SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

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

                                  FORM 10-QSB

(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934.

For the quarterly period ended March 31, 2003

(  ) TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT

For the transition period from  _________ to ____________.

                        Commission File number    0-935

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

                          MOLECULAR DIAGNOSTICS, INC.
       (Exact Name of Small Business Issuer as Specified in Its Charter)

          Delaware                                             36-4296006
(State or other jurisdiction of                             (I.R.S. Employer
 incorporation or organization)                            Identification No.)

                      414 North Orleans Street, Suite 800
                               Chicago, IL 60610
                   (Address of Principal Executive Offices)

                                (312) 222-9550
                        -------------------------------
                          (Issuer's Telephone Number)

                                      N/A
                           --------------------------
  (Former Name, Former Address and Former Fiscal Year, if Changed Since Last
                                    Report)

      Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter periods that the issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.  Yes     No  X
                                                                   ----    ----

                     APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:

COMMON STOCK, $0.001 PAR VALUE                        36,442,180
         (Class)                        Outstanding shares as of June 30, 2003

Transitional Small Business Disclosure Format (Check One):  Yes       No  X
                                                               ----     ----

<PAGE>
                          MOLECULAR DIAGNOSTICS, INC.
                        QUARTERLY REPORT ON FORM 10-QSB
                                MARCH 31, 2003

                               TABLE OF CONTENTS


                                                                        PAGE
PART I. -- FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

   a) Consolidated Balance Sheets -- March 31, 2003 and
         December 31, 2002............................................     3

   b) Consolidated Statements of Operations -- Three
         months ended March 31, 2003 and March 31, 2002...............     4

   c) Consolidated Statements of Cash Flows -- Three
         months ended March 31, 2003 and March 31, 2002...............     5

   d) Notes to Consolidated Financial Statements --
         March 31, 2003...............................................     6

Item 2. Management's Discussion and Analysis or Plan of
         Operation....................................................    14

Item 3. Controls and Procedures.......................................    18

PART II. -- OTHER INFORMATION

Item 1. Legal Proceedings.............................................    19

Item 2. Changes In Securities and Use of Proceeds.....................    21

Item 3. Defaults upon Senior Securities...............................    21

Item 4. Submission of Matters to a Vote of Security Holders...........    21

Item 5. Other Information.............................................    21

Item 6. Exhibits and Reports on Form 8-K..............................    21

SIGNATURES............................................................    22

EXHIBIT INDEX.........................................................    23







                                       2
<PAGE>

PART I. -- FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

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

                          CONSOLIDATED BALANCE SHEETS
                            (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                 MARCH 31,   DECEMBER 31,
                                                                   2003         2002
                                                                -----------  -----------
                                                                (Unaudited)
<S>                                                             <C>          <C>
                                    ASSETS
Current Assets:
   Cash and cash equivalents................................... $         6  $        42
   Accounts  receivables, net of allowance for doubtful
    accounts of $ 155 and $145 at March 31, 2003 and
    December 31, 2002, respectively............................         499          307
   Inventories.................................................         232          427
   Refundable taxes............................................          40           56
   Prepaid financings costs....................................         115          288
   Prepaid expenses and other current assets...................         117           69
                                                                -----------  -----------
         Total current assets..................................       1,009        1,189
Fixed Assets, net..............................................         591          666
Other Assets:
   Licenses, patents, and technology, net of amortization......       7,356        7,521
   Goodwill, net of amortization...............................         283          283
                                                                -----------  -----------
         Total assets.......................................... $     9,239  $     9,659
                                                                ===========  ===========

                LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
   Accounts payable............................................      $5,414       $5,202
   Customer and other deposits.................................          55           24
   Accrued payroll costs.......................................       1,892        1,856
   Accrued expenses............................................       2,081        1,143
   Deferred revenue............................................         552          630
   Revolving line of credit....................................         214          207
   Due to stockholder..........................................         242          127
   Lease obligation............................................         278          279
   Notes payable--related party................................         100           65
   Notes payable...............................................       4,491        4,585
                                                                -----------  -----------
         Total current liabilities.............................      15,319       14,118
Deferred revenue, less current portion.........................         105          120
                                                                -----------  -----------
         Total liabilities.....................................      15,424       14,238
                                                                -----------  -----------
Stockholders' Equity (Deficit):
Preferred stock, $0.001 par value; shares authorized--
  10,000,000; shares issued and outstanding - 2,580,068
  and - 2,781,024, at March 31, 2003 and December 31, 2002,
  respectively.................................................      13,164       16,958
Common stock, $0.001 par value; shares authorized--100,000,000;
  shares issued and outstanding-42,929,118 and 36,440,700, at
  March 31, 2003 and December 31, 2002, respectively...........          43           37
Additional paid-in-capital.....................................      24,417       19,557
Treasury stock; 192,088 shares at March 31, 2003 and December
  31, 2002.....................................................        (327)        (327)
Deferred compensation..........................................          --          (11)
Accumulated deficit............................................     (43,303)     (40,642)
Accumulated comprehensive loss--
      Cumulative translation adjustment........................        (179)        (151)
                                                                -----------  -----------
         Total stockholders' equity (deficit)..................      (6,185)      (4,579)
                                                                -----------  -----------
         Total liabilities and stockholders' equity (deficit)   $     9,239  $     9,659
                                                                ===========  ===========
</TABLE>
  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       3

<PAGE>
                          MOLECULAR DIAGNOSTICS, INC.
                   (FORMERLY AMPERSAND MEDICAL CORPORATION)

                     CONSOLIDATED STATEMENTS OF OPERATIONS
               (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                            FOR THE THREE MONTHS
                                                               ENDED MARCH 31,
                                                          ------------------------
                                                              2003        2002
                                                          -----------  -----------
                                                                 (Unaudited)
<S>                                                       <C>          <C>
Net revenues............................................  $       597  $       656
Operating expenses
      Cost of revenues..................................          276          195
      Research and development..........................          231          933
      Selling, general, and administrative expenses.....        2,088        2,383
                                                          -----------  -----------
           Total operating expenses.....................        2,595        3,511
                                                          -----------  -----------
Operating loss..........................................       (1,998)      (2,855)

Other income (expense):
      Interest (expense) -related party.................           (3)          (1)
      Interest (expense) ...............................         (238)        (104)
      Interest income -related party....................           --           --
      Interest income...................................           --           --
      Gain on litigation settlement.....................           --          150
      Other, net........................................            2           --
                                                          -----------  -----------
         Total other income (expense)...................         (239)          45
                                                          -----------  -----------
Loss before income taxes................................       (2,237)      (2,810)
Income tax expense......................................           --           --
                                                          -----------  -----------
   Net loss.............................................  $    (2,237) $    (2,810)
                                                          ===========  ===========

Preferred stock dividend................................         (424)        (122)
Deemed dividend upon issuance of convertible preferred stock       --           --
                                                          -----------  -----------
   Total dividends......................................         (424)        (122)
                                                          -----------  -----------
Net loss available to common stockholders...............  $    (2,661) $    (2,932)
                                                          ===========  ===========
Basic and fully diluted net loss per common share.......  $     (0.07) $     (0.11)
                                                          ===========  ===========
Weighed average number of common shares outstanding.....   40,177,291   25,561,429
                                                          ===========  ===========







