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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1998
or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _________ to _________
Commission file number 0-935
BELL NATIONAL CORPORATION
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(Exact Name of Registrant as Specified in Its Charter)
California 94-1451828
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
900 North Franklin Street, Suite 210, Chicago, IL 60610
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (312) 640-8810
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K. [ ]
The aggregate market value of the Common Stock held by non-affiliates of
the Company as of March 30, 1999 was $3,112,393 based upon the average bid
and asked prices of shares of the Company's Common Stock, no par value per
share ("Common Stock"), of $0.325 per share as reported in the Electronic
Bulletin Board. The number of shares of Common Stock outstanding as of
March 30, 1999 was 11,982,142.
The following document is incorporated by reference into Part III of this
Form 10-K:
Bell National Corporation Proxy Statement, relating to the 1999
annual meeting of shareholders.
PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
The Company is a development-stage entity primarily engaged in the
design, development and marketing of a series of instruments, disposables,
and tests to provide "Point of Care" enhanced cervical cancer screening.
The Company also designs, develops and markets software-based systems to
provide analysis of images on microscopic slides and to electronically
exchange images and related data with remote locations.
Bell National Corporation ("Bell National," and together with its
subsidiaries, the "Company") was incorporated in California on October 1,
1958. Through 1985, its principal subsidiary was Bell Savings and Loan
Association ("Bell Savings"), a state-chartered savings and loan
association. On July 25, 1985, the Federal Home Loan Bank Board appointed
the Federal Savings & Loan Insurance Corporation (the "FSLIC") as receiver
of Bell Savings. At the same time, the assets of Bell Savings were
transferred to a new, unrelated, federally chartered mutual savings and
loan association, Bell Federal. The FSLIC's appointment followed shortly
after a determination that Bell Savings had a negative net worth. On
August 20, 1985, the Company filed a voluntary petition under Chapter 11 of
the Bankruptcy Code. A Plan of Reorganization (the "Plan") was approved by
the Bankruptcy Court, and became effective June 29, 1987.
After emerging from bankruptcy proceedings in June 1987, and a vote
by shareholders to continue the operations of the Company in October 1988,
the Company reached an agreement (the "Stock Purchase Agreement") in 1989
with Milley Management Incorporated ("MMI"), a private investment firm,
whereby the Company sold to a group of private investors (including MMI)
Common Stock, no par value (the "Common Stock"), totaling approximately 41%
of the outstanding voting shares on a fully diluted basis.
On June 15, 1990, the Company purchased 100% of the Common Stock of
Payne Fabrics, Inc. a designer and distributor of decorative drapery and
upholstery fabrics, for a purchase price of $6,493,000 and the issuance of
stock appreciation rights ("SAR's").
On August 4, 1997 Payne Fabrics, Inc. sold substantially all of its
assets and most of its liabilities related to the business of designing and
distributing decorative drapery and upholstery fabrics to Westgate Fabrics,
Inc. ("Westgate"), an unaffiliated third party (the "Asset Sale"). The
Asset Sale included the transfer to the buyer of the use and rights to the
Payne Fabrics name, and accordingly, Payne Fabrics, Inc., changed its name
to PFI National Corporation ("PFI"). On August 4, 1997 all of PFI's
operations were ceased. Since that time, the Company and its subsidiaries
PFI, Bell Savings, and Pacific Coast Holdings Insurance Company have had no
business operations, other than administrative activities, or any
substantial assets or liabilities other than cash and investments. At the
beginning of December 1998, the Company had approximately $1 million
dollars in cash and investments.
On December 4, 1998, the Company acquired InPath, LLC ("InPath"), a
development-stage company engaged in the design and development of a
proprietary "Point of Care" system, including sample collection devices and
a series of instruments, used in the cervical cancer screening process. The
system also has applications in other point of care cancer screening
programs. In the acquisition, the Company issued 4,288,790 shares of
Common Stock and warrants to purchase 3,175,850 shares of Common Stock to
the members of InPath in exchange for their units of membership interest in
InPath, and the senior executives of InPath assumed management control of
the Company. The warrants were issued with the right to covert subject to
the authorization by shareholders of an increase in the authorized capital
stock of the Company. In conjunction with the acquisition certain
shareholders of the Company, comprising holders of more than 50% of the
outstanding Common Stock, agreed to vote their shares in favor of
increasing the authorized shares of Common Stock, to elect a slate of
directors recommended by former InPath members and original Company
shareholders, and to appoint former InPath executive officers to executive
officer positions with the Company. After the transaction, the former
members of InPath held approximately 36% of the Common Stock then
outstanding, and will hold approximately 50% of the Common Stock
outstanding after conversion of all warrants issued in the transaction.
Based upon the terms of the acquisition agreement, for financial reporting
and accounting purposes the acquisition has been accounted for as a reverse
acquisition whereby InPath is deemed to have acquired the Company.
However, the Company is the continuing legal entity and registrant for both
Securities and Exchange Commission filing purposes and income tax filing
purposes. Since the Company was a non-operating public shell company with
nominal assets and InPath was a private operating company, the acquisition
has been recorded as the issuance of stock for the net monetary assets of
the Company accompanied by a recapitalization, and no goodwill or other
intangible assets were recorded.
On December 15, 1998, the Company formed a wholly owned Delaware
subsidiary, Ampersand Medical Corporation ("Ampersand"), for the primary
purpose of reincorporating the Company in Delaware. Subject to approval by
the Company's shareholders, the Company may be merged into Ampersand during
1999, with Ampersand as the surviving corporation. Ampersand would become
the parent corporation of the Company's subsidiaries at the time of
reincorporation.
In December 1998 the Company formed a French limited liability
company subsidiary, Samba Technologies SARL ("Samba Technologies" or
"Samba"), for the purpose of acquiring the automated image cytometry and
telemedicine technology used in the business of the Samba department of
Unilog Regions SA, a French company engaged in the design, development, and
installation of commercial software programs and networks for business
applications. Samba Technologies completed the acquisition of the Samba
department's assets on January 4, 1999, and at the same time entered into
employment arrangements with former Samba department employees. Since the
acquisition, Samba Technologies has continued to develop and market the
cytometry and telemedicine products previously developed and marketed by
the Samba department.
RECENT DEVELOPMENTS
On March 1, 1999, the Company received a $500,000 cash investment from
Seaside Partners, L.P. ("Seaside Partners"), a hedge fund, for a $500,000
convertible note issued by the Company to Seaside Partners. The note will
automatically convert into approximately 1,515,000 shares of Common Stock
if certain conditions are met, including the approval by the Company's
shareholders of an increase in the number of authorized shares of Common
Stock. A director of the Company, Denis M. O'Donnell, is a member and a
manager of Seaside Advisors, L.L.C., a firm which provides investment
management services to Seaside Partners.
In March 1999, the Company signed a Letter of Intent to acquire a
license and certain assets related to the AcCell Automated Cytology System,
a line of automated microscopy workstations and related software that
allows more controlled and precise review of microscopic slides, from
AccuMed International, Inc. The license is to be exclusive for certain
market segments and non-exclusive for others. The licensed products will
consist of the AcCell series 2000 and 2001 instruments and the AcCell 3000
fully integrated instrument, along with the AccuTech microscope frame, a
proprietary computer mouse, and all related technology and documentation.
The Company also agreed to purchase certain assets related to the licensed
technology, including inventories of instruments and related component
parts, and agreed to assume responsibility for AccuMed's current product
user base and any pending installations or open quotations.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company operates in one industry segment involving medical
devices and supplies. All of the Company's operations during the reporting
period were conducted within this segment. The Samba department of Unilog
Regions SA, which was acquired by the Company on January 4, 1999, has
historically operated in the same industry segment. The Company expects to
continue to focus its operations on this industry segment.
DESCRIPTION OF BUSINESS
The Company believes that improved patient care and reduced
healthcare delivery costs can be achieved by creating "Point of Care"
screening and diagnostic services linked to a patient medical information
system. The Company's goal is to deliver turnkey enterprise solutions,
which improve patient care while providing the healthcare professional with
a financial, profit or cost-control incentive and the opportunity for
better overall patient management. The Company intends to accomplish its
goal through internal product development, strategic partnerships, and
acquisitions of companies or technologies which relate to the Company's
products, markets, or operating model. Management anticipates that the
Company will incur substantial operating losses until it is able to
successfully market its full range of products.
PRODUCTS. The Company's operating subsidiary InPath is focused on
the design, development, and marketing of a series of instruments,
disposables, and tests to provide "Point of Care" enhanced cervical cancer
screening. The products currently under development consist of proprietary
sample collection devices, and a series of in-vitro and in-vivo instruments
used to analyze the collected samples by employing a series of biomolecular
markers or probes to assist in the analysis process. The system may also
be used for specific sampling and analysis of atypical cellular specimens
for the early detection of oral, gastrointestinal, urological, esophageal,
and other forms of cancer. The Company anticipates that it will have
prototypes of its sample collection devices available for testing early in
the second quarter of 1999. The design specifications for the proprietary
in-vitro mapping and analysis instrument have been completed and the
Company expects to award a contract for the design and manufacture of the
instrument during the second quarter of 1999. The Company has completed
work on certain potential biomolecular markers using samples from
approximately 100 patients. The process of marker identification and
refinement of process will continue in parallel with the instrument
development work. The Company anticipates that it will be required to
invest a substantial amount of capital in the research and development
process in order to complete these products and introduce them into the
market. These products are likely to be subject to regulation by the
United States Food & Drug Administration (the "FDA") and by various other
regulatory agencies throughout the world.
