-----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, TXln0e/kc6yNfZ2aGeu0UzQC/VoH0qTdfAbsVPwhGPwBJkKqvv+epsQHOp+/3knL a64zVF6romjmTEArUMUPjA== /in/edgar/work/20000810/0000950148-00-001664/0000950148-00-001664.txt : 20000921 0000950148-00-001664.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950148-00-001664 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000810 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACCUMED INTERNATIONAL INC CENTRAL INDEX KEY: 0000888335 STANDARD INDUSTRIAL CLASSIFICATION: [2835 ] IRS NUMBER: 364054899 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-20652 FILM NUMBER: 690929 BUSINESS ADDRESS: STREET 1: 900 N FRANKLIN ST STREET 2: STE 401 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 10-Q 1 e10-q.txt FORM 10-Q (6/30/00) 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 2000. OR [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _____ to _____. Commission file number: 0-20652 ACCUMED INTERNATIONAL, INC. ----------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 36-4054899 - ------------------------------- ---------------- (State or other jurisdiction (IRS Employer of incorporation or organization) Identification No.) 920 N. Franklin St., Suite 402, Chicago, IL 60610 ------------------------------------------------- (Address of principal executive offices) (312) 642-9200 --------------------- (Registrant's telephone number including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The registrant had 5,696,542 shares of common stock outstanding as of August 7, 2000. 2 ACCUMED INTERNATIONAL, INC. AND SUBSIDIARY INDEX
Page Number ------ PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheets as of June 30, 2000 and December 31, 1999....................................... 1 Condensed Consolidated Statements of Operations for the Three Months Ended June 30, 2000 and 1999 and for the Six Months Ended June 30, 2000 and 1999 ............................ 2 Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2000 and 1999................................. 3 Notes to Condensed Consolidated Financial Statements................................. 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................. 7 Item 3. Quantitative and Qualitative Disclosures About Market Risk........................... 11 PART II.OTHER INFORMATION Item 4 Submission of Matters to a Vote of Security Holders.................................. 13 Item 6. Exhibits and Reports on Form 8-K..................................................... 13 SIGNATURES ......................................................................................... 14
3 PART I - FINANCIAL INFORMATION ACCUMED INTERNATIONAL, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited ---------------------------------- ASSETS June 30, 2000 December 31, 1999 ------------- ----------------- Current Assets Cash and cash equivalents $ 656,234 $ 196,303 Prepaid expenses and other current assets 40,319 7,944 Available-for-sale security 237,412 121,301 Note receivable -- 400,000 Inventories 691,706 700,919 ------------ ------------ Total current assets 1,625,671 1,426,467 ------------ ------------ Fixed assets, net 561,442 705,273 Purchased technology, net 3,854,868 4,185,868 Patents, net 815,091 842,484 Note receivable, officer 41,712 62,237 ------------ ------------ $ 6,898,784 $ 7,222,329 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Long term debt, current portion $ 237,550 $ 362,550 Accounts payable 220,664 223,822 Accrued interest 17,729 15,415 Income taxes 35,000 35,000 Deferred revenues 550,008 -- Other current liabilities 553,457 750,183 ------------ ------------ Total current liabilities 1,614,408 1,386,970 ------------ ------------ Long term debt 167,000 167,000 Deferred revenues 1,040,149 -- Stockholders' equity Preferred stock, Series A convertible 2,868,419 4,249,735 Common stock, $0.01 par value 56,966 54,919 Additional paid-in capital 60,998,531 59,619,262 Accumulated other comprehensive income 115,181 (4,960) Accumulated deficit (59,745,133) (58,033,860) Treasury stock (216,737) (216,737) ------------ ------------ Total stockholders' equity 4,077,227 5,668,359 ------------ ------------ $ 6,898,784 $ 7,222,329 ============ ============
See accompanying notes to consolidated financial statements. -1- 4 ACCUMED INTERNATIONAL, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, --------------------------- --------------------------- 2000 1999 2000 1999 ------------ ----------- ----------- ----------- Net sales $ 13,500 -- $ 168,463 $ 11,435 Licensing fees 48,984 -- 48,984 -- Royalties 21,644 -- 21,644 -- ----------- ----------- ----------- ----------- Total net revenues 84,128 -- 239,091 11,435 ----------- ----------- ----------- ----------- Operating expenses: Cost of sales 6,149 -- 49,830 3,413 General and administrative 781,513 593,928 1,569,681 1,615,585 Research and development 230,512 514,105 582,880 969,144 Sales and marketing 15,555 73,920 88,144 145,148 ----------- ----------- ----------- ----------- Total operating expenses 1,033,729 1,181,953 2,290,535 2,733,290 ----------- ----------- ----------- ----------- Operating loss (949,601) (1,181,953) (2,051,444) (2,721,855) ----------- ----------- ----------- ----------- Other income (expense): Interest expense (7,500) (7,668) (15,000) (477,694) Realized gain on available-for-sale security -- -- 326,844 -- Other income (expense), net 12,992 69,429 28,327 2,667 ----------- ----------- ----------- ----------- Total other income (expense) 5,492 61,761 340,171 (475,027) ----------- ----------- ----------- ----------- Loss from continuing operations (944,109) (1,120,192) (1,711,273) (3,196,882) ----------- ----------- ----------- ----------- Discontinued operations: Loss from discontinued operations -- -- -- (158,250) Gain on disposal -- -- -- 8,357,449 ----------- ----------- ----------- ----------- Income from discontinued operations -- -- -- 8,199,199 ----------- ----------- ----------- ----------- Net (loss) income $ (944,109) $(1,120,192) $(1,711,273) $ 5,002,317 =========== =========== =========== =========== Basic and diluted loss per share from continuing operations $ (0.17) $ (0.20) $ (0.31) $ (0.58) Income per share from discontinued operations -- -- -- 1.49 ----------- ----------- ----------- ----------- Basic and diluted net (loss) income per share $ (0.17) $ (0.20) $ (0.31) $ 0.91 =========== =========== =========== =========== Weighted average common shares outstanding 5,663,657 5,491,901 5,600,360 5,489,878 =========== =========== =========== ===========
See accompanying notes to consolidated financial statements -2- 5 ACCUMED INTERNATIONAL, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30,