</TABLE>

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

                                       4

<PAGE>
                          MOLECULAR DIAGNOSTICS, INC.
                   (FORMERLY AMPERSAND MEDICAL CORPORATION)

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
                                                             THREE MONTHS ENDED
                                                                  MARCH 31,
                                                          ------------------------
                                                              2003        2002
                                                          -----------  -----------
                                                                 (Unaudited)
<S>                                                       <C>          <C>
Operating Activities:
   Net loss.............................................  $    (2,237) $    (2,810)
   Adjustments to reconcile net loss to net cash used
    for operating activities:
      Amortization of debt discount.....................          153           45
      Depreciation and amortization.....................          240          270
      Amortization of fees..............................          202           --
      Stock, warrants, and options issued to
        non-employees for services                                 --          770
      Licensing fees recognized on preferred stock sale.          111         (298)
      Compensation expense related to Stock Appreciation
        Rights..........................................            3           24
      Interest expense paid with stock..................           --            8
      Changes in assets and liabilities:
         Accounts receivable, net.......................         (181)         239
         Inventories....................................          201          (15)
         Due from stockholder...........................          115           10
         Prepaid expenses and other current assets......          (59)        (157)
         Accounts payable...............................          292          338
         Deposits.......................................           30           --
         Deferred revenue...............................         (100)          12
         Accrued expenses...............................          958          280
                                                          -----------  -----------
Net cash used for operating activities..................         (272)      (1,284)
                                                          -----------  -----------
Cash used in investing activities:
   Expenditures for license, patents, and technology....           --           (1)
   Capital purchases....................................           --          (42)
                                                          -----------  -----------
   Net cash used for investing activities...............           --          (43)
                                                          -----------  -----------
Cash flows from financing activities:
   Proceeds from issuance of convertible notes payable..          350          500
   Proceeds from issuance of convertible notes payable,
     related party......................................          100           --
   Note issued in payment of an expense.................           21           --
   Proceeds from issuance of common stock, net of costs
     incurred...........................................           --            4
   Payment of notes payable.............................         (236)         (83)
   Proceeds from revolving line of credit, net..........           --          (46)
                                                          -----------  -----------
Net cash provided by financing activities...............          235          375
                                                          -----------  -----------
Effect of exchange rate changes on cash and cash
  equivalents...........................................            1          (70)
                                                          -----------  -----------
Net increase (decrease) in cash and cash equivalents....          (36)      (1,022)
Cash and cash equivalents at the beginning of period....           42        1,025
                                                          -----------  -----------
Cash and cash equivalents at end of period..............  $         6  $         3
                                                          ===========  ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
      Interest..........................................  $        15  $        65
Non-cash transactions during the period for:
      Deferred financing costs..........................  $       173  $        --
      Preferred stock and cumulative dividends converted
        into common stock...............................  $     4,218  $       106

</TABLE>


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

                                       5


<PAGE>
                          MOLECULAR DIAGNOSTICS, INC.
                   (FORMERLY AMPERSAND MEDICAL CORPORATION)

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                MARCH 31, 2003
                                  (Unaudited)

NOTE 1.     ORGANIZATION

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

      On  September 25,  2001,  the  Company  changed  its  corporate  name  to
Molecular  Diagnostics, Inc. in order to better represent  its  operations  and
products. The  name  change  was  effected through a merger with a wholly-owned
subsidiary.  Molecular  Diagnostics,  Inc.  has  retained  its  Certificate  of
Incorporation,  except  as   amended  to  reflect  the  new  name,  bylaws  and
capitalization.

      On December 4, 1998, Bell  National (then a shell corporation without any
business activity) acquired InPath, LLC, a development-stage company engaged in
the design and development of medical  instruments  and  related  tests. In the
acquisition, Bell National issued 4,288,790 shares of common stock and warrants
to  purchase  3,175,850  shares  of  common  stock to the members of InPath  in
exchange  for  their units of membership interest  in  InPath  and  the  senior
executives of InPath assumed management control of MDI.

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

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

      Molecular Diagnostics, Inc.  is  focused  on  the design, development and
marketing  of  the  InPath  System, Samba software and related  image  analysis
systems, including the AcCell  instrument  platforms.  The  InPath  System  and
related  products  are  intended  to detect cancer and cancer related diseases.
These products may be used in a laboratory, clinic, or doctor's office.

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

      Molecular  Diagnostics,  Inc.  has  incurred significant operating losses
since  its inception. Management expects that  significant  on-going  operating
expenditures  will  be  necessary to successfully implement MDI's business plan

                                       6

<PAGE>
and develop, manufacture  and  market  its  products. These circumstances raise
substantial  doubt  about  MDI's  ability  to  continue  as  a  going  concern.
Implementation  of its plans and its ability to continue  as  a  going  concern
depend upon its securing  substantial  additional  financing.  During the first
quarter  of  2003,  MDI  raised $450,000 through the sale of convertible  debt.
Management's plans include substantial efforts to obtain additional capital. If
Molecular Diagnostics, Inc.  is  unable to obtain adequate additional financing
or generate profitable sales revenues,  management  may  be required to curtail
its  product  development  and  other  activities  and may be forced  to  cease
operations.

NOTE 2.     BASIS OF PRESENTATION

      The consolidated financial statements included herein were prepared by us
without  audit according to the rules and regulations  of  the  Securities  and
Exchange Commission.  Certain  information  and  footnote  disclosures normally
included  in  financial  statements  prepared  in  accordance  with  accounting
principles  generally accepted in the United States have been omitted  pursuant
to such rules  and  regulations. The consolidated financial statements reflect,
in the opinion of management,  all  adjustments necessary to present fairly the
financial  position  and  results of operations  as  of  and  for  the  periods
indicated. The results of operations for the three months ended March 31, 2003,
are not necessarily indicative  of the results to be expected for the full year
or  for  any  other  period.  The  consolidated  financial  statements  include
Molecular  Diagnostics, Inc. and its  wholly  owned  subsidiaries.  All  inter-
company balances and transactions have been eliminated.

      These financial statements should be read in conjunction with the audited
financial statements  and  the notes thereto included in our 2002 Annual Report
on Form 10-K, as filed with the Securities and Exchange Commission.

NOTE 3.     LICENSES, PATENTS, TECHNOLOGY AND GOODWILL
                  (in thousands)

<TABLE>
<CAPTION>
                                                             MARCH 31, DECEMBER 31,
                                                               2003       2002
                                                               ----       ----
      <S>                                                    <C>        <C>
      Licenses.............................................    $  996   $1,028
      Patent costs.........................................        18      133
      MDI Technology Agreement.............................     7,230    7,230
      Dianon Technology Agreement..........................       260      260
                                                               ------   ------
      Subtotal.............................................     8,504    8,651
      Less accumulated amortization........................    (1,148)  (1,130)
                                                               ------   ------
               Total.......................................    $7,356   $7,521
                                                               ======   ======

      Goodwill.............................................    $  283   $  283
                                                               ======   ======
</TABLE>

      AGGREGATE AMORTIZATION EXPENSE

            For the three months ended March 31, 2003......  $164

NOTE 4.     ACCRUED EXPENSES

      Accrued expenses includes the following at March 31 and December 31
             (in thousands):
<TABLE>
<CAPTION>
                                                               2003       2002
                                                               ----       ----
      <S>                                                    <C>        <C>
      Accrued interest.....................................  $  238     $  155
      Accrued interest--related party......................     115        111
      Accrued professional fees............................     146        146
      Accrued financing costs..............................     834         --
      Accrued taxes........................................     429        412
      Reserve for warranty.................................      20         21
      Other accrued expenses...............................     299        298
                                                             ------     ------
               Total.......................................  $2,081     $1,143
                                                             ======     ======
</TABLE>

                At  March  31,  2003,  MDI  accrued financing costs of $834,000
related to the settlement of the RVC loan on April 2, 2003.