The Company's operating subsidiary Samba Technologies designs,
develops and markets software-based systems for clinical and industrial
applications. One software suite package, which can be employed on a
variety of computer, imaging, and automated microscopy platforms, provides
image analysis of material on microscopic slides yielding information on
DNA, cell morphometry, densitometry, karyotyping (chromosome
classification), colony counting, etc. A second software suite allows the
user to share images and related data for research, clinical and
educational purposes. This package has applications in tele-radiology,
tele-pathology and other areas where the need for images is critical to the
analysis process, such as angiography, ultrasound procedures, and endoscopy
procedures. It can be matched to a wide variety of image capture
instruments or devices. The product can employ either static, historical,
or dynamic images. Samba also provides installation, interface, network,
and internet consulting services to the users of its software products.
BACKLOG ORDERS. At March 26, 1999, Samba had a backlog of contracts
to be completed within the next twelve months amounting to 2,500,000 French
Francs, or approximately $425,000. In addition Samba has been notified that
it was the successful bidder on additional contracts valued at 2,100,000
French Francs, or approximately $350,000. Samba expects to be formally
awarded these contracts during the second quarter of 1999. Samba currently
has contract quotes outstanding of approximately 11,000,000 French Francs,
or approximately $1,800,000. The Company has no assurance that Samba will
be the successful bidder on any of its outstanding quotes.
MARKETS AND DISTRIBUTION. The Company markets or plans to market its
product lines to hospitals, clinics, managed care organizations, office-
based clinicians, and government health organizations on a worldwide basis.
The Company intends to complete development of the InPath "Point of Care"
collection system and the in-vitro screening instrument (as a collection
and cervical tract mapping system only) in time to begin beta site
marketing in selected countries outside the U.S. in late 1999. The Company
intends to introduce the products into the U.S. market, subject to
clearance by the FDA, as soon as practicable, but not before 2000. The
Company intends to have the analysis portion of the in-vitro instrument
ready for distribution in markets outside the U.S. as soon as practicable,
but not before the third quarter of 2000, and in the U.S., as soon as
practicable, but not before the end of year 2000's fourth quarter.
The Company plans to distribute its InPath "Point of Care" products
in the U.S. through a strategic partner relationship with a company having
a significant position in the OB/GYN marketplace and a strong direct sales
organization. Internationally, the Company will seek a distribution
partner that has similar characteristics. The Company is currently in
discussions with several strategic partner candidates. The Company intends
to directly market its InPath products to managed care organizations,
governments, and world health bodies.
The Company currently markets its Samba product line through a direct
sales force in Europe and through a distribution arrangement in the U.S.,
Canada, and Central and South America. The Company is adding to its direct
European sales force and is seeking other distribution partners for
specific territories.
COMPETITION. Historically, competition in the healthcare industry
has been characterized by the search for technological innovations and
efforts to market such innovations. The Company believes that it may
benefit from the technological innovations incorporated in certain of its
products. While competitors may introduce new products which compete with
those the Company sells or intends to sell, the Company believes that its
research and development efforts will permit it to remain or become
competitive in all of the markets in which it presently sells or plans to
sell its products. The competition the Company faces in these markets is
substantial, however, and there can be no assurance that the technological
innovations of the Company's products will afford the Company the
competitive advantages it predicts.
The market for the Company's cancer screening and diagnostic product
line is highly competitive. The Company is unaware of any other companies
that are duplicating its efforts to develop a point-of-care collection,
mapping, and in-vitro analysis and diagnostic system for cervical cancer
screening. There are a number of companies attempting to develop an in-
vivo system to differentiate between cancerous, pre-cancerous and normal
tissue. Potential competition for the Company's InPath "Point of Care"
products includes many companies with financial, marketing, and research
and development resources substantially greater than those of the Company.
Similarly, the image analysis and tele-medicine markets, in which the
Company's Samba products are sold, are highly competitive. Several
American and foreign companies are developing and marketing products that
compete directly with Samba's products and services.
With regard to all of its products, the Company believes that it must
compete primarily on the basis of functionality, product features and
effectiveness of the product in standard medical practice. The Company
also believes that cost control and cost effectiveness are additional key
factors in achieving or maintaining a competitive advantage. Accordingly,
the Company focuses a significant amount of effort in its product
development process on producing systems and tests which do not add to
overall healthcare cost.
OPERATIONS. The Company currently engages in research and
development work at its facilities in Chicago, Illinois and on a contract
basis at additional locations in Illinois and in Cleveland, Ohio. The
Company does not currently engage directly in manufacturing products and it
intends to utilize the operations of a strategic partner for its future
instrument manufacturing requirements. The Company conducts research and
development work on its Samba software products at its facility in
Grenoble, France. The Samba software products are installed and integrated
with off-the-shelf computer and imaging components at the customer's
location or in the Grenoble facility immediately prior to delivery of the
products. Consulting services are generally performed at the customer's
location or at the Grenoble facility using customer data and communication
access.
INTELLECTUAL PROPERTY. In order to secure its intellectual property
rights, the Company relies on a combination of patents, licensing
arrangements, trade names, trademarks, know-how, proprietary technology,
and policies and procedures for maintaining the secrecy of its trade
secrets, know-how and proprietary technology. The Company considers such
security and protection to be material to the successful marketing of its
products in the U.S. and in most of the foreign markets the Company has
entered or may enter in the future.
The Company has filed three provisional patent applications covering
components of its InPath "Point of Care" cervical cancer screening system.
The Company is the exclusive licensee of AccuMed International, Inc. for an
additional patent application and certain other know-how and trade secrets
covering the "Point of Care" system. The Company purchased this license for
cash, future royalties, and other consideration. The Company is required to
make minimum annual royalty payments beginning in 1999 in order to maintain
its exclusive license to the patent application and related technology.
The Company's Samba software and technology consists primarily of
trade secrets and know-how and technical documentation.
The Company is continuing to prepare additional patent applications.
Since patent applications in the United States are maintained in secrecy
until patents issue, and since publications of discoveries in the
scientific or patent literature tend to lag behind actual discoveries by
several months, the Company cannot be certain whether it or another patent
applicant was the first to create inventions covered by pending patent
applications or the first to file patent applications for such inventions.
Protections relating to portions of technologies covered by such pending
patent applications may be challenged or circumvented by competitors, and
other portions may be in the public domain or protectable only under state
trade secret laws.
Worldwide, all of the Company's important products are or will be
sold under trademarks that the Company considers to be, in the aggregate,
material to the Company's business. The Company owns the Samba trademark
and trade names of Samba, InPath, and Ampersand Medical Group. The Company
may file additional U.S. and foreign trademark applications in the future
and the Company will focus its acquisition efforts on technologies which
have strong patent or trade secret protection.
There can be no assurance that any patent or trademark registration
issued or which may be issued to the Company will provide the Company with
significant competitive advantages. Further, there can be no assurance
that any patent application which may be applied for by or for the benefit
of the Company will be granted or that challenges will not be instituted
against the validity or enforceability of any such patent application and,
if instituted, that such challenges will not be successful. The cost of
litigation to uphold the validity of a patent or patent application, or to
prevent infringement, could be substantial even if the Company were to
prevail. Furthermore, there can be no assurance that others will not
independently develop similar technologies or products, duplicate the
Company's technology or design around the patented aspects of the Company's
products. The protection afforded by patents depends upon a variety of
factors which may severely limit the value of the patent protection,
particularly in foreign countries. The Company intends to protect much of
the core technology it now possesses or will later develop as trade
secrets, rather than to rely on patents, either because patent protection
is not possible or, in management's opinion, would be less effective than
maintaining secrecy. To the extent that it relies on trade secret
protection, there can be no assurance that the Company's efforts to
maintain secrecy will be successful or that third parties will not be able
to develop the technology independently. The Company expects to register
the various trademarks associated with its collection and diagnostic
system, but there can be no assurance that if registered any such
registration or use of it will not be challenged by third parties, or that
if challenged, such third parties will not prevail.
GOVERNMENT REGULATION. The development, manufacture, sale, and
distribution of the Company's products are regulated by state and federal
authorities, including the FDA and comparable authorities in certain states
and other countries. In the U.S., the Food, Drug, and Cosmetic Act (the
"FD&C Act") and regulations promulgated under it apply to the Company's
product's. The FD&C Act provides that many of the Company's products
cannot be shipped in interstate commerce without prior authorization from
the FDA. Such authorization is based on a review by the FDA of the
product's safety and effectiveness for its intended uses. Medical devices
may be authorized by the FDA for marketing in the U.S. either pursuant to a
pre-market notification under Section 510(k) of the FD&C Act (a "510(k)
Notification") or a pre-marketing approval application (a "PMA"). The
process of obtaining FDA marketing clearance and other applicable
regulatory authorities may be costly and there can be no guaranty that the
process will ultimately be successful. FDA 510(k) Notification
applications and PMA's typically require preliminary internal studies,
field studies, and/or clinical trials, in addition to an FDA submission.