UNAUDITED ----------------------------- 2000 1999 ------------- ------------ OPERATING ACTIVITIES: Net (loss) income $ (1,711,273) $ 5,002,317 Adjustments to reconcile net (loss) income to net cash used in operating activities: Income from discontinued operations -- (8,199,199) Non-cash expenses of asset disposal -- 492,500 Depreciation and amortization 529,978 452,244 Increase in deferred revenues 1,590,157 -- Changes in other operating assets and liabilities (527,051) (553,306) ------------ ------------ CASH USED IN OPERATING ACTIVITIES (118,189) (2,805,444) ------------ ------------ INVESTING ACTIVITIES: Proceeds from note receivable 400,000 -- Proceeds from sale of available-for-sale security 326,844 -- Capital expenditures (27,755) -- Proceeds from sale of Microbiology division -- 15,150,000 Expenses related to sale of Microbiology division -- (750,000) ------------ ------------ CASH PROVIDED BY INVESTING ACTIVITIES 699,089 14,400,000 ------------ ------------ FINANCING ACTIVITIES: Payment of notes payable (125,000) (8,497,551) ------------ ------------ CASH USED IN FINANCING ACTIVITIES (125,000) (8,497,551) ------------ ------------ CASH TRANSFER TO DISCONTINUED OPERATIONS -- (313,979) ------------ ------------ EFFECT OF EXCHANGE RATES ON CASH 4,031 -- ------------ ------------ NET INCREASE IN CASH AND CASH EQUIVALENTS 459,931 2,783,026 ------------ ------------ CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 196,303 213,386 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 656,234 $ 2,996,412 ============ ============
See accompanying notes to consolidated financial statements. -3- 6 ACCUMED INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. PREPARATION OF INTERIM FINANCIAL STATEMENTS In the opinion of the management of AccuMed International, Inc. and its wholly-owned subsidiary, the accompanying unaudited condensed consolidated financial statements include all normal adjustments considered necessary to present fairly AccuMed's financial position as of June 30, 2000, and its results of operations for the three-month and six-month periods ended June 30, 2000 and 1999 and cash flows for the six-month periods ended June 30, 2000 and 1999. Interim results are not necessarily indicative of results for a full year. The condensed consolidated financial statements and notes are presented as permitted by Form 10-Q, and do not contain certain information included in AccuMed's audited consolidated financial statements and notes there to for the fiscal year ended December 31, 1999 as filed with the Securities and Exchange Commission on Form 10-K. 2. BASIS OF PRESENTATION The condensed consolidated financial statements include the accounts of AccuMed and its wholly-owned subsidiary. All significant intercompany balances, transactions and stockholdings have been eliminated. On December 22, 1998, (the measurement date), AccuMed received shareholder approval to sell its microbiology division under a sales agreement negotiated by management under the approval of the Board of Directors. On January 29, 1999, AccuMed closed the sale of the microbiology division for proceeds of $15,150,000 in cash. AccuMed recognized a gain of $8,357,000, net of income taxes of $140,000 and after working capital adjustments, on the disposal of the microbiology division. Accordingly, the microbiology division is accounted for as a discontinued operation in the accompanying condensed consolidated balance sheets, statements of operations and statements of cash flows. -4- 7 3. OTHER COMPREHENSIVE INCOME (LOSS)
Three Months Ended Six Months Ended June 30, June 30, ---------------------------- --------------------------- 2000 1999 2000 1999 ------------ ------------ ------------ ----------- Net (loss) income $ (944,109) $(1,120,192) $(1,711,273) $ 5,002,317 Other comprehensive income (loss) Reclassification of realized gain included in net income -- -- (326,844) -- Change fair value of available-for-sale security (28,565) -- 442,955 -- Foreign currency translation adjustments 4,738 (31,046) 4,031 (84,748) ----------- ----------- ----------- ----------- Comprehensive (loss) income $ (967,936) $(1,151,238) $(1,591,131) $ 4,917,569 =========== =========== =========== ===========
4. INVENTORIES Inventories are summarized as follows:
June 30, December 31, 2000 1999 -------- -------- Raw material and packaging $570,536 $529,919 Work in process -- -- Finished goods 121,170 171,000 -------- -------- Total inventories $691,706 $700,919 ======== ========
5. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Six Months Ended June 30, -------------------------- 2000 1999 ----------- ------------- OPERATING ACTIVITIES: Interest paid $ 12,686 $ 295,170 NON-CASH INVESTING AND FINANCING ACTIVITIES: Preferred stock converted to common stock $1,381,316 $ 79,731
6. SALE OF AVAILABLE-FOR-SALE SECURITY In February 2000, AccuMed sold 85,776 of the shares it holds in Ampersand Medical Corporation on the open market for proceeds of $326,844. AccuMed recorded a realized gain on the sale of these shares of $326,844 for the six months ended June 30, 2000. -5- 8 7. NOTE RECEIVABLE On March 31, 2000, AccuMed received $417,747, including interest, in full satisfaction of the amounts advanced to Microsulis Corporation (Microsulis) under a line of credit. AccuMed has no obligation to make further advances to Microsulis. 8. LICENSE AGREEMENTS On March 24, 2000, AccuMed entered into a license and development agreement with Ventana Medical Systems, Inc. (Ventana), whereby AccuMed agreed to license its patents and proprietary information and rights to Ventana for certain medical applications. Under the terms of the agreement, AccuMed has received and deferred an up-front licensing fee, advance royalty payment, and development funds. Additional development funds will be received over the next nine months for contract research. The agreement also provides for the sale of AcCell(TM) Systems to Ventana and royalties to be received in the future on the sale of covered products by Ventana. The deferred up-front licensing fee is being recognized as revenue systematically over the 36-month term of the agreement. The advance royalty payment will be recognized as revenue during the period that the royalties are earned on the sale of covered products. AccuMed is required under the agreement to complete certain development obligations. Qualifying development costs incurred during the development process will be charged against the deferred development funds received. The excess amount of development funds, if any, over the amount of qualifying costs incurred will be recognized in income upon the completion of the development process. AccuMed does not anticipate that any excess development funds will be material. On March 29, 2000, the Company entered into a patent and technology license agreement with BCAM