19, 1995, on our audits of the financial statements of Alamar Biosciences, Inc. as of September 30, 1995 and 1994, and for the years ended September 30, 1995, 1994 and 1993, which report is included in the Annual Report on Form 10-KSB for the year ended September 30, 1995. /s/ Coopers & Lybrand L.L.P. Sacramento, CA September 12, 1997 EX-27 4 FINANCIAL DATA SCHEDULE
5 YEAR DEC-31-1996 JAN-1-1996 DEC-31-1996 2,901,359 0 2,269,688 126,092 1,772,127 7,034,280 2,596,026 899,955 14,479,542 3,655,910 230,795 0 0 208,542 9,927,454 14,479,542 6,222,449 6,222,449 3,991,430 3,991,430 16,460,678 0 458,214 (11,573,813) 0 0 0 0 0 (11,573,813) 0 (.68)
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