A 510(k) Notification, among other things, requires an applicant to
show that its products are "substantially equivalent" in terms of safety
and effectiveness to an existing FDA-cleared predicate product. An
applicant may only market a product submitted through a 510(k) Notification
after the FDA has issued a written clearance determining the product has
been found to be substantially equivalent.
To obtain a PMA for a device, an applicant must demonstrate,
independently of other like devices, that the device in question is safe
and effective for its intended uses. A PMA must be supported by extensive
data, including pre-clinical and clinical trial data, as well as extensive
literature to prove the safety and effectiveness of the device. It usually
takes the FDA substantially longer to grant a PMA than to grant a 510(k)
Notification. During the review period, the FDA may conduct extensive
reviews of the Company's facilities, deliver multiple requests for
additional information and clarifications, and convene advisory panels to
assist in its determination.
The FD&C Act generally bars advertising, promoting, or otherwise
marketing medical devices that the FDA has not approved or cleared.
Moreover, FDA enforcement policy strictly prohibits the promotion of
learned or approved medical devices for non-approved or "off-label" uses.
In addition, product clearances or approvals may be withdrawn for failure
to comply with regulatory standards.
The Company's current and prospective overseas operations are also
subject to a significant degree of government regulation. Many countries,
directly or indirectly through reimbursement limitations, control the
selling price of most healthcare products. Furthermore, many developing
countries limit the importation of finished products. International
regulations are having an impact on U.S. regulations as well. The
International Organization for Standardization (the "ISO") sets the
standards regulating medical devices within the European Union. The FDA
recently adopted regulations governing the manufacture of medical devices
that appear to encompass and exceed the ISO's approach to regulating
medical devices. The FDA's adoption of the ISO's approach to regulation
and other changes to the manner in which the FDA regulates medical devices
will increase the cost of compliance with those regulations.
The Company will likely be subject to certain registration, record-
keeping and Medical Device Record reporting requirements, and the Company's
manufacturing facilities, if any, may be obligated to follow the FDA's
Quality System Regulation and may be subject to periodic FDA inspections.
Any failure to comply with the Quality System Regulation or any other FDA
or other government regulations could have a material adverse effect on the
Company's operations.
For sale and use in the United States, the Company's InPath products
will need to be cleared for marketing by the FDA as described above. There
can be no assurance that the FDA or other governmental agencies will clear
the InPath products or the advertising or delivery of those products.
Internationally, the InPath products may be subject to various government
regulations. Such current or potential regulations may delay the
introduction of new products and services and adversely affect the
Company's cost of doing business.
The Company's InPath "Point of Care" products may also be subject to
regulation in the United States under the Clinical Laboratory Improvement
Act (CLIA). Under this Act, diagnostic products are classified into one of
three categories depending on the user skill required to perform and
interpret the test; the potential for the test to produce an incorrect
result; and the potential risks presented by such an incorrect result. Any
laboratory or other site that performs clinical diagnostic testing is
required to be licensed under one of three levels corresponding to the
classification categories. Laboratories or sites are permitted to perform
only those diagnostic tests that are classified at or below the level at
which the laboratory is licensed.
The Company is developing its InPath "Point of Care" products to be
user-friendly, require minimum operator training, and have safety and
operating checks built into the functionality of the instruments. The
Company believes its efforts will result in the lowest possible
classification by the Center for Disease Control (CDC), the agency
responsible for classification of diagnostic devices under CLIA. However,
there can be no assurance that the CDC will assign the InPath "Point of
Care" products to the expected classification. CDC classification of the
products into a higher category may have a significant impact on the
Company's ability to market the product in the United States.
Although the Company currently sells Samba products in the United
States, expanding their sales for use in certain clinical applications may
require FDA clearance. Waiting for such approval would likely delay the
sales of these products into certain clinical applications in the U.S.
market and increase the Company's cost of doing business. Samba currently
has all required regulatory approvals in France, but may have to apply for
regulatory approval in other countries in order to market its products
outside France. There can be no assurance that Samba will be able to
obtain any regulatory approvals necessary to expand its market.
RESEARCH AND DEVELOPMENT. The Company focuses its research and
development efforts on introducing new products as well as enhancing the
Company's existing products. The Company utilizes both in-house and
contracted research and development efforts. The Company believes that a
commitment to research and development is critical to its ability to
achieve its goals. During the nine and one-half month period between
InPath's inception and December 31, 1998, expenditures for research and
development were approximately $181,000. Research and development
expenditures by the Samba department of Unilog Regions, SA were $163,000
and $128,000 respectively for the two fiscal years ending December 31, 1998
and 1997 prior to its acquisition by the Company on January 4, 1999.
COMPONENTS AND RAW MATERIALS. The Company stresses product
development focused on low-cost, easily accessible product components. The
Company's Samba products are compatible with various off-the-shelf
computers, computer components, microscopes, and imaging equipment.
WORKING CAPITAL PRACTICES. The Company's working capital practices
are comparable to those of other market participants. Collection periods
tend to be longer for sales of Samba products outside France than for sales
of Samba products inside France. Similarly, the Company believes that
collection periods for any future international sales of the Company's
U.S.-made products may prove longer than for domestic sales of such
products.
EMPLOYEES. As of March 23, 1999, the Company and its subsidiaries
employed a total of 17 full-time employees in the United States and France.
The Company's employees in France are represented by a national labor union
(customary to all French workers), and the Company considers its relations
with its employees to be good.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The statements throughout this report that are not historical facts,
including but not limited to statements in this Item 1 and statements
contained in material incorporated into this report by reference, are
forward-looking statements. These statements are based on the Company's
current expectations and involve many risks and uncertainties. Some of
these risks and uncertainties are factors that affect all international
businesses, while others are specific to the Company and the areas of the
medical products industry in which it operates.
The factors below in some cases have affected and could affect the
Company's actual results, causing results to differ, possibly materially,
from those expressed in this report's forward-looking statements. These
factors include: economic conditions; technological advances in the
medical field; demand and market acceptance risks for new and existing
products, technologies, and healthcare services; the impact of competitive
products and pricing; manufacturing capacity; new plant start-ups; U.S. and
international regulatory, trade, and tax policies; product development
risks, including technological difficulties; ability to enforce patents;
and unforeseen foreign regulatory and commercialization factors.
Currency fluctuations are also a significant variable for global
companies. If the value of the U.S. dollar strengthens relative to the
currencies of the countries in which the Company markets or intends to
market its products, the Company's ability to achieve projected sales and
net earnings in such countries could be adversely affected.
The Company believes that its expectations with regard to forward-
looking statements are based upon reasonable assumptions within the bounds
of its knowledge of its business and operations, but there can be no
assurance that the actual results or performance of the Company will
conform to any future results or performance expressed or implied by such
forward-looking statements.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES
The Company's operations outside the U.S. are currently conducted
primarily through Samba Technologies. The Company had no direct foreign
sales or operations in 1998. Sales by the Samba department of Unilog
Regions SA outside the U.S. represented approximately 90% of sales for the
years ended December 31, 1998 and 1997, the two fiscal years prior to its
acquisition by the Company. The Company's worldwide business is subject to
risks of currency fluctuations, governmental actions and other governmental
proceedings abroad. The Company does not regard these risks as a deterrent
to further expansion of its operations abroad. However, the Company
closely reviews its methods of operations and adopts strategies responsive
to changing economic and political conditions in countries it seeks to
operate in. The ongoing integration of the European market continues to
offer opportunities to businesses operating within the European Union, and
the Company hopes to take advantage of these opportunities to improve the
efficiency and productivity of its operations there.
ITEM 2. PROPERTIES
The Company, Ampersand and InPath currently share space leased by
InPath at 900 North Franklin Street, Suite 210, Chicago, Illinois 60610,
under a lease which expires April 30, 2003. This address houses the
executive offices of the Company, Ampersand and InPath, as well as
engineering and research and development facilities of InPath. Before
December 4, 1998 the Company's executive offices were located at 3600 Rio
Vista Avenue, Suite A, Orlando, Florida 32805. Samba leases space in
Grenoble, France, under a temporary arrangement with Unilog Regions SA
which expires June 4, 1999. Samba uses its facility at this address for
administration, marketing and sales, and research and development
activities.
The Company considers all of its facilities to be well utilized, well
maintained, and in good operating condition. It considers the facilities to
be suitable for their intended purposes, and to have capacities and
projected capacities adequate to meet current and projected needs for the
Company's existing products.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently a party to any material legal
proceeding, nor is any of the Company's property the subject of any
material legal proceeding. The Company is not aware of any such legal
proceeding being contemplated by governmental authorities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of shareholders during the
fourth quarter of 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION
There is presently no established public trading market for the
Common Stock of the Company and trading activity is limited. The Common
Stock is quoted on the Over-the-Counter Bulletin Board under the symbol
"BLBN."
The following table sets forth the high and low bid quotations per
share of Common Stock for the periods indicated, as reported by the
National Quotation Bureau, LLC. These quotations represent prices between
dealers, do not include retail mark-ups, mark-downs, or commissions, and do
not represent actual transactions.