International, Inc., renamed CellMetrix, Inc. (CellMetrix), whereby AccuMed agreed to license its patents and proprietary information and rights to CellMetrix for certain medical applications. Under the terms of the agreement, AccuMed received a guaranteed license fee upon signing of the agreement. Over the next nine months AccuMed will receive additional guaranteed license fees, shares of CellMetrix common stock, and an advance royalty payment in the form of cash or shares of CellMetrix common stock. Royalties are to be received in the future on the sale of covered products by CellMetrix. AccuMed has deferred the amount of the license fee it received. This fee is being recognized as revenue systematically over the 60-month term of the agreement. On March 29, 2000, AccuMed entered into a letter agreement to reinstate and amend its September 4, 1998 patent and technology license agreement with Ampersand. Upon signing of the letter agreement, AccuMed received an up-front license fee. On June 9, 2000, AccuMed signed a formal amendment to the agreement and received an advance royalty in the form of cash. AccuMed will also receive a $100,000 convertible note and 128,571 shares of Ampersand common stock as an additional advance royalty. AccuMed has deferred the amount of the up-front license fee it received. This fee is being recognized as revenue systematically over the remaining 41-month term of the agreement. The advance royalties are being recognized as revenue during the period that the royalties are earned on the sale of covered products. -6- 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL AccuMed is engaged in marketing and developing cost effective screening instruments and systems for clinical diagnostic laboratories, hospitals and others. AccuMed's integrated systems use reliable, accurate and innovative products and methods to provide laboratories with comprehensive solutions that are intended to improve efficiency and reduce costs while achieving significant improvements in disease detection. AccuMed currently is developing cytology computer-aided image cytometry instruments and systems that support early detection and diagnosis programs for screening high-risk individuals for cellular diseases, such as lung cancer. During 1998, AccuMed received shareholder approval to sell its microbiology business. Accordingly, the results of the microbiology business are reported as a discontinued operation in the accompanying condensed consolidated financial statements. On January 29, 1999, AccuMed closed the sale of the microbiology business for net proceeds of $14,400,000. The following management discussion and analysis of financial condition and results of operations relate only to the cytopathology business, AccuMed's only business line. Also, AccuMed is committed to a substantial research and development program. Accordingly, AccuMed expects to incur additional operating losses over at least the next twelve months due to continued spending for product development, prototype construction and testing and regulatory activities. OVERVIEW On March 24, 2000, AccuMed entered into a license and development agreement with Ventana Medical Systems, Inc. (Ventana), whereby AccuMed agreed to license its patents and proprietary information and rights to Ventana for certain medical applications. Under the terms of the agreement, AccuMed received an up-front licensing fee, advance royalty payment, and development funds. Additional funds will be received over the next nine months for contract research. The agreement also provides for the sale of AcCell(TM) Systems to Ventana and royalties to be received in the future on the sale of covered products by Ventana. On March 29, 2000, the Company entered into a patent and technology license agreement with BCAM International, Inc., renamed CellMetrix, Inc. (CellMetrix), whereby AccuMed agreed to license its patents and proprietary information and rights to CellMetrix for certain medical applications. Under the terms of the agreement, AccuMed received a guaranteed license fee upon signing of the agreement. Over the next nine months, AccuMed will receive additional guaranteed license fees, shares of CellMetrix common stock and advance royalties in the form of cash or shares of CellMetrix common stock. Royalties are to be received in the future on the sale of covered products by CellMetrix. -7- 10 On March 29, 2000, AccuMed entered into a letter agreement to reinstate and amend its September 4, 1998 patent and technology license agreement with Ampersand Medical Corporation (Ampersand). The Company received an up-front license fee upon signing the letter agreement. On June 9, 2000, AccuMed signed a formal amendment to the agreement and received an advance royalty in the form of cash. AccuMed will also receive a convertible note and shares of Ampersand common stock as an additional advance royalty. RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999 REVENUES AND COST OF SALES AccuMed's net revenues were $84,000 for the three months ended June 30, 2000 compared to zero for the three months ended June 30, 1999. Net revenues for the 2000 period reflect the sale of one AcCell(TM) unit and licensing fees and royalties earned on our license agreements with Ampersand, CellMetrix, and Ventana, which were signed late in the 2000 1st quarter. There were no units of product sold or any licensing fees or royalties earned during the 1999 period. Cost of sales represents the cost of products sold. We anticipate our future product sales will be made on a build to order or contract manufacturing basis. OPERATING EXPENSES General and administrative expenses increased by $188,000, or 31.6%, from $594,000 in the 1999 period to $781,000 in the 2000 period. The 2000 period includes a payment to settle certain benefits owed to the Company's previous chief executive officer that resulted from the amended patent and technology license agreement with Ampersand. The 1999 period also includes the favorable effect of the settlement of certain litigation for less than previously estimated. The increase in expenses is offset to a certain degree by cost savings resulting from the consolidation of our operations. Research and development expenses decreased by $284,000, or 55.2%, from $514,000 in 1999 to $231,000 in 2000. The decrease in these expenses is a result of the application of qualifying costs under our development obligation with Ventana to development funds received and benefits achieved from the consolidation of our research and development activities along with the consolidation of our operations. Current research and development expenses represent ongoing efforts to develop the Savant(TM) medical technologies' next generation products. Sales and marketing expenses