                                       7
<PAGE>
      MDI is delinquent in filing certain Federal  and State Income Tax returns
for 2002 and 2001. MDI is also delinquent in paying  a  portion  of Federal and
State  employee and employer payroll taxes for 2001. The Company owed  $635,000
and $678,000  as  of  March  31,  2003  and December 31, 2002, respectively, in
past-due  payroll  taxes,  including  $207,000  and  $250,000  respectively  in
assessed and estimated statutory penalties  and  interest. The Internal Revenue
Service  has filed a lien against the Company's assets  to  secure  the  unpaid
payroll taxes. MDI is currently in the process of communicating through counsel
with the Internal  Revenue  Service  to  resolve  this  matter.  The  amount is
included  in  accrued payroll costs in the accompanying balance sheet.  MDI  is
also delinquent in paying various state franchise taxes.


NOTE 5.     NOTES PAYABLE--RELATED PARTIES

      Notes payable  to  related  parties  at  March  31  and  December 31  (in
thousands) consisted of:

<TABLE>
<CAPTION>
                                                                 2003     2002
                                                                 ----     -----
      <S>                                                        <C>      <C>
      Northlea Partners, Ltd., $25,000 Promissory Note issued
        August 6, 2001; interest rate 15% per annum............  $ 25     $  25
      Northlea  Partners,  Ltd.,  $15,000  Promissory Note
        issued September 20, 2001; interest rate 9% per annum..    15        15
      Robert Shaw, $25,000 Promissory Note issued  September
       20, 2001; interest rate 9% per annum....................    25        25
      Suzanne M. Gombrich note payable represents initial
        cash proceeds of a $1,000,000 convertible promissory
        note dated April 2, 2003, on which date the remaining
        $900,000 in cash proceeds were received  by MDI; due
        April 2, 2005 or earlier; interest rate 12% per annum;
        convertible  into  common stock at $0.10 per share;
        1,000,000 warrants at exercise price of $0.15 per share;
        first priority security interest in all MDI assets.....    35        --
                                                                 ----     -----
                                                                 $100     $  65
                                                                 ====     =====
</TABLE>

NOTE 6.     NOTES PAYABLE

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

<TABLE>
<CAPTION>
                                                                 2003     2002
                                                                 ----     -----
     <S>                                                        <C>      <C>
     Bridge I Convertible Promissory Notes; due December 31,
        2002; interest rate 7% per annum; convertible into
        common stock at 75% of the market price on date of
        conversion; beneficial conversion feature valued at
        $1,042,000; Bridge I warrants at an exercise price
        of $0.25 per share; Private Warrants at an exercise
        price equal to 150% of note conversion price........... $2,125   $3,185
     Bridge II Convertible Promissory Notes; due July 31,
        2003; interest rate 12% per annum; convertible into
        common  stock  at $0.10 or $0.15 per share; beneficial
        conversion feature valued at $792,000 and $330,000 at
        March 31, 2003 and December 31, 2002, respectively;
        Bridge II warrants at an exercise price of $0.15 or
        $0.20 per share........................................  1,458      293
      Round Valley Capital, LLC $825,500 Promissory Note,
        including unearned interest dated August 30, 2002;
        interest rate 36% per annum; warrants at an exercise
        price of $0.20 per share; 711,364 shares of common
        stock..................................................     64      300
      Monsun, AS, $500,000 Promissory Note issued November 1,
        2000; interest rate 15% per annum, compounded into
        principal amount; beneficial conversion feature valued
        at $125,000; 1st extension  of maturity date for
        issuance of 100,000 warrants at an exercise price of
        $0.60 per share;  2nd extension of maturity date for
        the issuance of 200,000 warrants at an exercise price
        of $0.30 per share; 3rd extension of maturity date for
        the issuance of 200,000 warrants at an exercise price
        of $0.70 per share; stock issuance of 200,000 shares of
        common stock in lieu of default penalty................    574      552
      Trek Diagnostic Systems $80,000 Promissory Note issued
        July 31, 2002; due in equal installments on September
        1, 2002 and December 1, 2002...........................     40       40
      Xillix Technologies Corporation, $361,000 Promissory Note
        issued June 26, 1998; interest rate Canadian Prime plus
        6% per annum; represents a debt of AccuMed
        International..........................................     34       34


                                       8
<PAGE>
      Western  Economic Diversification, $221,000 Promissory
        Note issued June 1989; no interest; represents a debt
        of Oncometrics.........................................    196      182
                                                                ------   ------
                                                                $4,491   $4,585

                                                                ======   ======
</TABLE>

      Between March 22, 2002 and June 28, 2002, MDI issued $3,185,000 in series
Bridge I Convertible  Promissory  Notes to accredited investors. The notes bear
interest at the rate of 7% per annum  and  are convertible at any time into the
common stock of MDI at a conversion price equal  to  75% of the market price of
the common stock on the date of conversion. In addition,  MDI issued a warrant,
which  entitled  each  holder  to  purchase one share of common  stock,  at  an
exercise price of $0.25 per share, for  each  dollar principal amount of notes.
MDI calculated a fair value of $99,950 for these  warrants using the fair value
interest  rate method and recorded this amount as additional  interest  expense
during 2002.  At  the time of conversion of the note, the holder is entitled to
receive a Private Warrant  to  purchase one share of common stock for each four
shares of common stock into which  the note converts at an exercise price equal
to 150% of the conversion price of the note. MDI has not determined a value for
the Private warrants as of March 31,  2003.  Since  the conversion price of the
note is at a 25% discount to the market price of the  common  stock of MDI, the
holder  is  considered to have a beneficial conversion feature. MDI  determined
the value of  the  beneficial  conversion feature to be $1,041,666 and recorded
this amount as additional interest  expense  during  2002.  In February 2003, a
note holder, NeoMed Innovations III, converted $1,060,000 in  principal  amount
of  Bridge  I notes into Bridge II notes. The remaining $2,125,000 in principal
Bridge  I  notes  remains  unconverted  and  outstanding  at  March  31,  2003.
Management continues  to  negotiate  an  extension  of  the  maturity  date  or
conversion  of  the  notes  with  the  holders.  As  of  July  31,  2003, these
negotiations are ongoing.