BID RANGE OF
COMMON STOCK
-----------------
YEAR ENDED DECEMBER 31, 1998: HIGH LOW
- ---------------------------- ---- ---
1st Quarter $.05 $.05
2nd Quarter $.05 $.05
3rd Quarter $.05 $.05
4th Quarter $.38 $.05
YEAR ENDED DECEMBER 31, 1997: HIGH LOW
- ---------------------------- ---- ---
1st Quarter $.05 $.05
2nd Quarter $.05 $.05
3rd Quarter $.05 $.05
4th Quarter $.05 $.05
HOLDERS
As of March 30, 1999 there were approximately 1,082 holders of record
of the Company's Common Stock.
DIVIDENDS
The Company has not paid a cash dividend and the Board of Directors
is not contemplating paying one at this time.
STOCK TRANSFER AGENT
The Company's stock transfer agent is Continental Stock Transfer &
Trust Company, 2 Broadway, New York, New York 10004, phone (212) 509-4000.
RECENT SALES OF UNREGISTERED SECURITIES AND USE OF PROCEEDS
On December 4, 1998, pursuant to a Stock and Membership Interest
Exchange Agreement of the same date, the Company issued a total of
4,288,790 shares of Common Stock and warrants to purchase 3,175,850 shares
of Common Stock to eight members of InPath in exchange for their units of
membership interest in InPath. The warrants issued to the InPath members
have a conversion price of $.001 per share and are not currently
exercisable because the Company has an insufficient number of authorized
shares of Common Stock to issue upon their exercise. They will only become
exercisable if shareholders of the Company approve a proposal to increase
the number of authorized shares. In conjunction with the acquisition,
persons holding more than 50% of the outstanding shares of Common Stock
agreed to vote their shares in favor of such a proposal. Through this
transaction the Company acquired all of the units of membership interest in
InPath, whose assets consisted of computer equipment, laboratory equipment,
leasehold improvements, office furniture and equipment, telecommunications
equipment, technology license, patent applications and trademarks. The
Company's Board of Directors determined that these assets, in the
aggregate, were appropriate consideration for the shares issued to the
InPath members, given the assets' intrinsic value as well as the favorable
business opportunity which entry into the medical device industry offers
the Company.
Also on December 4, 1998, pursuant to a Claims Settlement Agreement
of the same date, the Company issued shares of Common Stock to each of two
individuals and two corporations in settlement of debts that the Company
owed them. In the transaction, the Company issued: 210,000 shares of
Common Stock to Alexander M. Milley to settle a debt of $63,000 owed to him
for his services as Chairman of the Board and Secretary of the Company
under an Employment Agreement dated November 20, 1989; 463,333 shares of
Common Stock to Robert C. Shaw to settle a debt of $139,000 owed to him for
his services as President and Treasurer of the Company under an Employment
Agreement dated November 20, 1989; 600,000 shares of Common Stock to Cadmus
Corporation ("Cadmus") to settle a debt of $180,000 owed to it for
management services provided to the Company; and 503,333 shares of Common
Stock to MMI to settle a debt of $151,000 owed to it as rent for office
space and as payment for management services provided to the Company.
In both the acquisition of InPath and the settlement of the Claims,
the Company was exempted from registering the issued shares of Common Stock
under the Securities Exchange Act of 1933 (the "Securities Act") because
both transactions qualified as offerings by an issuer not involving a
public offering under Section 4(2) of the Securities Act. In both
transactions, the recipients of the shares were accredited investors. In
connection with neither transaction did the Company engage in any general
solicitation or advertising.
On March 1, 1999, the Company sold a 6% Convertible Subordinated Note
Due 2000 to Seaside Partners in the principal amount of $500,000, pursuant
to a Note Purchase Agreement between the Company and Seaside Partners. The
note bears interest at the rate of 6% per annum and becomes due on
January 28, 2000 unless extended by the Company to June 30, 2000. The
terms of the note provide that the principal amount of the note as well as
any interest earned on the principal will automatically convert into shares
of Common Stock when the Company's shareholders have approved an increase
in the number of authorized shares of Common Stock, the Company has merged
into Ampersand, and the Company has received at least $5 million from any
debt or equity offerings, excluding the $1,500,000 currently authorized by
the Board of the Company to be raised through debt or equity offerings.
The note provides that Seaside Partners has the option of converting the
note into shares of Common Stock at any time after a sufficient number of
shares Common Stock have been authorized for issuance. The conversion
price of the note is $0.33 per share, subject to being lowered based on
certain circumstances related to the pricing of future debt or equity
offerings, but in no event lowered below $0.20 per share. Denis M.
O'Donnell, who is a director and a nominee for director of the Company, is
a member and a manager of Seaside Advisors, L.L.C., a firm which provides
investment management services to Seaside Partners. The parties relied
upon Regulation D to exempt the sale of the note to Seaside Partners from
registration under the Securities Act of 1933.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data is derived from, and qualified by
reference to, the audited Consolidated Financial Statements and Notes
included elsewhere in this Annual Report on Form 10-K.
The following table sets forth the selected financial data as of the
date shown and for the period shown:
For the Period from March 16, 1998 through December 31, 1998
(Dollar amounts in thousands, except per-share data)
STATEMENT OF OPERATIONS DATA:
Net Sales $0
Operating (Loss) ($783)
Net (Loss) ($789)
PER-SHARE DATA:
Net (Loss) ($0.07)
Weighted-average shares outstanding 12,000,000
BALANCE SHEET DATA
Working capital $(80)
Total assets $1,699
Long-term debt $156
Stockholders' equity $728
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS -- REVENUES AND EXPENSES
See Note 1 to the Consolidated Financial Statements for background
and historical information on the Company. On December 4, 1998, the Company
acquired InPath, LLC, a limited liability company registered in the State
of Delaware. InPath is a development-stage company engaged in the design
and development of medical instruments and related tests. Based upon the
terms of the acquisition agreement, for financial reporting and accounting
purposes the acquisition has been accounted for as a reverse acquisition
whereby InPath is deemed to have acquired the Company. Since the Company
was a non-operating public shell company with nominal assets and InPath was
a private operating company, the acquisition has been recorded as the
issuance of stock for the net monetary assets of the Company accompanied by
a recapitalization, and no goodwill or other intangible assets were
recorded. Accordingly, information presented in the Consolidated Financial
Statements includes the operations of InPath from March 16, 1998 (date of
inception) and the operations of the combined Company from December 4,
1998.
The Company is considered a development-stage company, since it is
engaged in the design and development of new products which have not as yet
been introduced into the market for sale. The Company had no revenue from
sales and no related cost of product sold during 1998.
Research and development expenses for 1998 amounted to $181,000. The
expenses consisted primarily of contract costs related to scientists and
researchers at universities and hospitals under specific development
programs, initial device development contracts with industrial electro-
mechanical design organizations, reimbursements to medical and engineering
consultants, and payroll related costs for in-house scientific and research
management staff.
Selling, general and administrative expenses for 1998 amounted to
$602,000. A significant component of the expenses consisted of legal costs
related to the initial establishment of InPath, negotiation of the
technology license with AccuMed International, Inc., and the acquisition of
InPath by the Company in December 1998 and the related filings with the
Securities and Exchange Commission.
The net loss for the period March 16, 1998 through December 31, 1998
amounted to ($789,000), or ($0.07) per share, on 12,000,000 weighted
average common shares outstanding. The calculation of net loss per share
assumes that all shares of the Company are outstanding for the entire
period.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash requirements are for research and
development expenses of its InPath products and to fund the acquisition of
other companies or technologies related to its product strategy. During
1998 those funds were provided by direct equity investments of $391,000 and
the net cash acquired at the time of the acquisition of InPath amounting to
$943,000. In addition, cash required to pay certain operating expenses was
provided through a loan from a stockholder in the amount of $175,000 and a
loan from a related party in the amount of $75,000.
At December 31, 1998, the Company had cash on hand of $700,000. Of
this amount, approximately $479,000 was used to make the final payment on
the purchase of the Samba department of Unilog Regions SA on January 4,
1999. Samba Technologies, the wholly owned subsidiary of the Company, which
assumed the operations of the Samba department, has been cash-flow neutral
during 1999.
In March 1999, the Company signed a Letter of Intent with AccuMed
International, Inc. to license technology related to the AcCell
Cytopathology System. In addition, the Company agreed to purchase certain
inventories and related manufacturing equipment. The Company has deposited
$100,000 in escrow with AccuMed to bind the agreement, the close of which
is subject to completion of due diligence and final contract documents by
June 7, 1999.
In March 1999, the Company received $500,000 in cash from Seaside
Partners, L.P., a hedge fund, and issued Seaside Partners a $500,000
convertible note which, upon approval by the stockholders of an increase in
the number of authorized shares of common stock of the Company, will
automatically convert into approximately 1,515,000 shares of Common Stock,
subject to certain contingencies having been met. Denis M. O'Donnell, who
is a director of the Company, is a member and a manager of Seaside
Advisors, L.L.C., a firm that provides investment management services to
Seaside Partners.
The Company's Board has authorized the placement of an additional
$1,000,000 in Convertible Promissory Notes under similar terms and
conditions to the Note issued in March 1999. The Board has also authorized
management to seek additional sources of funding through private placements
of either debt or equity instruments.