decreased to $16,000 for the three months ended June 30, 2000 compared to $74,000 for the 1999 period. The decrease is primarily a result of personnel reductions and a decrease in travel costs. AccuMed continues to market its products on a limited basis in certain laboratory market segments. AccuMed anticipates that its third party licensees will assume a large portion of the marketing effort. -8- 11 SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999 REVENUES AND COST OF SALES AccuMed's net revenues were $239,000 for the six months ended June 30, 2000 compared to $11,000 for the six months ended June 30, 1999. Net revenues for the 2000 period reflect the sale of AcCell(TM) and AcCell-Savant(TM) units and licensing fees and royalties earned on our license agreements with Ampersand, CellMetrix, and Ventana, which were signed in 2000. Net revenues for the 1999 period represent sales of consumables and computer support equipment. Cost of sales represents the cost of products sold. OPERATING EXPENSES General and administrative expenses decreased by $46,000, or 2.8%, from $1,616,000 in the 1999 period to $1,570,000 in the 2000 period. The decrease in these expenses is a result of reduced corporate level activity due to the sale of the microbiology business, and less administrative cost following the consolidation of AccuMed's operations. Research and development expenses decreased by $386,000, or 39.9%, from $969,000 in 1999 to $583,000 in 2000. The decrease in these expenses is a result of the application of qualifying costs under our development obligation with Ventana to development funds received and benefits achieved from the consolidation of our research and development activities along with the consolidation of our operations. Sales and marketing expenses were $88,000 for the six months ended June 30, 2000 compared to $145,000 for the 1999 period. The decrease in these expenses is primarily a result of personnel reductions and reduced spending on consultants. Interest expense for the period ended June 30, 2000 was $15,000 compared to $478,000 for the 1999 period. The decline in interest expense is a result of the repayment in January 1999 of AccuMed's 14.5% secured note payable and 12.0% unsecured convertible notes with proceeds from our sale of the microbiology division. Interest expense for the 1999 period also includes $370,000 from a non-cash write-off of deferred financing costs and debt discounts related to the repayment of these notes. DISCONTINUED OPERATIONS AccuMed's loss of $158,000 in 1999 from discontinued operations reflects the results of operations of AccuMed's microbiology business before its sale in January 1999. In 1999, we recorded a gain of $8,357,000, net of income taxes of $140,000, on the disposal of the microbiology business. -9- 12 LIQUIDITY AND CAPITAL RESOURCES AccuMed's primary cash requirements are for research and development, general corporate and marketing expenses, including salaries, materials and consulting support, to develop and market AccuMed's cytopathology products and technology. We anticipate that the receipt of funds under our agreements with Ventana, CellMetrix, and Ampersand, our available cash, and our marketable securities on hand will provide the necessary liquidity to finance AccuMed's projected operations and financing obligations through the next twelve months. At June 30, 2000, AccuMed has long-term debt, including the current portion, of $405,000. The long-term debt consists of a $322,000 Canadian dollar note and a non-interest bearing repayable contribution of $187,000 (U.S. dollars). The Canadian dollar note is payable in monthly installments of $25,000 U.S. dollars, plus interest at a rate of 6.0% over the Canadian prime rate through July 15, 2000, with the remainder due on demand, or in the event not called, the principal payments will continue at a rate of $25,000 U.S. dollars per month, plus interest. The demand portion of the Canadian note is convertible into shares of AccuMed's common stock at a price of $1.43 per share. The repayable contribution was received under a Canadian government program and calls for semi-annual installments based on future sales of product and available funds, as defined. OPERATING ACTIVITIES For the six months ended June 30, 2000 and 1999, AccuMed used $118,000 and $2,805,000, respectively, of cash in operations. The decrease in the use of cash in operations in 2000 compared to 1999 is primarily a result of a decrease in operating expenses of $443,000, the receipt of $1,850,000 under AccuMed's agreements with Ventana, CellMetrix, and Ampersand, and other working capital changes. INVESTING ACTIVITIES Investing activities generated $699,000 in cash for the six months ended June 30, 2000 compared to $14,400,000 provided by investing activities for the 1999 period. In 2000, AccuMed received $327,000 from the sale of shares it held in Ampersand and collected $400,000 from the repayment by Microsulis of loans made by AccuMed under outstanding notes receivable. In 1999, AccuMed received $14,400,000 in proceeds, net of expenses incurred, from the sale of AccuMed's microbiology business. To date in 2000, we have spent $28,000 on capital expenditures. We do not anticipate material capital expenditures during the remainder of 2000. FINANCING ACTIVITIES AccuMed used $125,000 of cash in financing activities during the six months ended June 30, 2000 compared to the use of $8,498,000 in cash during the 1999 period. Cash used in 2000 was for repayment of AccuMed's Canadian dollar note payable. In 1999, we repaid all of our outstanding 14.5% secured notes and 12% unsecured convertible notes with proceeds from the sale of AccuMed's microbiology division. -10- 13 AccuMed currently has no commitments with respect to sources of additional financing other than with respect to funds to be received under our agreements with Ventana, CellMetrix, and Ampersand. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK AccuMed holds shares of common stock of Ampersand Medical Corporation, a publicly traded company. As a result, AccuMed's financial results could be significantly affected by changes in the traded market price of this security. AccuMed also has debt instruments that are denominated in Canadian dollars. The interest rate for one of these debt instruments varies based on changes in the Canadian prime rate of interest. As a result, AccuMed's financial results could be significantly affected by changes in the exchange rate for Canadian dollars and to changes in the Canadian prime rate of interest. Management does not actively employ strategies to minimize AccuMed's risks to these exposures. The following table presents information about the shares AccuMed holds in Ampersand as of June 30, 2000.
