UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-14210
COMPUMED, INC.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 95-2860434
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State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1230 Rosecrans Avenue, Suite 1000, Manhattan Beach, CA 90266
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(Address of Principal Executive Officers)
(310) 643-5106
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(Issuer's Telephone Number, Including Area Code)
Not applicable
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(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 period that the registrant was required to file such reports)
and (2) has been subject to such filing requirements in for the past 90
days. Yes X No
----- -----
State the number of shares outstanding of each of the issuer's classes
of common equity as of the latest practicable date: common stock, $.01 par
value, 8,432,586 shares outstanding as of August 2, 1996.
<PAGE>
INDEX
COMPUMED, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated condensed balance sheets - June 30, 1996 (unaudited)
and September 30, 1995.
Consolidated condensed statement of operations - three and nine
months ended June 30, 1995 and 1996 (unaudited).
Consolidated condensed statements of changes of cash flows - nine
months ended June 30, 1995 and 1996 (unaudited).
Notes to interim unaudited consolidated condensed financial
statements.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Item 3. Defaults on Senior Securities.
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
PART I
FINANCIAL INFORMATION
CONSOLIDATED CONDENSED BALANCE SHEETS
COMPUMED, INC. AND SUBSIDIARIES
June 30, September 30,
1996 1995
----------- ------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 151,000 $ 299,000
Marketable securities 3,287,000 4,723,000
Accounts Receivable, less allowance
of $242,000 (June 1996) and
$218,000 (September 1995) 556,000 469,000
Other receivables 1,093,000 433,000
Inventories 89,000 123,000
Prepaid expenses and other 42,000 48,000
current assets ---------- -----------
TOTAL CURRENT ASSETS 5,218,000 6,095,000
PROPERTY AND EQUIPMENT
Machinery and equipment 3,127,000 2,944,000
Furniture, fixtures and
leasehold improvements 200,000 199,000
Equipment under capital leases 611,000 562,000
Rental property
Land 0 1,022,000
Buildings 0 2,828,000
---------- -----------
3,938,000 7,555,000
Less allowance for depreciation 3,444,000 3,516,000
and amortization ----------- -----------
494,000 4,039,000
OTHER ASSETS
Required franchises, net of
accumulated amortization of
$150,000 (June 1996) and
$117,000 (September 1995) 177,000 210,000
Other assets 79,000 154,000
----------- -----------
$5,968,000 $10,498,000
============ ============
See notes to interim unaudited consolidated condensed financial statements
CONSOLIDATED CONDENSED BALANCED SHEETS
COMPUMED, INC. AND SUBSIDIARIES
June 30, September 30,
1996 1995
----------- -------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 319,000 $ 465,000
Deferred revenue 90,000 95,000
Other accrued liabilities 1,984,000 952,000
Current portion of long term debt 0 704,000
Current portion of capital lease 31,000 22,000
obligations ----------- ----------
TOTAL CURRENT LIABILITIES 2,424,000 2,238,000
TRUST DEED NOTES PAYABLE,
less current portion 0 2,932,000
CAPITAL LEASE OBLIGATIONS,
less current portion 85,000 69,000
OTHER LIABILITIES 0 58,000
STOCKHOLDERS' EQUITY
Preferred stock, $.10 par value--
authorized 1,000,000 shares
Class A $3.50 cumulative convertible
voting preferred stock, issued and
outstanding -- 8,400 shares 1,000 1,000
Class B $3.50 convertible voting
preferred stock, issued and
outstanding - 52,333 5,000 5,000
Common Stock, $.01 par
value -- authorized 60,000,000
shares, issued and outstanding--
8,432,586 shares (June 1996) and
8,235,937 shares (September 1995) 84,000 82,000
Additional paid in capital 27,014,000 24,633,000