The operation of the Company has been, and will continue to be,
dependent upon management's ability to raise operating capital in the form
of debt or equity. The Company has incurred a significant operating loss
since its inception. The Company expects that significant on-going
operating expenditures will be necessary to successfully implement its
business plan and develop, manufacture and market its products. These
circumstances raise substantial doubt about the Company's ability to
continue as a going concern. There can be no assurance that the Company
will be able to obtain additional capital to meet its current operating
needs, or to complete pending or contemplated licenses or acquisitions of
technologies. If the Company is unable to raise sufficient additional
capital, or generate profitable sales revenues, management may be forced to
substantially curtail product research and development and other activities
and may be forced to cease operations.
The Company's internally used computer equipment is Year 2000
compliant. The software suites and systems currently sold by Samba
Technologies are also Year 2000 compliant. Older installations of the Samba
software suite may not be Year 2000 compliant, and Samba has been
contracted by some customers to upgrade their systems to Year 2000
compliance. Samba is obligated under maintenance contracts with other
customers to insure that their systems are Year 2000 compliant, and Samba
believes that the revenue derived from those maintenance contracts is
sufficient to cover the cost of bringing the systems into compliance. The
Company does not anticipate that it will incur any material costs related
to compliance with Year 2000 issues.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not engage in any hedge transactions or hold any
derivative financial instruments. As of the end of 1998, the Company was
not exposed to any material interest-rate, foreign-currency, commodity-
price, equity-price or other type of market or price risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of the Company for the period
March 16, 1998 through December 31, 1998, together with the report thereon
of Ernst & Young LLP dated March 24, 1999, are filed as part of this report
commencing on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Since the beginning of 1996: (i) Ernst & Young LLP, the Company's
independent auditor engaged as the principal auditor to audit the Company's
financial statements, has neither resigned (or indicated it has declined to
stand for re-election after the completion of a current audit) or been
dismissed, and (ii) no new independent auditor has been engaged by the
Company as either the principal auditor to audit the Company's financial
statements, or as an independent auditor to audit a significant subsidiary.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information required for this item is incorporated by reference
to the discussion captioned "ELECTION OF DIRECTORS" in the Company's Proxy
Statement for the 1999 annual meeting of shareholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required for this item is incorporated by reference
to the discussion captioned "ELECTION OF DIRECTORS" in the Company's Proxy
Statement for the 1999 annual meeting of shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required for this item is incorporated by reference
to the discussion captioned "Security Ownership of Certain Beneficial
Owners and Management" in the Company's Proxy Statement for the 1999 annual
meeting of shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Except as provided below, the information required for this item is
incorporated by reference to each of the discussions captioned "Interest of
Officers, Directors and Principal Shareholders in Approval of this
Proposal" under Proposals No. 2, No. 4, and No. 5 in the Company's Proxy
Statement for the 1999 annual meeting of shareholders.
Immediately prior to the acquisition of InPath, the Company issued
shares of Common Stock to Alexander M. Milley and Robert C. Shaw in
settlement of amounts owed to them under employment agreements between them
and the Company. The employment agreements became effective in November
1989 and expired in November 1992, and provided for annual compensation of
$20,000 to Mr. Milley for his service as the Company's Secretary and
Chairman of the Board, and $50,000 to Mr. Shaw for his service as the
Company's President and Treasurer. Mr. Milley and Mr. Shaw served in these
positions until the date of the InPath acquisition and both are currently
directors of the Company. On December 4, 1998, the Company entered into
the Claims Settlement Agreement, under which Mr. Milley was issued 210,000
shares of Common Stock in settlement of $63,000 owed to him under his
employment agreement, and Mr. Shaw was issued 463,333 shares of Common
Stock in settlement of $139,000 owed to him under his employment agreement.
Until the Company's acquisition of InPath on December 4, 1998, the
Company rented office space in Orlando, Florida from MMI. Rent and
administrative support expenses were approximately $120,000 in each of the
years ended December 3,1 1998, 1997 and 1996. MMI's President, Chairman of
the Board and majority shareholder is Mr. Milley, who is currently a
director of the Company and until the InPath acquisition was Chairman of
the Board and Secretary of the Company. In addition, certain of the other
officers of MMI are persons who were officers of the Company prior to the
Company's acquisition of InPath.
On September 1, 1998, InPath issued a Promissory Note in the amount
of $175,000 to Peter P. Gombrich, Chairman and CEO of the Company. The note
was issued in exchange for $175,000 in cash advanced to InPath by Mr.
Gombrich used to fund current operating expenses. Interest on the Note,
which matures on September 1, 2003, is payable on each anniversary date at
the rate of 8% per annum.
On August 28, 1998, InPath issued a Promissory Note in the amount of
$75,000 to Holleb & Coff, its outside legal counsel. The Note was issued in
lieu of a cash payment for legal services rendered to InPath. The Note is
payable on demand and interest is payable monthly at the rate of 12% per
annum. Theodore L. Koenig, who beneficially owns more than 5% of the
Common Stock, is a partners at Holleb & Coff.
On March 1, 1999, the Company entered into a Note Purchase Agreement
with Seaside Partners, under which Seaside Partners paid the Company
$500,000 in cash in exchange for a convertible note issued by the Company.
Denis M. O'Donnell, who is a director and a nominee for director of the
Company, is a member and a manager of Seaside Advisors, L.L.C., a firm
which provides investment management services to Seaside Partners. The
note issued to Seaside Partners bears interest at the rate of 6% per annum
and becomes due on January 28, 2000 unless extended by the Company to June
30, 2000. The terms of the note provide that the principal amount of the
note as well as any interest earned on the principal will automatically
convert into shares of Common Stock when the Company's shareholders have
approved an increase in the number of authorized shares of Common Stock,
the Company has merged into Ampersand, and the Company has received at
least $5 million from any debt or equity offerings, excluding the
$1,500,000 currently authorized by the Board of the Company to be raised
through debt or equity offerings. Seaside Partners has the option of
converting the note into shares of Common Stock at any time after a
sufficient number of shares Common Stock have been authorized for issuance.
The conversion price of the note is $0.33 per share, subject to being
lowered based on certain circumstances related to the pricing of future
debt or equity offerings, but in no event lowered below $0.20 per share.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 10-K
DOCUMENTS FILED AS PART OF REPORT
1. Financial Statements
Page
Index to Financial Statements Number
- ----------------------------- ------
Report of Independent Auditors . . . . . . . . . . . . . . . F-1
Consolidated Balance Sheet at December 31, 1998. . . . . . . F-2
Consolidated Statement of Operations for the period
March 16, 1998 through December 31, 1998 . . . . . . . . . . F-3
Consolidated Statement of Stockholders' Equity for the period
March 16, 1998 through December 31, 1998 . . . . . . . . . . F-4
Consolidated Statement of Cash Flows for the period
March 16, 1998 through December 31, 1998 . . . . . . . . . . F-5
Notes to Consolidated Financial Statements . . . . . . . . . F-6 to F-11
2. FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because they are not applicable or not
required, or because the required information is included in the
Consolidated Financial Statements or Notes thereto.
3. Exhibits
Exhibit
Number Description
- ------- -----------
2.1 Bell National Corporation Plan of Reorganization (Annex I).
(Incorporated herein by reference to Item 1 of the Company's Annual Report
on Form 10-K for the period from August 20, 1985 to December 31, 1985 and
for the years ended December 31, 1986 and 1987.)
3.1 Restated Articles of Incorporation. (Incorporated herein by
reference to Exhibit 3.1 of the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1988.)
3.2 Bylaws of the Company. (Incorporated herein by reference to
Exhibit 3.2 of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1989.)
4.1 Note Purchase Agreement, dated March 1, 1999, between the
Company and Seaside Partners, L.P.
4.2 6% Convertible Subordinated Note Due 2000, executed by the
Company on March 1, 1999, pursuant to the Note Purchase Agreement dated
March 1, 1999.
4.3 Form of Common Stock Purchase Warrant, as executed by the
Company on December 4, 1998 with respect to each of Mr. Gombrich, Theodore
L. Koenig, William J. Ritger, Fred H. Pearson, Walter Herbst, AccuMed
International, Inc., Northlea Partners Ltd., and Monroe Investments, Inc.
(collectively, the "InPath Members"). (Incorporated herein by reference to
Exhibit 3 of the Schedule 13D filed jointly by the InPath Members on
December 14, 1998.)
Exhibit
Number Description
- ------- -----------
4.4 Stockholders Agreement dated December 4, 1998 among the
Company, Winchester National, Inc., the InPath Members, and Mr. Milley, Mr.
Shaw, Cadmus, and MMI (collectively, the "Claimants"). (Incorporated
herein by reference to Exhibit 2 to the Schedule 13D filed jointly by the
InPath Members on December 14, 1998.)
10.1 Stock Appreciation Rights Agreement dated as of November 20,
1989 between the Company and Raymond O'S. Kelly. (Incorporated herein by
reference to Exhibit 10.5 of the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1989.)
10.2 Stock Appreciation Rights Agreement dated as of November 20,
1989 between the Company and Nicholas E. Toussaint. (Incorporated herein
by reference to Exhibit 10.7 of the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1989.)