      Beginning  in  October  2002,  MDI began an issue of up to $4,000,000  in
series Bridge II Convertible Promissory  Notes  to  accredited  investors.  MDI
issued  $550,000  in  Bridge II notes as of December 31, 2002. During the first
quarter of 2003, MDI issued  an  additional  $350,000  in  principal  amount of
Bridge II notes. The notes bear interest at a rate of 12% per annum payable  at
the  maturity  date  in  kind in the form of shares of common stock of MDI. The
Company granted the holders  a  junior  security position in all of its assets.
The notes are convertible at any time into  the  common  stock of MDI. The note
conversion price and the value of common shares paid in kind  as  interest  for
the first $1,000,000 in principal amount of cash subscriptions, determined on a
"first  come  -  first  served  basis," is $0.10 per share. The note conversion
price and the value of common shares paid in kind as interest for the remaining
$3,000,000 of principal amount of  notes  in the series is $0.15 per share. The
conversion price of the notes issued during  2002  and  those issued during the
first quarter of 2003 was less than the market price of the  common  stock when
the notes were issued; therefore, the holder is considered to have a beneficial
conversion  feature.  MDI  determined  the  value  of the beneficial conversion
feature to be $792,000 and $330,000 at March 31, 2003  and  December  31, 2002,
respectively.  The  value  was recorded as a reduction of the debt and will  be
amortized as additional interest  over  the  life  of  the  note.  MDI recorded
additional interest expense of $153,481 to reflect amortization of the discount
for  the  time  the  notes  were  issued until March 31, 2003. At the time  MDI
completes significant additional funding plans, as outlined in the subscription
agreement, each holder of Bridge II  notes  is entitled to receive a warrant to
purchase one share of the common stock of the  Company  for each four shares of
common stock into which the note is convertible at an exercise  price  of $0.15
per  share  for  notes  in  the  class  pertaining  to  the first $1,000,000 in
subscriptions  and  $0.20  for  the  remaining  $3,000,000  in  note  principal
subscriptions. Subsequent to March 31, 2003, MDI issued additional notes in the
Bridge II series. (See Footnote 8: Subsequent Events)

      On August 30, 2002, MDI issued a Promissory note to Round Valley Capital,
LLC ("RVC") in the amount of $825,500 representing $650,000 in cash received by
MDI  and  $175,500 in unearned interest. The note bears a calculated  effective
interest rate  of 36% per annum and is due June 1, 2003. The note is secured by
all of the assets  of  MDI.  MDI  issued  a  certificate representing 5,750,000
shares of the common stock of the Company to RVC as collateral for the loan and
paid transaction fees including: cash payments  of  $147,063; 711,364 shares of
common stock of MDI; and warrants to purchase 681,818 shares of common stock of
MDI at an exercise price of $0.20 per share. MDI recorded  the note at a value,
net of unearned interest, of $650,000. A fair value of $362,795  was calculated
for the shares of common stock of MDI issued to RVC using the market  price  of
the  common  stock on the date the shares were issued. A fair value of $156,000
was calculated  for  the warrants using the Black-Scholes valuation method. The
total value of the transaction fees was recorded as prepaid financing costs and
is being amortized over  the  life  of the note. On February 17, 2003, MDI made
additional principal payments amounting  to  $250,000.  MDI  recorded  interest
expense  of  $16,900  and  financing  costs,  including amortization of prepaid
financing costs, of $1,008,000 during the three-months  ended  March  31, 2003.
RVC  declared MDI to be in default under the terms of the note during 2002  and
the parties  were engaged in litigation as of March 31, 2003. On April 2,

                                       9
<PAGE>
2003,  MDI  and  RVC  settled   the  litigation and the note, including default
penalties, was paid in full. (See Footnote 8: Subsequent Events)

      In July 2002, MDI agreed  to  settle  a  claim brought by Trek Diagnostic
Systems, Inc. ("Trek") against AccuMed regarding  breach  of representation and
warranties in a certain agreement under which Trek purchased  the  microbiology
business of AccuMed in 2000. MDI issued a promissory note to Trek in the amount
of $80,000, payable in two equal installments on September 1, 2002 and December
1, 2002. MDI made the first payment due on September 1, 2002. MDI did  not make
the  second  payment  causing  a default on the note. Trek has instituted legal
action against MDI to obtain payment  of  the  remaining  amount  due under the
note.  The  unpaid portion of the note accrues interest at the rate of  8%  per
annum. MDI recorded  interest  expense  related  to this note of $1,100 for the
three-months ended March 31, 2003.

       The carrying amounts of notes payable approximates  fair  value at March
31, 2003.

NOTE 7.     STOCKHOLDERS' EQUITY

      Summary of the Company's preferred stock capital table as of:
<TABLE>
<CAPTION>
                                                        MARCH 31,     DECEMBER 31,
                                                          2003           2002
                                                          ----           ----
                                                     SHARES ISSUED & SHARES ISSUED &
      OFFERING                                         OUTSTANDING    OUTSTANDING
      --------                                         -----------    -----------
      <S>                                            <C>             <C>
      Series A convertible..........................       118,092        118,092
      Series B convertible, 10% cumulative..........       799,856        799,856
      Series C convertible, 10% cumulative..........     1,225,833      1,258,833
      Series D convertible, 10% cumulative..........       175,000        175,000
      Series E convertible, 10% cumulative..........       261,287        429,243
                                                       -----------    -----------
      Total Preferred Stock.........................     2,580,068      2,781,024
                                                       ===========    ===========

</TABLE>
      During  the  first  quarter  of  2003 a holder converted 33,000 shares of
Series  C  convertible  preferred  stock, including  cumulative  dividends  due
thereon, into 185,884 shares of common stock.

      During the first quarter of 2003  several  holders  converted  167,956.76
shares  of Series E convertible preferred stock, including cumulative dividends
due thereon, into 5,133,617 shares of common stock.

      SUMMARY OF PREFERRED STOCK TERMS

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

SERIES B CONVERTIBLE PREFERRED STOCK
Liquidation Value:$4.00 per share
Conversion Price: $1.00 per share
Conversion Rate:  4.00--Liquidation   Value   divided   by   Conversion   Price
                  ($4.00/$1.00)
Voting Rights:    None
Dividends:        10%--Quarterly--Commencing March 31, 2001
Conversion Period:Any time
Cumulative dividends in arrears at March 31, 2003 were $668,441

SERIES C CONVERTIBLE PREFERRED STOCK
Liquidation Value:$3.00 per share
Conversion Price: $0.60 per share

                                      10
<PAGE>
Conversion Rate:  5.00--Liquidation   Value   divided   by   Conversion   Price
                  ($3.00/$0.60)
Voting Rights:    None
Dividends:        10%--Quarterly--Commencing March 31, 2002
Conversion Period:Any time
Cumulative dividends in arrears at March 31, 2003 were $519,887

SERIES D CONVERTIBLE PREFERRED STOCK
Liquidation Value:$10.00 per share
Conversion Price: $1.00 per share
Conversion Rate:  10.00--Liquidation   Value   divided   by  Conversion   Price
                  ($10.00/$1.00)
Voting Rights:    None
Dividends:        10%--Quarterly--Commencing April 30, 2002
Conversion Period:Any time--After April 1, 2002
Cumulative dividends in arrears at March 31, 2003 were $247,397