SHARES FAIR HELD VALUE ------ -------- Ampersand Medical Corporation 65,493 $237,412
The following tables present information about AccuMed's debt instruments that are subject to foreign currency and interest rate risk. The table presents principal cash flows, related weighted-average interest rate by expected maturity, and the applicable average Canadian to U.S. dollar exchange rate.
FAIR 2000 2001 TOTAL VALUE ---- ---- ----- ----- Foreign currency risk: Principal $237,550 $167,000 $404,550 $404,550 Average interest rate 12.4% 0% Exchange rate 1.4780 1.4780
-11- 14
FAIR 2000 2001 TOTAL VALUE ---- ---- ----- ----- Interest rate risk: Principal $217,550 $ - $217,550 $217,550 Average interest rate 13.5%
FORWARD-LOOKING STATEMENTS This report contains forward-looking statements that are based on our current expectations, assumptions, estimates and projections about us and our industry. When used in this Report, the words "may," "will," "expects," "anticipates," "believe," "estimates," "intends" and similar expressions are intended to identify forward-looking statements. These statements describe our beliefs concerning the future based on currently available information. Our actual results could differ materially from those contained in the forward-looking statements due to a number of risks and uncertainties. We assume no obligation to publicly update or revise these forward-looking statements for any reason, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. -12- 15 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On May 16, 2000 AccuMed held its annual meeting of stockholders. The only matter voted upon was the election of directors. The following nominees were elected as directors by the votes indicated.
Director Votes For Votes Withheld - -------- --------- -------------- Mark Banister 2,892,937 27,238 Jack H. Halperin 2,893,287 26,888 Paul F. Lavallee 2,893,870 26,305 Robert L. Priddy 2,893,687 26,488 Leonard M. Schiller 2,893,687 26,505
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits. The following exhibits are filed herewith: 10.1 Amendment to Patent and Technology License Agreement dated June 9, 2000 between AccuMed and Ampersand Medical Corporation 27.1 Financial Data Schedule (b) No reports on Form 8-K were filed during the three-month period ended June 30, 2000. -13- 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. ACCUMED INTERNATIONAL, INC. /s/ PAUL F. LAVALLEE ------------------------------------- Paul F. Lavallee Chairman of the Board and Chief Executive Officer (Principal Accounting Officer) Date: August 10, 2000 -14- 17 Index to Exhibits Exhibit No. Description of Exhibit - ----------- ---------------------- 10.1 Amendment to Patent and Technology License Agreement dated June 9, 2000 between AccuMed and Ampersand Medical Corporation 27.1 Financial Data Schedule EX-10.1 2 ex10-1.txt EXHIBIT 10.1 1 EXHIBIT 10.1 AMENDMENT TO PATENT AND TECHNOLOGY LICENSE AGREEMENT This This AMENDMENT TO PATENT AND TECHNOLOGY LICENSE AGREEMENT ("Amendment") is made and entered into as of this 9th day of June, 2000 by and between ACCUMED INTERNATIONAL, INC., a Delaware corporation ("AccuMed") and AMPERSAND MEDICAL CORPORATION ("Ampersand" or "Licensee"), a Delaware corporation, as Assignee of INPATH, LLC. ("Inpath"), a wholly owned subsidiary of Ampersand. WHEREAS, as of September 4, 1998 AccuMed and Inpath entered into that certain Patent and Technology Licence Agreement (the "License Agreement"). WHEREAS, on November 19, 1999 Inpath purported to terminate the License Agreement. WHEREAS, AccuMed challenged the validity of the November 19, 1999 termination of the License Agreement by Inpath. WHEREAS, on March 29, 2000 the parties hereto entered into a Letter Agreement ("Letter Agreement") pursuant to which the parties agreed to resolve all differences among them as set forth in the Letter Agreement and in this Amendment, the Assignment and the related Additional License and Purchase Agreement described therein. WHEREAS, in conjunction with this Amendment, Inpath has assigned all of its rights, title, interest and obligations under the License Agreement and this Amendment to Ampersand. WHEREAS, pursuant to the Letter Agreement, AccuMed agreed to the Assignment of the License Agreement by Inpath to Ampersand. NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which is hereby acknowledged, AccuMed and Ampersand hereby agree as follows: 1. Definitions. The capitalized terms used in this Amendment shall have the respective meanings ascribed to them in the License Agreement unless otherwise expressly defined in this Amendment. 2. Reinstatement of License Agreement. AccuMed and Ampersand agree to reinstate and modify the September 4, 1998 License Agreement as set forth herein. 3. The following definitions outlined in the License Agreement are hereby replaced with the following: "Foreign Patents" means, collectively (i) the letters patent corresponding to the U.S. Patents, issued or applied for in a country other than the United States; (ii) the continuations, continuations-in-part, or divisions thereof; and (iii) any and all improvements, 2 modifications, extensions, renewals, or reissues of such Patent, subject to the provisions of Section 5.1 governing the prosecution thereof. "Sales" means all recorded booked revenues for actual sales upon which payment has been collected by Licensee or an Affiliated Person of Licensee (whether in cash or by way of other benefit, advantage, or concession (in which case the applicable revenue will be the monetary equivalent or value of same). "U.S. Patents" means (i) AccuMed's Patent entitled "A Method and Apparatus For Imaging and Sampling Diseased Tissue Using Autofluorescence" U.S. patent number 5,999,844 dated 12/07/99; (ii) the continuations, continuations-in-part or divisions thereof, if any; and (iii) any and all improvements, modifications, extensions, renewals or reissues of such Patent, if any. 4. Section 2.1 of the License Agreement is replaced with the following: 2.1 Grant of License in Patents. AccuMed hereby grants to Licensee, and Licensee accepts from AccuMed, an exclusive, non-transferable (except as provided in Section 10.8 herein), non-divisible license to make, have made, use, offer to sell and sell Licensed Products covered by the U.S. Patents and Foreign Patents for use in cervical and ovarian gynecological applications for Point of Care and concurrent with a patient's medical office visit in a physician's office and the non-exclusive license to make, have made, use, offer to sell and sell Licensed Products covered by the U.S. Patents and Foreign Patents for use in cervical and ovarian gynecological applications for Point of Care in labs outside of the physician's office. 