(23,645,000) (19,520,000)
Retained deficit ------------ ------------
STOCKHOLDERS' EQUITY 3,459,000 5,201,000
--------- ------------
$ 5,968,000 $10,498,000
=========== ===========
See notes to interim unaudited consolidated condensed financial statements
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
COMPUMED, INC. AND SUBSIDIARIES
Three Months Ended Nine Months Ended
June 30 June 30
------- -------
1996 1995 1996 1995
---- ---- ---- ----
REVENUES FROM
OPERATIONS
ECG service $ 555,000 $ 435,000 $ 1,463,000 $ 1,245,000
Osteo services,
net 86,000 355,000
Osteo royalty
revenues 12,000 20,000
Product sales 50,000 311,000 159,000 431,000
Rental property 117,000 99,000 355,000
Other income 45,000 (5,000) 182,000 (2,000)
----------- ---------- ----------- ---------
662,000 944,000 1,923,000 2,384,000
COSTS AND
EXPENSES
Cost of services 213,000 250,000 872,000 656,000
Cost of goods
sold 37,000 217,000 82,000 282,000
Cost of property
operations 71,000 218,000
Selling expenses 130,000 116,000 280,000 321,000
Research and
development 93,000 54,000 377,000 159,000
General and
administrative
expenses 491,000 332,000 1,310,000 1,170,000
Depreciation and
amortization 71,000 115,000 254,000 373,000
Provision for
litigation
settlement 2,537,000 2,778,000
Interest expense 3,000 85,000 92,000 285,000
---------- ---------- ---------- -----------
3,575,000 1,240,000 6,045,000 3,464,000
$(2,913,000) $ (296,000) $(4,122,000) $(1,080,000)
NET LOSS =========== ========== =========== ===========
NET LOSS PER $ (.35) $ (.04) $ (.49) $ (.19)
SHARE =========== ========== =========== ===========
Weighted average
number of
common shares 8,420,376 6,430,200 8,362,998 5,613,000
outstanding =========== ========== =========== ===========
See notes to interim unaudited consolidated condensed financial statements
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
COMPUMED, INC. AND SUBSIDIARIES
Nine Months Ended
June 30, September 30,
1996 1995
----------- -------------
(Unaudited)
OPERATING ACTIVITIES:
Net loss $(4,122,000) $(1,080,000)
Adjustment to reconcile loss to net
cash used in operating activities:
Depreciation and amortization 254,000 373,000
Changes in operating assets and
liabilities:
Interest receivable 7,000
Accounts receivable (87,000) (30,000)
Other receivables (660,000) 30,000
Inventories and prepaid expenses 40,000 (3,000)
Accounts payable and other
liabilities 881,000 202,000
Decrease in other liabilities (46,000)
--------- ------------
NET CASH USED IN OPERATING ACTIVITIES (3,740,000) (501,000)
INVESTING ACTIVITIES:
Sale of marketable securities 1,436,000
Increase in other assets (9,000)
Purchases of property, plant and (198,000) (170,000)
equipment --------- ------------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 1,238,000 (179,000)
FINANCING ACTIVITIES:
Net proceeds from sale of stock 981,000
Stock reserved for securities
litigation settlement 2,099,000
Dividends on Class A preferred stock (3,000) (3,000)
Principal payments on capital lease
obligations (23,000) (36,000)
Principal payments on trust deeds
payable (3,000) (96,000)
Principal payments on notes payable (14,000)
Exercise of stock options and 284,000 88,000
warrants ----------- ------------
*
NET CASH PROVIDED BY FINANCING
ACTIVITIES 2,354,000 820,000
(DECREASE) INCREASE IN CASH (148,000) 240,000
Cash at beginning period 299,000 16,000
$ 151,000 $ 256,000
CASH AT END OF PERIOD =========== ===========
$ 92,000 $ 285,000
Cash paid for interest: =========== ===========
* During the nine months ended September 30, 1996 the Company purchased
$48,000 of equipment financed by capital leases.
See notes to interim unaudited consolidated condensed financial statements
NOTES TO INTERIM UNAUDITED CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
COMPUMED, INC. AND SUBSIDIARIES
NOTE A--BASIS OF PREPARATION
The balance sheet at September 30, 1995 has been abstracted from the
Company's year-end audited financial statements.