SERIES E CONVERTIBLE PREFERRED STOCK
Liquidation Value:$22.00 per share
Conversion Price: $0.80 per share
Conversion Rate:  27.50--Liquidation   Value   divided   by  Conversion   Price
                  ($22.00/$0.80)
Voting Rights:    Equal in all respects to holders of common shares
Dividends:        10%--Quarterly--Commencing May 31, 2002
Conversion Period:Any time--After December 1, 2002
Cumulative dividends in arrears at March 31, 2003 were $722,842

      ISSUANCE OF RESTRICTED SHARES FOR SERVICES

      Beginning in 1999, the Company has, at various times,  awarded restricted
shares of common Stock to non-employee consultants for services.   Some  of the
shares  awards  were  made  for past services and their value was fixed.  Other
share awards were made as partial  consideration  for  services to be performed
under  three-year  consulting  agreements  and  vest  over  the   life  of  the
agreements. The measurement date of these shares had not been determined  as of
March 31, 2002 and therefore the value of the these shares will be based on the
market  value  of  the Common Stock at the end of each interim period until the
measurement date is  determined.   A  fair  value  of these shares  $11,000 and
$119,000 was calculated using the Black-Scholes valuation model and the Company
recorded $3,400 and $8,000 as expense during the quarter  ended  March 31, 2003
and March 31, 2002, respectively.

      ISSUANCE OF SHARES FOR SERVICES

      During  the  first  quarter  2003, MDI issued 1,000,000 shares of  common
stock in exchange for services to a  non-employee  professional  services firm.
MDI calculated a fair value of $100,000 for these shares based on  the value of
the  shares  on  the  date  of the issuance and recorded the amount as investor
relations expense as of March 31, 2003.

      APPLICATION OF BLACK-SCHOLES VALUATION MODEL

      In applying the Black-Scholes  valuation  model,  the Company has used an
expected  dividend  yield  of  zero,  a risk-free interest rate  of  6%  and  a
volatility factor of 90% for the three  months  ended  March 31, 2003 and 2002,
and a fair value of the underlying common shares of the closing market price on
the  date  of the grant. The expected life equaled the term  of  the  warrants,
options, or restricted shares.

NOTE 8.     SUBSEQUENT EVENTS

      BRIDGE II FINANCING

      Beginning  in  October  2002,  MDI  began an issue of up to $4,000,000 in
series  Bridge II Convertible Promissory Notes  to  accredited  investors.  The
notes bear  interest  at 12 % per annum payable at maturity date in kind in the
form of shares of common  stock  and  are  due  July  31,  2003.  The notes are
convertible at any time into the common stock of MDI. The note conversion price
and  the  value  of  common  shares  paid  in  kind  as  interest for the first

                                      11
<PAGE>
$1,000,000 in cash subscriptions, determined on a "first come  -  first  served
basis,"  is  $0.10 per share. The note conversion price and the value of common
shares paid in  kind  as  interest  for  the  remaining $3,000,000 of principal
amount of notes in the series is $0.15 per share.  At  the  time  MDI completes
significant   additional   funding  plans,  as  outlined  in  the  subscription
agreement, each holder of Bridge  II  notes  is  entitled  to receive a private
warrant to purchase one share of the common stock of MDI for  each  four shares
of  common  stock  into  which the note is convertible at an exercise price  of
$0.15 per share for notes  in  the  class pertaining to the first $1,000,000 in
principal  subscriptions  and  $0.20  for  the  remaining  $3,000,000  in  note
principal subscriptions. MDI granted a  junior  security position in all of the
Company's assets to the holders of the Bridge II  convertible promissory notes.
Through March 31, 2003, MDI issued $900,000 in principal  amount  of  Bridge II
convertible  promissory  notes in exchange for cash. Between April 1, 2003  and
July 29, 2003, MDI issued  an  additional $1,106,000 principal amount of Bridge
II convertible promissory notes  in exchange for cash. MDI is currently working
with holders to amend the notes to extend the due date beyond July 31, 2003.

      OTHER FINANCING

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

      SETTLEMENT OF ROUND VALLEY CAPITAL, LLC LOAN AND RELATED LITIGATION

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

WARRANTS

      On July 18, 2003,  Mr. Milley, a director, Azimuth Corporation and Cadmus
Corporation, agreed to cancel  seven  warrants  held by Azimuth and one warrant
held by Cadmus, which entitled the holders to purchase  a  total  of  3,125,000

                                      12
<PAGE>
shares  of common stock at various exercise prices between $0.01 and $1.25  per
share.  The  warrants,  issued between December 1999 and August 2001, contained
anti-dilution clauses which  required  MDI  to increase the number of shares of
common  stock  the  holders were entitled to purchase  under  the  warrants  by
approximately  1,500,000   shares  as  of  the  date  of  the  agreement,  with
commensurate adjustments in  individual  exercise prices so that gross proceeds
to the Company from exercise of the warrants  remained  the  same.  These anti-
dilution  provisions  could  have  required  the  Company  to  make  additional
adjustments  in shares and exercise prices in the future based on the Company's
issuance of debt  or  equity  instruments at prices below the adjusted exercise
prices of these warrants.  In consideration for the parties agreement to cancel
these  warrants, including their  individual  anti-dilution  clauses,  and  the
forgiveness  of  approximately  $120,000 currently owing to Azimuth and Cadmus,
MDI agreed to issue a new five-year  warrant  entitling the holders to purchase
6,500,000 shares of common stock at an exercise  price  of $0.30 per share. MDI
also  agreed  to  issue  a  120- day warrant entitling the holder  to  purchase
500,000 shares of common stock  at  an  exercise  price  of  $0.30.  Management
believes  that the Company will derive significant additional benefits  in  the
future as a  result  of  the elimination of the anti dilution provisions in the
original warrants.

NOTE 9.     LEGAL PROCEEDINGS

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

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

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

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

                                      13
<PAGE>
principal amount of its convertible promissory  note  when  due,  the  Board of
Directors  has  agreed  that  MDI will assume responsibility for Mr. Gombrich's
obligations under the guaranty,  including  legal costs. Management and counsel
are unable to determine the result of this pending  litigation  as  of June 30,
2003.

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

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

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

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

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

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

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

      The  following discussion and analysis should be read in conjunction with
our consolidated  financial  statements  presented  in  Part  I, Item 1 of this
quarterly  report  and  our  consolidated financial statements and  Management'

                                      14
<PAGE>
Discussion  and  Analysis of Financial  Condition  and  Results  of  Operations
contained in our Annual  Report  on  Form  10-K for the year ended December 31,
2002.

      SIGNIFICANT ACCOUNTING POLICIES

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

      Revenue Recognition.  Molecular Diagnostics, Inc. recognizes revenue upon
shipment  of  product   or  license  to  customers  and  no  remaining  Company
obligations or contingencies  exist, or in the case of sales of software by its
wholly owned subsidiary Samba,  upon  shipment  if  persuasive  evidence  of an
arrangement  exists;  sufficient  vendor-specific  objective evidence exists to
support allocating the total fee to all elements of the arrangement; the fee is
fixed or determinable; and collection is probable.

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

      License, Patents, Technology and Goodwill.  License, patents, and
purchased technology are recorded at their acquisition cost. Costs to prepare
patent filings are expensed when incurred. Costs related to abandoned patents
are written off at the time of abandonment. Amortization is begun as of the
date of acquisition or upon the grant of the final patent. Costs are amortized
over the asset's useful life, which ranges from two to seventeen years. The
Company assesses licenses, patents, and technology quarterly for impairment.