5. Section 2.2 of the License Agreement is replaced with the following: 2.2 Grant of License in Technology. AccuMed hereby grants to Licensee, and Licensee accepts from AccuMed, and exclusive, non-transferable (except as provided in Section 10.8 herein), non-divisible license to make, have made, use, offer to sell and sell Licensed Products utilizing the Technology for use in cervical and ovarian gynecological applications for Point of Care and concurrent with a patient's medical office visit in a physician's office and the non-exclusive license to make, have made, use, offer to sell and sell Licensed Products utilizing the Technology for use in cervical and ovarian gynecological applications for Point of Care in labs outside of the physician's office. 6. The following sentence is added to the end of Section 2.5: "The parties acknowledge and agree that AccuMed has no obligation, express or implied, to (i) develop any improvements to the U.S. Patents, the Foreign Patents, the Technology on the Copyrighted Works or (ii) to file any patent applications for any further developments, inventions or discoveries known to AccuMed. 2 3 7. Section 2.6 of the License Agreement is stricken in its entirety. 8. Section 3.1 of the License Agreement is modified to add the following sentence: As of the date of the Amendment hereto, all of the Guaranteed License Issue Fees due to be paid hereunder have been paid and no further amounts are outstanding. 9. Section 3.2 of the License Agreement is replaced with the following: 3.2 Required Royalty; Minimum Guaranteed Payments; Advanced Required Royalty Payments. (a) For the rights and privileges granted to Licensee under this Agreement, Licensee (subject to paragraph (b) of Section 5.1, Section 5.2, and Section 5.3) shall pay to AccuMed from and after January 1, 2000 until the licenses hereunder are terminated in accordance with this Agreement, a royalty rate equal to 4% of all Sales ("Required Royalty"). (b) Notwithstanding the amount of any sales or Required Royalty, Licensee shall pay AccuMed, a minimum guaranteed payment of $5,000,000 ("Minimum Guaranteed Payment") payable by Licensee only out of the booked revenues for Sales at the Royalty Rate outlined in (a) herein as Required Royalty Payments for the term of the Agreement. In the event that the Minimum Guaranteed Payment of $5,000,000 is not paid in full at the time of the termination of this Agreement, then the difference between the amounts actually paid by Licensee to AccuMed as Required Royalty Payments and $5,000,000 shall be immediately due and payable by Licensee to AccuMed. (c) Upon the signing by all parties of the Amendment, and related documents, Licensee shall pay or provide to AccuMed the following: (i) $500,000 in cash, which cash payment shall represent an advanced, non-refundable Required Royalty Payment hereunder; (ii) a $100,000 convertible promissory note payable to AccuMed (with conversion rights at $3.50/share into registered shares of Ampersand) bearing interest of 11% and due or convertible on March 29, 2001. The principal amount of the note shall represent an additional advanced, non-refundable Required Royalty Payment hereunder; and (iii) 128,571 shares of Ampersand common stock which stock Ampersand will price protect to a share price of not less than $3.50/share to a measurement date sixty days following the date on which the shares being issued become registered and are freely 3 4 tradable. If the market price at the measurement date is less than $3.50 per share, Ampersand shall at its option (x) make a cash payment to AccuMed in an amount representing the difference in market price and $3.50 per share multiplied by 128,571 shares or (y) issue an additional number of Ampersand shares to AccuMed which number shall be arrived at by multiplying the difference in the then market price per share and $3.50 and dividing the resultant sum by the then market price per share. The issuance of common stock by Ampersand to AccuMed as outlined herein, to a value of $450,000, shall represent an additional advanced, non-refundable Required Royalty Payment hereunder. (d) The cash payments and issuance of stock outlined in (c)(i) - (iii) herein represent the payment by Licensee of advanced Required Royalty Payments to AccuMed. Ampersand shall not be required to make any additional payments to AccuMed for Required Royalty Payments until the total of the Required Royalty Payments called for hereunder from Ampersand, exceeds the amount of advanced Required Royalty Payments actually made by Ampersand to AccuMed pursuant to paragraphs c(i)-(iii) herein. (e) The shares of Ampersand stock to be issued to AccuMed herein shall be registered with an appropriate Registration Statement (excluding the S-8 underlying the Employee Equity Incentive Plan) which is presently being prepared by Ampersand. AccuMed will not be subject to any restrictions in the disposal of shares it holds, other than those regarding unregistered shares prior to the effective date of the Registration Statement outlined herein and those imposed by applicable securities laws. 10. Paragraph 5.1 of the License Agreement is replaced with the following: 5.1 Prosecution and Protection. (a) AccuMed shall have the authority, in its discretion, but no duty to prosecute the application for the issuance of