The accompanying interim unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and pursuant to the rules and regulations
of the Securities and Exchange Commission. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the period ended June 30, 1996 are not necessarily indicative
of the results that may be expected for the year ending September 30,
1996. For further information, refer to the consolidated financial
statements for the year ended September 30, 1995 and the notes thereto
included in the Company's Annual Report on Form 10-KSB.
NOTE B--PER SHARE DATA
Net loss per share is calculated using the net loss less preferred stock
dividends, divided by the weighted average common shares outstanding.
Shares from the assumed conversion of outstanding warrants, options and
effect of the conversion of the Class A Preferred Stock and Class B
Preferred Stock are omitted from the computations because the effect would
be antidilutive.
NOTE C--SECURITIES LITIGATION SETTLEMENT
On August 5, 1996, the Company entered into a Memorandum of Understanding
to confirm the material terms of an agreement in principle to settle
litigations which alleged violations of federal and state securities laws
by the Company and certain of its officers and directors. The complaints
which were in the nature of class actions and derivative claims generally
relate to the nature and the extent of the disclosure of certain caps on
the royalties receivable by the Company under the terms of its License
Agreement with Merck & Co., Inc. ("Merck"). See Item 3 of the Company's
Form 10-KSB for the fiscal year ended September 30, 1995.
The terms of the Memorandum of Understanding include cash payments in the
total amount of $1,300,000. Of this amount, $1,000,000 will be covered by
proceeds from the Company s insurance coverage. Additionally, the Company
will issue warrants to purchase shares of common stock of the Company
having a total value of $1,524,000, for a period between three and seven
years valued under the Black Scholes option pricing methodology, and common
stock with a total value of $575,000. The consummation of the proposed
settlement is subject to significant conditions, including negotiation of
definitive settlement agreements and obtaining court approval after notice
to the class members has been given. The Company will additionally issue
warrants to the insurance company to purchase 50,000 shares of common
stock of the Company at an exercise price of $3.00 per share for a period
of five years.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Total revenues for the third fiscal quarter ended June 30, 1996, were
$662,000, as compared to $677,000 for the same period in 1995. Revenues
for the 1996 period did not include any rental income, which amounted to
$117,000 during the 1995 period, from real estate (the "IRSCO Property")
that had been owned by IRSCO Development Company, Inc., a wholly owned
subsidiary of the Company ("IRSCO"). In addition, since the Company
licensed its Osteosystem technology to Merck in the last fiscal quarter of
fiscal 1995 it has ceased receiving Osteogram service revenues. In the
third fiscal quarter of 1996, the Company earned $12,000 in royalties from
Merck on Osteogram tests sold by Merck during the quarter.
The increase in ECG service revenue during the third fiscal quarter of
1996, to $555,000 from $435,000 during the same period in 1995, is
attributable to the expansion of the Company s TeleCor Services Division.
In addition, other income increased by $50,000 due to interest earned on
marketable securities held by the Company. Such marketable securities were
acquired with the proceeds of the Company's August 1995 private placement
of $5.1 million worth of its common stock (the "Placement").
On August 5, 1996, the Company entered into a memorandum of understanding
to settle certain securities class action and derivative law suits. See
Item 1 of Part II Legal Proceedings. As a result of these lawsuits, the
Company recognized expenses of $2,537,000 during the third fiscal quarter
1996 (of which $2,099,000 will be paid with equity securities of the
Company) and $2,778,000 for the nine months ended June 30, 1996.
Net loss for the third quarter of 1996 was $2,913,000, or $.35 per share
(based on 8,420,376 weighted average shares outstanding), compared to
$296,000, or $0.04 per share (based on 6,430,200 weighted average shares
outstanding), for the same period last year.