      Goodwill.  The Company has adopted FAS 142, which sets  forth  guidelines
for discontinuing periodic goodwill amortization costs in results of operations
and for establishing  an  annual  goodwill  impairment  review  and related net
realizable value asset write-down methodology.

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

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

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

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

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

                                      15
<PAGE>
OVERVIEW OF MOLECULAR DIAGNOSTICS, INC.

      The  science of medical diagnostics has advanced significantly during the
past decade.  Much of this advance has come as a result of new knowledge of the
human genome and  related  proteins,  which form the foundation of cell biology
and the human body. Our goal is to utilize  this  research as a base to develop
screening  and  diagnostic  testing  products  for  cancer  and  cancer-related
diseases. We believe that the success of these products  will  improve  patient
care  through  more  accurate  test  performance,  wider  availability and cost
effective service delivery. We are developing an initial series  of products to
address  these  criteria  including  sample  collection  devices, chemical  and
biological tests, and analysis instruments and related software.

      Our  strategy  is  to  develop  products  through  internal   development
processes, strategic partnerships, licenses and acquisitions of companies. This
strategy  has  required and will continue to require additional capital.  As  a
result, we will  incur  substantial  operating  losses  until  we  are  able to
successfully market some, or all, of our products.

RESULTS OF OPERATIONS

      REVENUE

      Revenues for the three months ended March 31, 2003 decreased $59,000,  or
9.0%,  to  $597,000  from  revenues  for  the  same period in 2002. The revenue
decrease results entirely from the fact that during  the  first quarter of 2002
we  recorded  the  one-time  revenue recognition of $298,000 for  sale  of  the
license of Samba software and  technology  to  Ventana  Medical  Systems,  Inc.
("Ventana").  About 75.5% of the net sales for the first quarter March 31, 2003
were derived from  contracts  generated by Samba in Europe. Samba maintains its
operations in local currency, the  Euro.  We  convert  the  local currency into
U.S. Dollars for consolidated reporting purposes.  Samba's revenue  recognition
is  also  subject to the timing of receipt and completion of customer contracts
from period  to  period.  We may experience quarter-to-quarter and year-to-year
variability in revenues as  a  result  of these contract-timing issues until we
begin to market some or all of our other products.

      COSTS AND EXPENSES

      Cost of Goods Sold

      Cost of goods sold for the quarter ended March 31, 2003 totaled $276,000,
an increase of $81,000, or 41.5% over the  same  period  in  2002.  In the 2002
quarter, no cost of goods sold was attributed to the Ventana license sale since
the  research  and  development  costs  related  to the software and technology
covered by the license were expensed as incurred in prior years

      RESEARCH AND DEVELOPMENT

      We  devote  a  substantial  amount  of  our  resources  to  research  and
development  ("R&D")  related  to  new  products,  including   markers,  tests,
instruments and software applications, as well as modifications and refinements
of our existing products.

      For the quarter ended March 31, 2003, our R&D expenses were  $231,000,  a
decrease  of  $702,000,  or  75.2%  over the same period in 2002 as a result of
reduced  operating  capacity due to capital  and  liquidity  constraints.  This
reduction has led to  delays  in the finalization of development, completion of
clinical trial validation, FDA  submissions,  market  introduction, and sale of
some  of  our  products.  R&D  expenses  consist of costs related  to  specific
development  programs  with  scientists  and researchers  at  universities  and
hospitals;  full  scale device development contracts  begun  during  1999  with
industrial design and  manufacturing  companies  covering  the  disposable  and
instrument components of the InPath System; payments to medical and engineering
consultants  for  advice  related to the design and development of our products
and   their   potential   uses   in   the   medical   technology   marketplace;
instrumentation,  disposables,  clinical  consumables,  clinical  supplies  and
regulatory  costs  to develop clinical  trial  reference  laboratories  and  to
recruit and test patients  in  support  of our various FDA clinical trials, and
payroll  related  costs  for  in-house  engineering,   scientific,  laboratory,
software development; and research management staff.

                                      16
<PAGE>
      SELLING, GENERAL AND ADMINISTRATIVE

      For the quarter ended March 31, 2003, selling, general and administrative
expenses  ("SG&A")  were  $2,088,000, a decrease of $295,000,  or  12.4%,  over
similar expenses for the same  period  in 2002. This decrease, which would have
been significantly larger except that we  accrued $1,118,000 in financing costs
related to the settlement of the Round Valley  Capital,  LLC  loan  on April 2,
2003, is the result of reduced operating capacity due to capital and  liquidity
constraints, and a reduction in legal expenses due to the one-time recording of
$675,000  in  legal  costs  related  to a litigation settlement during the 2002
quarter.

      Significant  components of SG&A are  compensation  costs  for  executive,
sales and administrative  personnel,  professional  fees  primarily  related to
legal  and  accounting  services, travel costs, fees for public and/or investor
relations  services,  insurance   premiums,  facilities  and  office  expenses,
marketing related costs, and amortization  /depreciation charges, many of which
showed significant declines due to the reduction  in  overall operations, which
began during the last quarter of 2002.

      OTHER INCOME AND EXPENSE

      Interest Expense

      For the first quarter ended March 31, 2003, our interest expense amounted
to $238,000, an increase of $134,000, or 128.9% over the  same  period in 2002.
Bridge I convertible promissory notes, in principal amounts totaling $3,185,000
and issued between March 22, 2002 and June 25, 2003, and Bridge II  convertible
promissory  notes,  in principal amounts totaling $900,000, and issued  between
October 29, 2002 and  February 17, 2003 were outstanding for all or some of the
first quarter of 2003.

      Other Income and Expense, Net

      For the quarter ended  March 31, 2002, we recorded $150,000 gain from the
settlement of the SpectRx litigation judgment. Related SpectRx settlement legal
expenses are included in selling,  general  and administrative expenses for the
quarter ended March 31, 2002.

      NET LOSS

      MDI's net loss before preferred dividends  for  the  three  months  ended
March  31,  2003  totaled  $2,237,000.  Cumulative dividends on the outstanding
Series B  convertible preferred stock, Series C  convertible  preferred  stock,
Series D convertible  preferred  stock and Series E convertible preferred stock
totaled  $424,000. The combined net  loss  applicable  to  common  stockholders
amounted to  $2,661,000,  or  $0.07 net  loss  per share on 40,177,291 weighted
average shares outstanding.

      The weighted average shares outstanding during  the  quarter  ended March
31, 2003 reflect the conversion of Series B, Series C, and Series E convertible
preferred  stock  during  2002  and Series C and Series E convertible preferred
shares during the first quarter of  2003. It also reflects, 5,750,000 shares of
common stock issued to RVC as additional  loan  collateral  in  September 2002.
The shares were returned to MDI in April of 2003 and cancelled.

      Our net loss before preferred dividends for the three months  ended March
31,  2002 totaled $2,810,000. Cumulative dividends on the outstanding  Series B
convertible  preferred  stock,  Series  C convertible preferred stock, Series D
convertible preferred stock, and Series E  convertible  preferred stock totaled
$122,000.    The  combined  net  loss  applicable  to  common stockholders  was
$2,932,000, or $0.11 net loss per share on 25,561,429 weighted  average  shares
outstanding.