Foreign Patents. If AccuMed shall elect to prosecute a Foreign Patent under this Section, it shall be at the sole cost and expense of AccuMed. (b) Licensee shall notify AccuMed in writing of Licensee's sale of Licensed Products in any Foreign Country upon or prior to the date on which Licensee first sells Licensed Products in such Foreign Country. If a Foreign Patent shall not already be pending or issued in such Foreign County, AccuMed shall have twenty-one (21) days from such written notice to notify Licensee in writing whether or not AccuMed will commence the prosecution thereof. If AccuMed elects, in such notice, not to prosecute a Foreign Patent in such Foreign Country or if AccuMed fails to make a timely election, then Licensee may elect to prosecute such Foreign Patent, at Licensee's sole cost and expense, for and on behalf of and in the name of AccuMed. Licensee may deduct all reasonable out-of-pocket costs and expenses, 4 5 including without limitation, attorneys' fees and filing costs, incurred by Licensee for its prosecution (in accordance its election under with this paragraph) of Foreign Patents in any Foreign Country from the Required Royalties (but not the Minimum Guaranteed Payments) applicable to that Foreign Country under Section 3.2. AccuMed will provide to Licensee all information, papers, instruments or affidavits required to apply for and obtain Foreign Patents in AccuMed's name and will provide reasonable assistance to Licensee in Licensee's efforts to prosecute any Foreign Patents in accordance with its election under this paragraph. Any such Foreign Patents prosecuted by Licensee for and on behalf of AccuMed shall be the sole and exclusive property of AccuMed, but Licensee shall be granted a license thereunder coincident with the grant under Section 2.1 for all Foreign Patents. (c) Nothing in this Section shall (i) require either AccuMed or Licensee to prosecute patents in any Foreign Country or (ii) as between the parties, restrict Licensee from exercising its exclusive license rights under this Agreement in any Foreign Country or throughout the Territory, regardless of whether Licensee or AccuMed elects to prosecute any application for Foreign Patents therein. 11. Paragraph 5.2 of the License Agreement is replaced with the following: 5.2 Infringement by Third Parties. Each party shall inform the other party of any infringement or suspected infringement of the Patents or infringement (including any misappropriation) of the Technology of which such party becomes aware within ten (10) business days after such party becomes aware of any such infringement or suspected infringement. For a period of thirty (30) days after receipt by AccuMed of, or AccuMed's sending of, such notice of infringement, AccuMed will have the exclusive right to commence an action and otherwise assert rights in the Patents and the Technology against any such infringers or suspected infringers and will have the right at its sole discretion to make any settlement or compromise with the third-party infringer, provided that the terms of any such settlement may not modify the exclusivity of the licenses granted to LICENSEE in this Agreement or otherwise diminish LICENSEE'S economic rights or expectations hereunder. If AccuMed shall elect to prosecute any such infringer, LICENSEE shall take such steps as are reasonably requested by AccuMed to enable it to protect its rights under the Patents and under the Technology against any such infringement or suspected infringement. If (i) AccuMed fails to commence an action or otherwise assert its rights in the Patents and the Technology against any such infringers or suspected infringers within such thirty (30) day period and (ii) LICENSEE provides AccuMed with the opinion of patent counsel mutually acceptable to the parties stating that there is a likelihood of infringement or misappropriation by such suspected infringers (an "Infringement Opinion"), then LICENSEE may bring an action or proceeding 5 6 (including any alternative dispute resolution process) to enjoin the infringement, to recover damages for it, or both and AccuMed grants LICENSEE the right to use AccuMed's name in connection therewith and will have the right at LICENSEE'S sole discretion to make any settlement or compromise with the third-party infringer, in accordance with and subject to the provisions set forth below. If an Infringement Opinion is delivered to AccuMed and, accordingly, LICENSEE is permitted to bring such action, then LICENSEE may elect to deduct a percentage of its out-of-pocket costs and expenses (but otherwise will bear all other costs and expenses), which includes without limitation court costs and attorneys' fees for such action up to a maximum deduction of fifty percent (the "Fee Percentage") and shall notify AccuMed of such election and the applicable Fee Percentage when the Infringement Opinion is delivered by LICENSEE to AccuMed. LICENSEE shall be permitted to deduct from future Minimum Guaranteed Payments and Required Royalties, as they become due under this Agreement, that portion of its out-of-pocket expenses in an amount equal to the Fee Percentage thereof. All proceeds of any action or proceeding brought by LICENSEE or AccuMed (if any) shall be shared between AccuMed and LICENSEE pro rata in accordance with the Fee Percentage (i.e. AccuMed shall receive the Fee Percentage of such proceeds and LICENSEE shall receive the remainder). If LICENSEE shall be permitted to bring an action pursuant to this Section, AccuMed shall take such steps as are reasonably requested by LICENSEE at LICENSEE'S expense to enable it to protect its licensee rights under the Patents and under the Technology against any such infringement or suspected infringement. 12. Section 6.3(a) of the License Agreement is replaced by the following: (a) Licensee Covenant. Licensee shall not, directly or indirectly, whether through an Affiliated Person or otherwise, until the termination of this Agreement, and for a period of one year thereafter, without the prior written approval of AccuMed, employ, engage, or seek to employ or engage, directly or indirectly, any employee of AccuMed or its subsidiaries. 