As of January 1996, the Company no longer received any lease income from
the IRSCO Property. IRSCO's creditors, who had brought foreclosure
proceedings against the IRSCO Property in November 1995, began to collect
such income at that time as a consequence of IRSCO's default on the Note
(as defined below) and second and third deeds of trust (the "Deeds of
Trust"), all of which were secured by the IRSCO Property. The Company no
longer owns the IRSCO Property. As of April 30, 1996, the IRSCO Property
was sold in foreclosure. Neither the Company nor IRSCO received any cash
or other proceeds as a result of such sale.
Costs and expenses for the third fiscal quarter included legal expenses of
$138,000 associated with the Company s defense of certain class action
lawsuits filed in 1995 alleging violations of federal securities laws by
the Company and certain of its officers and directors and a derivative
lawsuit also filed in 1995 against certain of the Company's officers and
directors alleging breach of fiduciary duty, gross negligence, violation of
California Corporations Code Section 25402 and insider trading. Such
amount is included in the provision for litigation settlement. The Company
maintains that the lawsuits are without merit, however, the Company has
been determined that a settlement is in its best interests (see Item 1 of
Part II Legal Proceedings).
Interest expense for the three and nine month periods ended June 30, 1996
was $3,000 and $92,000, respectively, as compared to $85,000 and $285,000,
respectively, for the same periods during the prior year. The reduction in
interest expense for the 1996 periods is attributable to the elimination of
interest payments on amounts loaned to the Company in connection with the
acquisition of IRSCO. Research and development expense increased $39,000
and $218,000, respectively, for the three and nine month periods ended June
30, 1996, from the corresponding periods during the prior year, due to
expenses incurred in connection with the development of a "second
generation" OsteoSystem, product improvements in the ECG area and Detoxahol
sponsored research at the University of Georgia.
For the nine months ended June 30, 1996, total revenues were $1,923,000,
compared to $2,384,000 for the same period of the previous fiscal year.
The 1995 period included rental income of $355,000 from the IRSCO Property,
while 1996 revenues from IRSCO were $99,000, and $355,000 in Osteogram
service revenue, which was not a part of revenues from operations during
1996. Net loss for the nine months was $4,122,000, or $0.49 per share
(based on 8,362,998 weighted average shares outstanding), compared to
$1,080,000, or $0.19 per share (based on 5,613,000 weighted average shares
outstanding), for the same period last year.
FINANCIAL CONDITION AND LIQUIDITY
Included in the current assets of the Company at June 30, 1996 were
approximately $3.3 million in marketable securities which represents the
portion of the funds received from the August 1995 Placement of $5.1
million which have not yet been used for operations. During the nine month
period ended June 30, 1996, the Company liquidated and used approximately
$1.4 million of its marketable securities for working capital purposes,
including research and development and general operating expenses. At June
30, 1996, the ratio of current assets to current liabilities was 2.2 to 1.0
as compared to 2.7 to 1.0 at September 30, 1995. This decrease in the
ratio resulted primarily from the accrual of $1.3 million for the provision
for litigation settlement included in other accrued liabilities (see Item 1
of Part II Legal Proceedings) which was partially offset by the removal of
the current portion of mortgages payable in the amount of $704,000 which
had previously been classified as current liabilities (see the disclosure
relating to IRSCO below) and is also due to the liquidation of marketable
securities discussed above.
As of April 30, 1996, the IRSCO Property was sold in foreclosure. Neither
the Company nor IRSCO received any cash or other proceeds as a result of
such sale. As a result of the sale, the net fixed assets of IRSCO, in the
amount of $3,587,000 were written off against the total mortgages payable
in the amount of $3,633,000, with the balance remaining as a liability for
remaining expenses.
The Company s primary capital resource commitments at June 30, 1996 consist
of the remaining lease commitments, primarily for computer equipment.
For the last few years, the Company has financed its operations primarily
through private and public sales of securities, and revenues from sales of
its services. Since August 1991 the Company received net proceeds of
approximately $10,400,000 from the private and public sale of equity
securities. The Company believes that the remaining Placement proceeds,
along with revenues provided from operations, will provide adequate capital
for at least the next 24 months. The Company may, however, raise
additional capital through the sale of its securities. There can be no
assurance that the Company will be able to raise additional capital in the
future through the sale of its securities or that if the Company is
successful in raising additional capital through the sale of its securities
that such a sale of securities would not dilute the ownership interest of
the present stockholders of the Company.