      The  weighted  average shares outstanding as of March 31, 2002 reflect  a
10,859,688 tender offer  reduction  in  common shares in exchange for shares of
Series E  convertible preferred stock in December  2001  and  the  issuance  of
approximately  3,900,000  shares  of common stock on September 17, 2001 for the
AccuMed purchase.

                                      17
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

      R&D, clinical trials and other  studies  of  the components of our InPath
System,  conversions  from designs and prototypes into  product  manufacturing,
initial sales and marketing  efforts,  medical  consultants  and  advisors, and
research, administrative, and executive personnel are and will continue  to  be
the principal basis for our cash requirements. We have provided operating funds
for  the  business  since  its  inception through private offerings of debt and
equity to limited numbers of U.S.  and  foreign accredited investors. We may be
required to make additional offerings in  the  future to support the operations
of  the  business until some or all of our products  are  introduced  into  the
market. We  used  $272,000 and $1,284,000 for the first quarter ended March 31,
2003 and 2002, respectively, in operating activities.

      As of the quarter  ended  March 31, 2003 we had cash on hand of $6,000, a
decrease of $36,000 over cash on  hand  at  December 31,  2002 of $42,000. This
decrease results from delays in the timing of acquiring our bridge financing.

      During  the  first quarter of 2003, we issued an additional  $350,000  in
Bridge II convertible  notes  in exchange for cash. The notes were issued under
the same terms as all other previous  Bridge  II notes. We used $250,000 of the
proceeds to make principal and interest payments on the RVC loan.

      During the first quarter of 2003, Mr. Gombrich,  our  Chairman  and  CEO,
loaned the Company an additional $115,000 to meet some of our operating needs.

      In  March 2003, Suzanne M. Gombrich, the wife of our Chairman, loaned the
Company $100,000  in  cash,  reflecting  the  initial  proceeds of a $1,000,000
convertible promissory note issued on April 2, 2003.  We  used  the $100,000 to
buy the purchase option related to the RVC loan settlement.

      We did not make any capital expenditures during the first quarter of 2003
versus capital expenditures of $39,000 for the first quarter 2002,  a reduction
of  100%.  Capital  expenditures  are  defined  as disbursements for laboratory
equipment,  leasehold  improvements, software, and  furniture/fixtures  with  a
purchase price in excess  of  $1,000  per item and useful life in excess of one
year. The decrease in 2003 capital expenditures was the result of our reduction
in operating capacity due to capital and liquidity constraints.

      Our  operations  have  been, and will  continue  to  be,  dependent  upon
management's ability to raise  operating capital in the form of debt or equity.
We have incurred significant operating  losses since inception of the business.
We expect that significant on-going operating expenditures will be necessary to
successfully implement our business plan  and  develop,  manufacture and market
our   products.   As  a  result  of  capital  and  liquidity  constraints,   we
significantly reduced  our staff and all other operating expenditures beginning
in the last quarter of 2002  and  continuing  through the first quarter of 2003
and beyond. These circumstances raise substantial  doubt  about  our ability to
continue as a going concern. There can be no assurance that we will  be able to
obtain  additional  capital  to meet our current operating needs or to complete
pending or contemplated licenses  or  acquisitions  of  technologies. If we are
unable to raise sufficient adequate additional capital or  generate  profitable
sales revenues, we may be forced to substantially curtail product research  and
development,  clinical  trials  and other activities and may be forced to cease
operations.

ITEM 3.      CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

      Our principal executive officer  and  principal  financial  officer  have
concluded, based upon their evaluation as of a date within 90 days prior to the
date  of  filing  this  Quarterly  Report  on  Form 10-QSB, that our disclosure
controls and procedures are effective to ensure that information required to be
disclosed by MDI in the reports filed or submitted  by  us under the Securities
Exchange  Act  of  1934,  as  amended, is recorded, processed,  summarized  and
reported within the time periods  specified  in  the SEC's rules and forms. Our
former  independent  auditors,  Ernst  & Young, LLP, issued  a  report  at  the
completion of their audit of our consolidated financial statements for the year
ended December 31, 2001 detailing certain  deficiencies in our internal control
systems and procedures. During 2002, we hired  an independent consultant, Tatum
CFO Partners, LLP ("Tatum"), to address the issues  raised  by  Ernst  & Young,
LLP.  In  August  of  2002,  Tatum  reported to the Audit Committee that it had
assisted management in developing procedures,  forms,  checklists and reporting
packages  to address these deficiencies, and that progress  had  been  made  to

                                      18
<PAGE>
improve our  system  of  internal  controls. Additional progress in these areas
continued through the end of 2002. In designing and evaluating the controls and
procedures, management recognized that  any  controls and procedures, no matter
how  well  designed  and  operated, can provide only  reasonable  assurance  of
achieving  the  desired control  objectives,  and  management  was  necessarily
required to apply  judgment  in  evaluating  the  cost-benefit  relationship of
possible controls and procedures.


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

PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

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

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

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

      On  January  9,  2003,  Monsun,  AS  ("Monsun") filed suit against  Peter
Gombrich,  MDI's  Chairman  and  CEO, (United States  District  Court  for  the
Northern District of Illinois Eastern  Division  (Case  No. 03C 0184)) claiming
$500,000 plus consequential damages for failure to make payment  in  compliance
with  the  terms  of a personal guaranty signed by Mr. Gombrich in relation  to
Monsun's grant of an extension in the maturity date of a convertible promissory
note in the principal amount of $500,000 issued by MDI on November 1, 2000. The
note had an original  maturity  date  of November 1, 2001. The maturity date of
the note was initially extended until January  31,  2002  and  subsequently  to
April  1,  2002  and finally to July 31, 2002. Monsun granted the maturity date
extensions in exchange  for various warrants issued by MDI entitling the holder
to purchase shares of MDI's  common  stock at various prices. In November 2002,
the Board of Directors approved the issuance  of 200,000 shares of MDI's common
stock to Monsun to satisfy a default penalty clause  in the guaranty. The terms
of the guaranty required that Monsun receive registered  shares of MDI's common
stock, however, in order to comply with securities laws, MDI  issued the shares
of  its  common  stock to Monsun with a restrictive legend which permits  their
sale only in compliance  with  Rule 144 of the Securities Exchange Act. MDI has

                                      19
<PAGE>
recorded the principal amount of  the  note plus accrued and unpaid interest to
December  31,  2002  as a note payable on its  records.  Since  Mr.  Gombrich's
potential liability under the suit, including the failure to deliver registered
shares of MDI's common  stock,  is  the result of the failure of MDI to pay the
principal amount of its convertible promissory  note  when  due,  the  Board of
Directors  has  agreed  that  MDI will assume responsibility for Mr. Gombrich's
obligations under the guaranty,  including  legal costs. Management and counsel
are unable to determine the result of this pending  litigation  as  of June 30,
2003.