10.3 Stock Appreciation Rights Agreement dated as of June 14, 1990
between the Company and Roy D. Rafalco. (Incorporated herein by reference
to Exhibit 4 of the Company's Form 8-K filed June 15, 1990.)
10.4 SAR Agreement Extension dated November 15, 1995 between the
Company and Raymond O'S. Kelly. (Incorporated herein by reference to
Exhibit 10.20 of the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995.)
10.5 SAR Agreement Extension dated November 15, 1995 between the
Company and Nicholas E. Toussaint. (Incorporated herein by reference to
Exhibit 10.21 of the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995.)
10.6 Employment Agreement dated May 1, 1998 between Mr. Gombrich
and InPath, LLC, as amended on December 4, 1998.
10.7 Patent and Technology License Agreement, dated September 4,
1998, between InPath and AccuMed International, Inc.
10.8 Stock and Membership Interest Exchange Agreement dated
December 4, 1998 among the Company, InPath, and the InPath Members.
(Incorporated herein by reference to Exhibit 1 to the Schedule 13D filed
jointly by the InPath Members on December 14, 1998.)
10.9 Claims Settlement Agreement dated December 4, 1998 among the
Company, the Claimants, and Liberty Associates Limited Partnership.
(Incorporated herein by reference to Exhibit 4 to the Schedule 13D filed
jointly by the InPath Members on December 14, 1998.)
21.1 Subsidiaries of the Company.
27 Financial data schedule.
REPORTS ON FORM 8-K
On December 18, 1998, the Company filed a Form 8-K to report the
change of control of the Company and the Company's acquisition of InPath
occurring on December 4, 1998 in connection with Company's entry into the
Stock and Membership Interest Exchange Agreement, Claims Settlement
Agreement and Stockholders Agreement. The financial statements and pro
forma financial information required for this Form 8-K were filed in an
Amendment to Form 8-K filed on February 16, 1999.
On January 19, 1999, the Company filed a Form 8-K to report the
acquisition of the Samba department of Unilog Regions SA by the Company's
Samba Technologies subsidiary. The financial statements and pro forma
financial information required for this Form 8-K were filed in an Amendment
to Form 8-K on March 22, 1999.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
BELL NATIONAL CORPORATION
Date: March 31, 1999 BY: /s/ Peter P. Gombrich
------------------------------
Peter P. Gombrich
Chairman of the Board,
Chief Executive Officer and
Secretary
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- -----
/s/ Peter P. Gombrich Director, Chairman of the March 31, 1998
- ----------------------- Board, Chief Executive
Peter P. Gombrich Officer and Secretary
(Principal Executive Officer)
/s/ Alexander M. Milley Director March 31, 1999
- -----------------------
Alexander M. Milley
/s/ Thomas R. Druggish Director March 30, 1999
- -----------------------
Thomas R. Druggish
/s/ Denis M. O'Donnell Director March 31, 1999
- -----------------------
Denis M. O'Donnell
/s/ Leonard R. Prange President and Chief March 31, 1999
- ------------------------ Financial Officer
Leonard R. Prange (Principal Financial
Officer and Accounting Officer)
/s/ Robert C. Shaw Director March 29, 1999
- ------------------------
Robert C. Shaw
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Bell National Corporation and Subsidiaries
We have audited the accompanying Balance Sheet of Bell National
Corporation (a development-state company) as of December 31, 1998, and the
related statements of operations, changes in stockholders' equity and cash
flows for the period from March 16, 1998 (inception) through December 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these 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
provides 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 Bell National
Corporation and Subsidiaries as of December 31, 1998 and the results of its
operations and its cash flows for the period from March 16, 1998
(inception) through December 31, 1998, 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 1 to
the financial statements, the Company had a substantial net loss from
operations and has limited financial resources. These conditions raise
substantial doubt about the Company's ability to continue as a going
concern. Management's plans with regard to these matters are described in
Note 1. The financial statements do not include any adjustments to reflect
the possible future effect on the recoverability and classification of
assets or the amount and classification of liabilities that may result from
the outcome of this uncertainty.
/s/ Ernst & Young LLP
---------------------
Chicago, Illinois
March 24, 1999
BELL NATIONAL CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
(Dollars in thousands)
Balance
----------
ASSETS
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . $ 700
Prepaid expenses . . . . . . . . . . . . . . . . . . 35
-------
Total current assets. . . . . . . . . . . . . . . 735
Fixed assets, net. . . . . . . . . . . . . . . . . . . 88
Other assets:
License, patents, and technology, net. . . . . . . . 746
Acquisition escrow . . . . . . . . . . . . . . . . . 100
Other. . . . . . . . . . . . . . . . . . . . . . . . 30
-------
Total assets. . . . . . . . . . . . . . . . . . . $ 1,699
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . $ 588
Accrued expenses . . . . . . . . . . . . . . . . . . 152
Current maturities of notes payable -- related
party. . . . . . . . . . . . . . . . . . . . . . . 75
-------
Total current liabilities . . . . . . . . . . . . 815
Notes payable--related party, less current
maturities . . . . . . . . . . . . . . . . . . . . . 156
Stockholders' equity:
Common Stock, no par value; authorized issued
and outstanding 12,000,000 shares. . . . . . . . . 1,517
Deficit accumulated in the development stage . . . . (789)
-------
Total stockholders' equity. . . . . . . . . . . . 728
-------
Total liabilities and stockholders' equity. . . . $ 1,699
=======
The accompanying notes are an integral part
of these consolidated financial statements.
BELL NATIONAL CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD MARCH 16, 1998 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1998
(Dollars in thousands, except per-share amounts)
Balance
----------
Net sales. . . . . . . . . . . . . . . . . . . . . . . . $ --
Cost and expenses
Cost of goods sold . . . . . . . . . . . . . . . . . . --
Research and development . . . . . . . . . . . . . . . 181
Selling, general, and administrative expenses. . . . . 602
----------
783
----------
Operating loss . . . . . . . . . . . . . . . . . . . . . (783)
Other income (expense)
Interest (expense) -- related party. . . . . . . . . . (8)
Other, net . . . . . . . . . . . . . . . . . . . . . . 2
----------
(6)
----------
Loss before income taxes . . . . . . . . . . . . . . . . (789)
Income taxes . . . . . . . . . . . . . . . . . . . . . . --
----------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . $ (789)
==========
Basic and fully diluted net loss per common share. . . . $ (0.07)
==========
Weighted average number of common share outstanding. . . 12,000,000
==========
The accompanying notes are an integral part
of these consolidated financial statements.
BELL NATIONAL CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
Total
Common Accumulated Stockholders'
Stock Deficit Equity
------- ----------- -------------
March 16, 1998 (inception) . . $ -- $ -- $ --
Equity of accounting
acquiree. . . . . . . . . . . 881 -- 881
Contribution of asset
in exchange for equity. . . . 245 -- 245
Sale of equity . . . . . . . . 391 -- 391
Net loss . . . . . . . . . . . (789) (789)
------- ------- -------
Balances, December 31, 1998. . $ 1,517 $ (789) $ 728
======= ======= =======
The accompanying notes are an integral part
of these consolidated financial statements.
BELL NATIONAL CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD MARCH 16, 1998 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1998
(Dollars in thousands)
Operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . $ (789)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization. . . . . . . . . . . . 36
Changes in assets and liabilities:
Deposits and other assets. . . . . . . . . . . . . (158)
Accounts payable . . . . . . . . . . . . . . . . . 588
Accrued expenses . . . . . . . . . . . . . . . . . 59
-------
Net cash used in operating activities. . . . . . . . . . (264)
Cash used in investing activities:
License, patents, and technology . . . . . . . . . . . (501)
Purchase of fixed assets . . . . . . . . . . . . . . . (100)
-------
Net cash used in investing activities. . . . . . . . . . (601)
Cash flows from financing activities:
Proceeds from notes payable. . . . . . . . . . . . . . 250
Payment of notes payable . . . . . . . . . . . . . . . (19)
Proceeds from sale of equity . . . . . . . . . . . . . 391
Net cash acquired. . . . . . . . . . . . . . . . . . . 943
-------
Net cash provided by financing activities. . . . . . . . 1,565
-------
Net increase in cash and cash equivalents. . . . . . . . 700
Cash and cash equivalents at beginning of period . . . . --
-------
Cash and cash equivalents at end of period . . . . . . . $ 700
=======
Supplemental disclosure of cash-flow
information:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . . $ --
Income taxes . . . . . . . . . . . . . . . . . . . . $ --
======
The accompanying notes are an integral part
of these consolidated financial statements.
BELL NATIONAL CORPORATION
Notes To Consolidated Financial Statements
December 31, 1998
NOTE 1. THE COMPANY AND BASIS OF PRESENTATION
Bell National Corporation ("Bell National" and together with its
subsidiaries the "Company") was incorporated in California on October 1,
1958. Through 1985, its principal subsidiary was Bell Savings and Loan
Association ("Bell Savings"), a state chartered savings and loan
association. On July 25, 1985, the Federal Home Loan Bank Board appointed
the Federal Savings & Loan Insurance Corporation ("FSLIC") as receiver of
Bell Savings. At the same time, the assets of Bell Savings were transferred
to a new, unrelated, federally chartered mutual savings and loan
association, Bell Federal. The FSLIC's action followed shortly after a
determination that Bell Savings had a negative net worth. On August 20,
1985, Bell National filed a voluntary petition under Chapter 11 of the
Bankruptcy Code. A plan of reorganization was approved by the Bankruptcy
Court, and became effective June 29, 1987.