The Osteogram(R) services are being managed and marketed by Merck, with the
Company earning a royalty ranging between $2 to $4 on each test sold by
Merck to a physician during the years 1996 through 2000, subject to a cap
in years 1999 and 2000. The Osteogram business is still in the
development stage and its financial impact cannot yet be determined.
The Company s ongoing research and development activities associated with
Detoxahol and the second generation OsteoSystem technology and the current
ECG monitoring service are all subject to federal, state, local and in some
instances, foreign authorities. In June 1995 the Company filed patent
applications on Detoxahol. Subject to obtaining such patents, the Company
would seek strategic partners to help fund the research and development of
Detoxahol at the University of Georgia. The regulatory approval process
for Detoxahol can take years and require expenditure of substantial
resources.
<PAGE>
PART II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
See NOTE C--SECURITIES LITIGATION SETTLEMENT for disclosure concerning the
terms of a Memorandum of Understanding for the proposed settlement of
certain securities litigation involving the Company and certain of its
officers and directors.
Item 3. DEFAULTS ON SENIOR SECURITIES
As previously reported in the Company's quarterly report on Form 10-QSB for
the quarter ended March 30, 1996, on November 29, 1995 IRSCO received
notices of default relating to the Deeds of Trust which involved claimed
defaults by IRSCO on the second deed of trust in the amount of $139,684 and
on the third deed of trust in the amount of $505,485. The notices of
default stated that IRSCO defaulted on (i) the second deed of trust by
failing to pay the principal sum of $136,878.12 which came due on August
13, 1995, with accrued interest from July 13, 1995, plus related fees and
costs of the trustee and (ii) the third deed of trust as a consequence of
its default on the second deed of trust and, therefore, IRSCO was in
default in the principal amount of $470,000 plus accrued interest of
$35,848.99 and related fees and costs of the trustee.
In addition to the aforementioned notices of default received in connection
with the Deeds of Trust, on January 2, 1996, IRSCO received a letter, dated
December 28, 1995, from the holder of the Note stating that IRSCO was in
default under the Note for failure to make a debt service payment under the
Note. The Note, which secured obligations in the outstanding amount of
$2,971,489, gave its holder a security interest in the IRSCO Property
ranking prior to that of the holders of the Deeds of Trust.
As of April 30, 1996, the IRSCO Property was sold in foreclosure. Neither
the Company nor IRSCO received any cash or other proceeds as a result of
such sale. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMPUMED, INC.
--------------
(Registrant)
August 13, 1996 By: /s/Rod N. Raynovich
----------------------------------------
Rod N. Raynovich
President and Chief Executive Officer
August 13, 1996 By: /s/ James Linesch
----------------------------------------
James Linesch
V.P. Finance, Chief Financial Officer
and Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
STATEMENTS OF OPERATIONS, BALANCE SHEETS, STATEMENTS OF STOCKHOLDERS'
EQUITY AND STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 151,000
<SECURITIES> 3,287,000
<RECEIVABLES> 774,000
<ALLOWANCES> 218,000
<INVENTORY> 89,000
<CURRENT-ASSETS> 5,218,000
<PP&E> 3,938,000
<DEPRECIATION> 3,444,000
<TOTAL-ASSETS> 5,968,000
<CURRENT-LIABILITIES> 2,424,000
<BONDS> 0
0
6,000
<COMMON> 84,000
<OTHER-SE> 3,369,000
<TOTAL-LIABILITY-AND-EQUITY> 5,968,000
<SALES> 617,000
<TOTAL-REVENUES> 662,000
<CGS> 37,000
<TOTAL-COSTS> 3,575,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,000
<INCOME-PRETAX> (2,913,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,913,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,913,000)
<EPS-PRIMARY> .35
<EPS-DILUTED> .35
</TABLE>