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

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

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

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

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

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

                                      20
<PAGE>
ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

      Beginning  in  October  2002,  we  began  an issue of up to $4,000,000 in
series  Bridge  II  Convertible Promissory Notes to  accredited  investors.  We
issued $550,000 in Bridge  II  notes  as of December 31, 2002. During the first
quarter of 2003, we issued an additional $350,000 in principal amount of Bridge
II notes. The notes bear interest at a  rate  of  12%  per annum payable at the
maturity date in kind in the form of shares of our common stock. We granted the
holders  a  junior  security  position  in  all of our assets.  The  notes  are
convertible at any time into our common stock.  The  note  conversion price and
the value of common shares paid in kind as interest for the first $1,000,000 in
principal  amount of cash subscriptions, determined on a "first  come  -  first
served basis,"  is  $0.10 per share. The note conversion price and the value of
common  shares paid in  kind  as  interest  for  the  remaining  $3,000,000  of
principal  amount  of  notes  in  the series is $0.15 per share. The conversion
price of the notes issued during 2002 and those issued during the first quarter
of 2003 was less than the market price  of the common stock when the notes were
issued; therefore, the holder is considered  to  have  a  beneficial conversion
feature.  We determined the value of the beneficial conversion  feature  to  be
$792,000 and  $330,000  at  March 31, 2003 and December 31, 2002, respectively.
The value was recorded as a reduction  of  the  debt  and  will be amortized as
additional interest over the life of the note. We recorded additional  interest
expense  of  $153,481 to reflect amortization of the discount for the time  the
notes were issued  until  March  31,  2003. At the time we complete significant
additional  funding  plans, as outlined in  the  subscription  agreement,  each
holder of Bridge II notes  is  entitled  to  receive  a warrant to purchase one
share of our common stock for each four shares of common  stock  into which the
note  is convertible at an exercise price of $0.15 per share for notes  in  the
class pertaining  to  the  first  $1,000,000 in subscriptions and $0.20 for the
remaining  $3,000,000 in note principal  subscriptions.  We  issued  the  notes
pursuant to  exemptions  under  Section  4(2) of the Securities Exchange Act of
1933, as amended. Subsequent to March 31,  2003,  we issued additional notes in
the Bridge II series. MDI is currently negotiating  with  holders  to amend the
notes and extend the due date beyond July 31, 2003. (See Footnote 8: Subsequent
Events)

      During  the  first  quarter  2003, MDI issued 1,000,000 shares of  common
stock in exchange for services to a  non-employee  professional  services firm.
MDI calculated a fair value of $100,000 for these shares based on  the value of
the  shares  on  the  date  of the issuance and recorded the amount as investor
relations expense as of March  31,  2003.  We  issued  the  shares  pursuant to
exemptions  under  Section  4(2)  of  the  Securities exchange Act of 1933,  as
amended.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

      None

ITEM 4.  SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

      None

ITEM 5.  OTHER INFORMATION

      None

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

      (a)  Exhibits

      See Exhibit Index

      (b)  Reports on Form 8-K

            On March 4, 2003 MDI filed Current Report on Form 8-K dated
      February 25, 2003, reporting under Item 4, the resignation of the
      Company's independent auditors, Ernst & Young LLP effective February 25,
      2003.

                                      21
<PAGE>
            On March 19, 2003 MDI filed a Current Report on Form 8-K dated
      January 23, 2003, reporting under Item 2, the disposition and acquisition
      of assets related to the RVC settlement agreement and, under Item 5, the
      resignation of the President and Chief Operating Officer.



                                  SIGNATURES

      In accordance with the requirements of  the  Exchange Act, the registrant
caused  this  report to be signed on its behalf by the  undersigned,  thereunto
duly authorized.

                                    Molecular Diagnostics, Inc.

                                    /s/ Peter P. Gombrich
                                    ---------------------
                                        Peter P. Gombrich
                                        Chairman and Chief Executive
                                         Officer

                                    /s/ Dennis L. Bergquist
                                    -----------------------
                                        Dennis L. Bergquist
                                        President and Chief Financial
                                         Officer

Date: August 1, 2003
      --------------










                                      22
<PAGE>
                                 EXHIBIT INDEX



EXHIBIT
NUMBER                        DESCRIPTION
-------                       -----------
31.1     Section 302 certification by principal executive officer.

31.2     Section 302 certification by principal financial officer.

32.1     Section 906 certification by principal executive officer.

32.2     Section 906 certification by principal financial officer.


                                      23

<PAGE>
                                                                   Exhibit 31.1
                           Section 302 Certification

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

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

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

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

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

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

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

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

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

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

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

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

Date:  August 1, 2003


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

<PAGE>
                                                                   Exhibit 31.2
                           Section 302 Certification

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

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

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

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

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

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

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

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

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

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

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

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

Date:  August 1, 2003


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

<PAGE>
                                                                   Exhibit 32.1




                 Certification of Principal Executive Officer
                          Pursuant to 18 U.S.C. 1350
                (Section 906 of the Sarbanes-Oxley Act of 2002)


I, Peter P. Gombrich, Chief Executive Officer (principal executive officer) of
Molecular Diagnostics, Inc. (the "Registrant"), certify, to the best of my
knowledge, based upon a review of the Quarterly Report on Form 10-QSB for the
period ended March 31, 2003 of the Registrant (the "Report"), that:

      (1)   The Report fully complies with the requirements of Section 13(a) or
            15(d) of the Securities Exchange Act of 1934, as amended; and

      (2)   The information contained in the Report fairly represents, in all
            material aspects, the financial condition and results of operations
            of the Registrant.

Date:  August 1, 2003

                                                 /s/  Peter P. Gombrich
                                                 -----------------------------
                                                 Peter P. Gombrich


NOTE:  A signed original of this written statement required by Section 906 has
been provided to Molecular Diagnostics, Inc. and will be retained by Molecular
Diagnostics, Inc. and furnished to the Securities and Exchange Commission or
its staff upon request.

This certification accompanies the Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by law,
be deemed filed by the Company for purposes of Section 18 of the Securities
Exchange Act of 1934, as amended.
<PAGE>
                                                                   Exhibit 32.2




                 Certification of Principal Financial Officer
                          Pursuant to 18 U.S.C. 1350
                (Section 906 of the Sarbanes-Oxley Act of 2002)


I, Dennis L. Bergquist, Chief Financial Officer (principal financial officer)
of Molecular Diagnostics, Inc. (the "Registrant"), certify, to the best of my
knowledge, based upon a review of the Quarterly Report on Form 10-QSB for the
period ended March 31, 2003 of the Registrant (the "Report"), that:

      (1)   The Report fully complies with the requirements of Section 13(a) or
            15(d) of the Securities Exchange Act of 1934, as amended; and

      (2)   The information contained in the Report fairly represents, in all
            material aspects, the financial condition and results of operations
            of the Registrant.

Date:  August 1, 2003

                                                 /s/ Dennis L. Bergquist
                                                 -----------------------------
                                                 Dennis L. Bergquist


NOTE:  A signed original of this written statement required by Section 906 has
been provided to Molecular Diagnostics, Inc. and will be retained by Molecular
Diagnostics, Inc. and furnished to the Securities and Exchange Commission or
its staff upon request.

This certification accompanies the Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by law,
be deemed filed by the Company for purposes of Section 18 of the Securities
Exchange Act of 1934, as amended.