On June 15, 1990, Bell National purchased 100% of the Common Stock of Payne
Fabrics, Inc., a designer and distributor of decorative drapery and
upholstery fabrics, for a purchase price of $6,493,000 and the issuance of
stock appreciation rights. On August 4, 1997 Payne Fabrics, Inc. sold
substantially all of its assets and most of its liabilities related to the
business of designing and distributing decorative drapery and upholstery
fabrics to Westgate Fabrics, Inc. ("Westgate"), an unaffiliated third party
(the "Asset Sale"). The Asset Sale included the transfer to the buyer of
the use and rights to the Payne Fabrics name, accordingly, Payne Fabrics,
Inc., changed its name to PFI National Corporation ("PFI"). The Asset Sale
left PFI without any substantial assets and on August 4, 1997 all
operations were ceased. Bell National's other wholly-owned subsidiaries,
Bell Savings and Pacific Coast Holdings Insurance Company, had no
significant assets or liabilities. After the Asset Sale and before December
1998, the Company had no business operations and its only activities were
administrative.
On December 4, 1998, the Company acquired InPath, LLC, a development-stage
company engaged in the design and development of medical instruments and
related tests. In the acquisition, Bell issued 4,288,790 shares of Common
Stock and warrants with an exercise price of $.001 per share to purchase
3,175,850 shares of Common Stock to the members of InPath in exchange for
their units of membership interest in InPath and the senior executives of
InPath assumed management control of the Company. The warrants were issued
with the right to convert subject to approval by stockholders' of an
increase in the authorized Common Stock of the Company. In conjunction with
the acquisition, certain stockholders of the Company, comprising holders of
more than 50% of the currently outstanding Common Stock of the Company,
agreed to vote their shares in favor of the proposal to increase the number
of authorized shares of Common Stock of the Company, to elect a slate of
directors recommended by former InPath members and original Company
stockholders, and to appoint former InPath executive officers to executive
officer positions of the Company. After the transaction, the former members
of InPath held approximately 36% of the Common Stock then outstanding, and
will hold approximately 50% of the Common Stock outstanding after
conversion of all warrants issued in the transaction.
Also on December 4, 1998, pursuant to a Claims Settlement Agreement of the
same date, the Company issued shares of Common Stock to each of two
individuals and two corporations in settlement of debts that the Company
owed them. In the transaction, the Company issued: 210,000 shares of
Common Stock to Alexander M. Milley to settle a debt of $63,000 owed to him
for his services as Chairman of the Board and Secretary of the Company
under an Employment Agreement dated November 20, 1989; 463,333 shares of
Common Stock to Robert C. Shaw to settle a debt of $139,000 owed to him for
his services as President and Treasurer of the Company under an Employment
Agreement dated November 20, 1989; 600,000 shares of Common Stock to Cadmus
Corporation ("Cadmus") to settle a debt of $180,000 owed to it for
management services provided to the Company; and 503,333 shares of Common
Stock to MMI to settle a debt of $151,000 owed to it as rent for office
space and as payment for management services provided to the Company.
Based upon the terms of the acquisition agreement, for financial reporting
and accounting purposes the acquisition has been accounted for as a reverse
acquisition whereby InPath is deemed to have acquired the Company. However,
the Company is the continuing legal entity and registrant for both
Securities and Exchange Commission filing purposes and income tax filing
purposes. Because the Company was a non-operating public shell company
with nominal assets and InPath was a private operating company, the
acquisition has been recorded as the issuance of stock for the net monetary
assets of the Company, accompanied by a recapitalization and no goodwill or
other intangible assets were recorded. Accordingly, the Consolidated
Financial Statements presented hereunder only include the operations of
InPath from March 16, 1998 (date of inception) and the operations of the
Company from December 4, 1998.
The Company has incurred a significant operating loss since its inception.
The Company expects that significant on-going operating expenditures will
be necessary to successfully implement its business plan and to develop,
manufacture and market its products. These circumstances raise substantial
doubt about the Company's ability to continue as a going concern.
Implementation of the Company's plans and its ability to continue as a
going concern depend upon its acquiring substantial additional financing.
Management's plans include efforts to obtain additional capital. As
discussed in Note 10, the Company was recently successful in raising
$500,000 to finance its operations. However, there can be no assurance
that the Company's efforts to raise additional capital will be successful.
If the Company is unable to obtain adequate additional financing or
generate profitable sales revenues, management may be required to curtail
the Company's product development and other activities and may be forced to
cease operations.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The Consolidated Financial Statements include
Bell National and its wholly owned subsidiaries. All intercompany balances
and transactions have been eliminated.
USE OF ESTIMATES. The preparation of the financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates.
REVENUE RECOGNITION. The Company recognizes revenue upon shipment of
product to customers.
CASH EQUIVALENTS. The Company considers all highly liquid investments with
a maturity of three months or less at the time of purchase to be cash
equivalents.
PROPERTY AND EQUIPMENT. Property and equipment are stated at cost and are
depreciated using the straight-line method over the assets' estimated
useful lives. Principal useful lives are as follows:
Furniture and fixtures 5 years
Laboratory equipment 5 years
Computer and communications equipment 3 years
Leasehold improvements Useful life or life of lease,
whichever is shorter
Normal maintenance and repairs are charged to expense as incurred,
significant improvements are capitalized.
LICENSE, PATENTS, AND TECHNOLOGY. License, patents, and purchased
technology are recorded at their acquisition cost. During 1998, a portion
of a license, valued at $245,000, was contributed to the Company in
exchange for an equity stake of equal value. Costs to prepare patent
filings are recorded when incurred. Costs related to abandoned or denied
patent applications are written off at the time of abandonment or denial.
Amortization is begun as of the date of acquisition or upon the grant of
the final patent. All costs are amortized over a useful life of ten years.
RESEARCH AND DEVELOPMENT COSTS. Research and development costs are charged
to operations as incurred. The Company conducts a portion of its research
activities under contractual arrangements with scientists, researchers,
universities, and other independent third parties.
INCOME TAXES. The Company follows the liability method in accounting for
income taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases
of assets and liabilities and are measured using tax rates and laws that
are expected to be in effect when the differences are expected to reverse.
Valuation allowances are provided against deferred tax assets if it is more
likely than not that the deferred tax assets will not be realized.
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31:
1998
----
Furniture and fixtures $ 21
Laboratory equipment 41
Computer and communications equipment 25
Leasehold improvements 13
----
100
Less accumulated depreciation
and amortization (12)
----
Total $ 88
====
NOTE 4. LICENSE, PATENTS, AND TECHNOLOGY
License, patents, and technology includes the following at December 31:
1998
----
License $745
Patent costs 25
----
770
Less accumulated amortization (24)
----
Total $746
====
NOTE 5. ACCRUED EXPENSES
Accrued expenses includes the following at December 31:
1998
----
Accrued payroll and related costs $81
Accrued professional fees 43
Accrued interest -- related party 8
Other accrued expenses 20
----
Total $152
====
NOTE 6. NOTES PAYABLE -- RELATED PARTIES
On August 28, 1998, the Company issued a note payable in the amount of
$75,000 to its outside legal counsel, Holleb & Coff in payment for legal
services. The note is due on demand and interest is payable monthly at the
rate of 12% per annum.
On September 1, 1998, the Company issued a note payable in the amount of
$175,000 to Mr. Peter P. Gombrich, its Chairman and CEO, in payment for
funds advanced to the Company. The note is due September 1, 2003 and
interest is payable at each anniversary date at the rate of 8% per annum.
The note may be repaid at any time without penalty. Payments in the amount
of $19,000 were made during the period to reduce the principal.
The carrying amount of notes payable approximates fair value at
December 31, 1998.
NOTE 7. STOCKHOLDERS' EQUITY
InPath, LLC was incorporated in the State of Delaware on March 16, 1998 as
a limited liability company. The company sold membership units in the
amount of $391,000 and received a contribution of an asset valued at
$245,000 in exchange for membership units with a comparable value. On
December 4, 1998, InPath was acquired by the Company in a transaction in
which the Company issued 4,288,790 shares of Common Stock and warrants to
purchase an additional 3,175,850 shares of Common Stock to the members of
InPath in exchange for their units of membership interest in InPath. The
warrants were issued because the Company did not have a sufficient amount
of authorized Common Stock to complete the transaction. The warrants were
issued with the right to convert subject to the approval by the
stockholders of an increase in the authorized number of shares of Common
Stock. In conjunction with the acquisition, certain stockholders of the
Company, comprising holders of more than 50% of the currently outstanding
Common Stock of the Company, agreed to vote their shares in favor of the
proposal to increase the number of authorized shares of Common Stock of the
Company.
As discussed in Note 1, the acquisition has been accounted for as a reverse
acquisition whereby InPath is deemed to have acquired the Company.
Accordingly, while the number of shares of Common Stock reflects all shares
currently outstanding, the amount recorded for Common Stock includes the
value of the InPath membership equity of $636,000 and the net equity value
of the Company as of December 4, 1998. The Accumulated deficit reflects the
operations of InPath from March 16, 1998 through December 3, 1998 and of
the consolidated Company from December 4, 1998 through December 31, 1998.