13. Paragraph 9.2 of the License Agreement is replaced by the following: 9.2 Effect of Patent Invalidation. If any Patents shall issue and, thereafter, if all claims of all of the Patents should be finally determined to be invalid by a decision of a court of competent jurisdiction that is final and to which no right of appeal exists, then the rate of the Required Royalty shall be reduced from four percent (4%) to three and three-quarters percent (3.75%). Licensee acknowledges that the licenses hereunder in the Technology independent of any issued and valid Patent are valuable and reasonable consideration for the Required Royalty and Minimum Guaranteed Payments. Licensee shall pay (subject to paragraph (b) 6 7 of Section 5.1, Section 5.2, and Section 5.3) all Required Royalties (at the four percent (4%) rate) due and payable before any such final determination of invalidity and during the pendency of any validly challenge, and Licensee is not entitled to any refund or credit for any past due Minimum Guaranteed Payments, Required Royalties, or the Guaranteed License Issue Fee payments. Licensee shall pay all Royalty Payments accruing during the pendency of any challenge to the validity of any of the Patents. 14. Paragraph 9.3 of the License Agreement shall be replaced by the following: 9.3 Termination by Licensee. Licensee shall not be entitled to terminate its obligations under this Agreement until AccuMed's receipt of the Minimum Guaranteed Payment of $5,000,000. Thereafter, Licensee, at its election may (x) terminate the exclusivity of the licenses granted hereunder upon thirty (30) days written notice to AccuMed that in Licensee's reasonable determination the commercial exploitation of the Licensed Product is not commercially viable; or (y) terminate this Agreement in its entirety. In the event that Licensee terminates the exclusivity in accordance with (x) herein, Licensee shall continue to be obligated to make Required Royalty Payments. In the event that Licensee seeks to terminate this Agreement in its entirety, Licensee is still required to pay the Minimum Guaranteed Royalty Payment of $5,000,000 called for in section 3.2 of this Agreement and such amount shall be due and payable before any such termination shall be deemed effective. In the event that Licensee seeks to terminate this Agreement or its exclusivity, Licensee shall not be entitled to the refund of any Minimum Guaranteed Payments (including those advanced pursuant to Section 3.2 herein, Required Royalty Payments or the Guaranteed License Issue Fee that have been paid to date. 15. In Section 9.4 of the License Agreement, delete "(or, at AccuMed's discretion, destroy and certify to AccuMed the destruction of)". 16. With reference to Section 10.4 of the License Agreement, the parties acknowledge and agree that, upon execution of this Agreement and payment of the amounts owing to Peter P. Gombrich as outlined in paragraph 5 of the Letter Agreement, the Letter Agreement will be superseded. 17. Paragraph 10.5 of the License Agreement shall be modified to reflect the new addresses listed below: AccuMed International, Inc. 920 North Franklin Street, Suite 402 Chicago, Illinois 60610 Attention: Paul F. Lavallee Chairman and CEO Telephone No.: (312) 642-9200 Fax No.: (312) 642-3101 7 8 Ampersand Medical Corporation 414 N. Orleans Suite 305 Chicago, IL 60610 Attention: Peter P. Gombrich, Chairman and CEO Telephone Number: (312) 222-9550 Fax Number: (312) 222- 9580 with a copy to its counsel: Janet S. Baer Schwartz, Cooper, Greenberger & Krauss 180 N. LaSalle Street Suite 2700 Chicago, IL 60601 (312) 346-1300 18. Section 10.8 is replaced with the following: 10.8 Succession and Transferability. This Agreement and the License granted hereunder shall be binding upon and inure to the benefit of Licensee and its successors and assignees permitted hereunder and AccuMed and its successors and assignees. Licensee shall not assign this Agreement or the License granted hereunder, except to an Affiliated Person, in a sale of substantially all of the assets or equity shares of Licensee, or through a merger of Licensee into another entity wherein such Affiliated Person, purchaser or entity agrees in writing to be bound by this Agreement. 19. A new paragraph 10.11 is added to the License Agreement which provides as follows: 10.11 Mutual Release. The parties hereto mutually release and forever discharge each other and their respective agents, officers, directors, shareholders, partners, employees, successors, representatives, attorneys and assigns, of and from, all actions, agreements, bills, bonds, causes of action, claims, controversies, counterclaims, covenants, cross-claims, damages, debts, demands, executions, indemnities, judgments, liens, promises, suits, third-party actions, filed or unfiled, and sums of money whatsoever, in law or in equity, arising out of the disputes which they now have or have had to date with respect to the License Agreement, the Patents, the Technology and the Copyrighted Works. (Signature Page Immediately Follows) 8 9 (Signature Page to Amendment to Patent and Technology License Agreement) IN WITNESS WHEREOF, the parties hereto have caused this Amendment to Patent and Technology License Agreement to be executed as of the day and year first above written. AMPERSAND MEDICAL CORPORATION By: /s/ PETER P. GOMBRICH --------------------- Peter P. Gombrich Chairman and CEO INPATH, LLC By: /s/ PETER P. GOMBRICH --------------------- Peter P. Gombrich Chairman and CEO ACCUMED INTERNATIONAL, INC. By: /s/ PAUL F. LAVALLEE -------------------- Paul F. Lavallee Chairman and CEO 9 EX-27.1 3 ex27-1.txt FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 656 237 0 0 692 1,626 2,068 1,507 6,899 1,614 405 57 0 2,868 1,152 6,899 168 239 50 50 2,241 0 15 (1,711) 0 (1,711) 0 0 0 (1,711) (.31) (.31)
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