At December 31, 1998, the Company had 450,000 stock appreciation rights
(SAR's) outstanding. These SAR's have an exercise price of $0.30 and can be
exercised through November 20, 2001. In general, each SAR entitles the
holder to receive upon exercise an amount equal to the excess, if any, of
the market value per share of Common Stock at the date of exercise over the
exercise price of the SAR, plus any dividends or distributions per share
made by the Company prior to the exercise date. In lieu of making cash
payments, the Company may elect to issue shares of Common Stock on a one
share for one SAR basis.
Included in the common shares outstanding are 696,570 shares of Common
Stock which have been designated "Class 4-B shares" (Class 4-B shares are
without value) pursuant to certain legal proceedings. Class 4-B shares do
not have voting rights and are not entitled to any distributions from the
Company on liquidation or otherwise.
NOTE 8. LEASES
The Company leases space for its Chicago, Illinois corporate headquarters
and research facilities under an operating type lease expiring in 2003.
Total rental expense for the facilities during the period ended
December 31, 1998 was $21,000.
Future minimum annual lease payments under the lease as of December 31,
1998 are:
Year Amount
---- -------
1999 $43,476
2000 $50,846
2001 $52,106
2002 $53,554
2003 $18,014
NOTE 9. INCOME TAXES
Significant components of deferred income taxes consist of the following at
December 31, 1998:
Deferred tax assets related to:
Net operating loss carryforwards $268,260
Accrued interest 2,492
Depreciation/amortization 7,748
Other --
--------
278,499
Less valuation allowance 278,499
--------
Net deferred tax asset $ --
========
Prior to the acquisition on December 4, 1998, the Company had significant
net operating loss carryforwards (NOL's). These NOL's are not reflected in
the Company's financial statements because the restrictions on the
Company's ability to use these NOL's makes it highly unlikely the Company
will realize any significant future tax benefit related to the NOL's.
The net operating loss carryforward for the period from March 16, 1998
through December 31, 1998 expires in 2018.
NOTE 10. SUBSEQUENT EVENTS
On January 4, 1999, the Company's wholly owned French subsidiary, Samba
Technologies SARL completed the acquisition of the Samba department of
Unilog Regions SA. The Samba department designs, develops and markets
software-based products used in automated image cytometry and tele-medicine
applications including tele-pathology and tele-radiology. The purchase
price was approximately $580,000, of which $100,000 was paid as a deposit
on December 15, 1998. At the time of the closing, Samba Technologies
entered into employment arrangements with the former Samba department
employees and assumed the day-to-day operations. Since the acquisition,
Samba has continued to develop and market the full line of Samba products.
In January, the Board of Directors authorized the Company to raise up to
$1,500,000 in debt or new equity to provide funding for current operations.
On March 1, 1999, the Company received $500,000 in cash from Seaside
Partners, LP in exchange for the issuance of a convertible note due
January 28, 2000 bearing interest at the rate of 6% per annum. The
maturity date of the Note may be extended by the Company to June 30, 2000.
The Note and any accrued interest due thereon shall be automatically
converted by the Company into shares of Common Stock at a conversion price
of $0.33 per share. The conversion price may be lowered based on certain
circumstances related to the pricing of future debt or equity offerings but
may never be lowered below $0.20 per share. The automatic conversion
provision of the Note is subject to the Company completing a reverse merger
into its wholly owned subsidiary Ampersand Medical Corporation, a Delaware
company, and the Company's receipt of at least $5,000,000 from any
additional debt or equity offerings, excluding the $1,500,000 currently
authorized by the Board. Denis M. O'Donnell, who is a director of the
Company, is a member and a manager of Seaside Advisors, L.L.C., a firm that
provides investment management services to Seaside Partners.
On March 8, 1999, the Company signed a Letter of Intent with AccuMed
International, Inc., to license the technology and intellectual property
related to the AcCell Cytopathology System, a series of automated
microscopy workstations, and to purchase certain related inventories and
manufacturing equipment. The License will provide the Company with the
exclusive right to use, manufacture and sell products utilizing the
technology and IP in certain market segments and non-exclusive rights in
others. The Company deposited $100,000 in earnest money with AccuMed.
Closing of the transaction, which must take place within ninety days, is
subject to due diligence, the drafting and preparation of the terms and
conditions of the License and purchase agreement, and approval of the
Boards of Directors of both companies. The final purchase price will be
determined based on the quantities and valuation of the physical inventory
of instruments and materials.
NOTE 11. COMMITMENTS AND CONTINGENCIES
The Company is the licensee under a Patent and Technology License between
the Company and AccuMed International, Inc., covering certain patent
applications and technology related to the Company's subsidiary InPath's
"Point of Care" products. In addition to the initial cash payment for the
license, the Company is obligated to make royalty payments to AccuMed equal
to 7% of all sales of products employing the licensed technology. In order
to maintain its exclusive right to the licensed technology, the Company is
required to make minimum guaranteed royalty payments to AccuMed amounting
to $1,000,000 during the second and third years of the license, $1,500,000
during the third, forth and fifth years of the license, and $2,000,000 in
each subsequent year thereafter. The license may not be terminated for
five years or until $5,000,000 in minimum royalty payments have been made,
whichever is earlier. The Company may elect to terminate its exclusivity
under the license upon written notice at which time its obligation to make
the minimum required annual royalty payments shall cease. The Company
would then be only obligated to make royalty payments based on actual sales
of products.
At December 31, 1998, the Company was contractually committed to pay
approximately $155,000 to scientists, researchers, universities, and other
independent third parties for services to be performed during 1999. These
contractual commitments are cancelable by the Company for non-performance.
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
2.1 Bell National Corporation Plan of Reorganization (Annex I).
(Incorporated herein by reference to Item 1 of the Company's Annual Report
on Form 10-K for the period from August 20, 1985 to December 31, 1985 and
for the years ended December 31, 1986 and 1987.)
3.1 Restated Articles of Incorporation. (Incorporated herein by
reference to Exhibit 3.1 of the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1988.)
3.2 Bylaws of the Company. (Incorporated herein by reference to
Exhibit 3.2 of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1989.)
4.1 Note Purchase Agreement, dated March 1, 1999, between the
Company and Seaside Partners, L.P.
4.2 6% Convertible Subordinated Note Due 2000, executed by the
Company on March 1, 1999, pursuant to the Note Purchase Agreement dated
March 1, 1999.
4.3 Form of Common Stock Purchase Warrant, as executed by the
Company on December 4, 1998 with respect to each of Mr. Gombrich, Theodore
L. Koenig, William J. Ritger, Fred H. Pearson, Walter Herbst, AccuMed
International, Inc., Northlea Partners Ltd., and Monroe Investments, Inc.
(collectively, the "InPath Members"). (Incorporated herein by reference to
Exhibit 3 of the Schedule 13D filed jointly by the InPath Members on
December 14, 1998.)
4.4 Stockholders Agreement dated December 4, 1998 among the
Company, Winchester National, Inc., the InPath Members, and Mr. Milley, Mr.
Shaw, Cadmus, and MMI (collectively, the "Claimants"). (Incorporated
herein by reference to Exhibit 2 to the Schedule 13D filed jointly by the
InPath Members on December 14, 1998.)
10.1 Stock Appreciation Rights Agreement dated as of November 20,
1989 between the Company and Raymond O'S. Kelly. (Incorporated herein by
reference to Exhibit 10.5 of the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1989.)
10.2 Stock Appreciation Rights Agreement dated as of November 20,
1989 between the Company and Nicholas E. Toussaint. (Incorporated herein
by reference to Exhibit 10.7 of the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1989.)
10.3 Stock Appreciation Rights Agreement dated as of June 14, 1990
between the Company and Roy D. Rafalco. (Incorporated herein by reference
to Exhibit 4 of the Company's Form 8-K filed June 15, 1990.)
10.4 SAR Agreement Extension dated November 15, 1995 between the
Company and Raymond O'S. Kelly. (Incorporated herein by reference to
Exhibit 10.20 of the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995.)
Exhibit
Number Description
- ------- -----------
10.5 SAR Agreement Extension dated November 15, 1995 between the
Company and Nicholas E. Toussaint. (Incorporated herein by reference to
Exhibit 10.21 of the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995.)
10.6 Employment Agreement dated May 1, 1998 between Mr. Gombrich and
InPath, LLC, as amended on December 4, 1998.
10.7 Patent and Technology License Agreement, dated September 4,
1998, between InPath and AccuMed International, Inc.
10.8 Stock and Membership Interest Exchange Agreement dated
December 4, 1998 among the Company, InPath, and the InPath Members.
(Incorporated herein by reference to Exhibit 1 to the Schedule 13D filed
jointly by the InPath Members on December 14, 1998.)
10.9 Claims Settlement Agreement dated December 4, 1998 among the
Company, the Claimants, and Liberty Associates Limited Partnership.
(Incorporated herein by reference to Exhibit 4 to the Schedule 13D filed
jointly by the InPath Members on December 14, 1998.)
21.1 Subsidiaries of the Company.
27 Financial data schedule.