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 March 31, 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
Incorporation or Organization) Identification No.)
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, 8,424,106 shares outstanding
as of May 3, 1996.
<PAGE>
INDEX
COMPUMED, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated condensed balance sheets - March 31, 1996
(unaudited) and September 30, 1995.
Consolidated condensed statement of operations - three
and six months ended March 31, 1996 and 1995
(unaudited).
Consolidated condensed statements of changes of cash
flows - six months ended March 31, 1996 and 1995
(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 upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K.
SIGNATURES
<PAGE>
PART I
FINANCIAL INFORMATION
CONSOLIDATED CONDENSED BALANCE SHEETS
COMPUMED, INC. AND SUBSIDIARIES
March 31, September 30,
1996 1995
--------- -----------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 7,000 $ 299,000
Marketable securities 4,309,000 4,723,000
Accounts Receivable, less
allowance of $225,000
March (1996) and $218,000
September (1995) 436,000 469,000
Other receivables 94,000 433,000
Inventories 101,000 123,000
Prepaid expenses and other
current assets 37,000 48,000
------- -------
TOTAL CURRENT ASSETS 4,984,000 6,095,000
PROPERTY AND EQUIPMENT
Machinery and equipment 3,066,000 2,944,000
Furniture, fixtures and
leasehold improvements 199,000 199,000
Equipment under capital leases 611,000 562,000
Rental property
Land 1,022,000 1,022,000
Buildings 2,828,000 2,828,000
--------- ---------
7,726,000 7,555,000
Less allowance for depreciation
and amortization 3,653,000 3,516,000
--------- ---------
4,073,000 4,039,000
OTHER ASSETS
Required franchises, net of accumulated
amortization of $138,000 (March 1996)
and $117,000 (September 1995) 188,000 210,000
Other assets 208,000 154,000
------- -------
$9,453,000 $10,498,000
========== ===========
See notes to interim unaudited consolidated condensed financial
statements
<PAGE>
CONSOLIDATED CONDENSED BALANCED SHEETS
COMPUMED, INC. AND SUBSIDIARIES
March 31, September 30,
1996 1995
--------- -----------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 498,000 $ 465,000
Deferred revenue 98,000 95,000
Other accrued liabilities 709,000 952,000
Current Portion of long term debt 3,633,000 704,000
Current portion of capital lease
obligations 31,000 22,000
---------- -----------
TOTAL CURRENT LIABILITIES 4,969,000 2,238,000
TRUST DEED NOTES PAYABLE,
less current portion 2,932,000
CAPITAL LEASE OBLIGATIONS,
less current portion 93,000 69,000
OTHER LIABILITIES 60,000 58,000
COMMITMENTS AND CONTINGENCIES
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 (March
1996 and September 1995) 1,000 1,000
Class B $3.50 convertible voting
preferred stock, issued and
outstanding 52,333 (March 1996 and
September 1995) 5,000 5,000
Common Stock, $.01 par value--
authorized 60,000,000 shares,
issued and outstanding--
8,408,166 shares (March 1996) and
8,235,937 shares (September 1995) 84,000 82,000
Additional paid in capital 24,972,000 24,633,000
Retained deficit (20,731,000) (19,520,000)
----------- -----------
STOCKHOLDERS' EQUITY 4,331,000 5,201,000
----------- -----------
$ 9,453,000 $10,498,000
=========== ===========
See notes to interim unaudited consolidated condensed financial
statements
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
COMPUMED, INC. AND SUBSIDIARIES
Three Months Ended
March 31
--------
1996 1995
---- ----
REVENUES FROM OPERATIONS
ECG service $482,000 $ 409,000
Osteo services, net 8,000 95,000
Product sales 56,000 65,000
Rental property 106,000
Other income 63,000 2,000
------- -------
609,000 677,000
COSTS AND EXPENSES
Cost of services 359,000 349,000
Cost of sales 21,000 36,000
Selling expenses 77,000 128,000
Research and Development 120,000 58,000
General and administrative expenses 507,000 341,000
Depreciation and amortization 81,000 126,000
Interest expense 4,000 94,000
--------- ---------
1,169,000 1,132,000
NET LOSS $(560,000) $(455,000)
========== ==========
NET LOSS PER SHARE $ (.06) $ (.08)
========== ==========
Weighted average number of common
shares outstanding 8,408,200 5,599,600
========== ==========
Six Months Ended
March 31
--------
1996 1995
---- ----
REVENUES FROM OPERATIONS
ECG service $ 908,000 $ 810,000
Osteo services, net 8,000 269,000
Product sales 109,000 120,000
Rental property 99,000 238,000
Other income 137,000 3,000
------------ ---------
1,261,000 1,440,000
COSTS AND EXPENSES
Cost of services 659,000 664,000
Cost of sales 45,000 65,000
Selling expenses 150,000 205,000
Research and Development 284,000 105,000
General and administrative expenses 1,060,000 727,000
Depreciation and amortization 183,000 258,000
Interest expense 89,000 200,000
------------ ---------
2,470,000 2,224,000
NET LOSS $ (1,209,000) $(784,000)
============= ==========
NET LOSS PER SHARE $ (.14) $ (.15)
============= ==========
Weighted average number of common
shares outstanding 8,376,200 5,204,400
============= =========
See notes to interim unaudited consolidated condensed financial
statements
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
COMPUMED, INC. AND SUBSIDIARIES
Six Months Ended
March 31, March 31,
1996 1995
--------- ---------
OPERATING ACTIVITIES:
Net loss $(1,209,000) $(784,000)
Adjustment to reconcile loss to net
cash used in operating activities:
Depreciation and amortization 170,000 258,000
Changes in operating assets and
liabilities:
Interest receivable 7,000
Accounts receivable 33,000 (13,000)
Other receivables 339,000 34,000
Inventories and prepaid expenses 33,000 (8,000)
Accounts payable and
other liabilities (205,000) 367,000
Increase in other assets (65,000) (19,000)
----------- ---------
NET CASH USED IN OPERATING ACTIVITIES (904,000) (158,000)
INVESTING ACTIVITIES:
Purchase of marketable securities (637,000)
Sale of marketable securities 1,051,000
Purchases of property, paint
and equipment (122,000) (176,000)
----------- ---------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 292,000 (176,000)
FINANCING ACTIVITIES:
Net proceeds from sale of stock 750,000
Dividends on Class A preferred stock (2,000) (3,000)
Proceeds from short term borrowings 175,000
Payments on short term borrowings (175,000)
Principal payments on capital
lease obligations (16,000) (10,000)
Principal payments on trust
deeds payable (3,000) (73,000)
Principal payments on notes payable (12,000)
Exercise of stock options and
warrants 341,000
----------- ---------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 320,000 652,000
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(DECREASE) INCREASE IN CASH (292,000) 318,000
Cash at beginning of period 299,000 16,000
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CASH AT END OF PERIOD $ 7,000 $ 334,000
=========== ===========
Cash paid for interest: $ 89,000 $ 200,000
=========== ===========
See notes to interim unaudited consolidated condensed financial
statements
<PAGE>
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 March
31, 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.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Results of Operations
---------------------
Total revenues for the second quarter ended March 31, 1996, were
$609,000, as compared to $677,000 for the same period in 1995.
Revenues for the 1995 period included (i) lease income of
$106,000 from real estate (the "IRSCO Property") that had been
owned by IRSCO Development Company, Inc., a wholly owned
subsidiary of the Company ("IRSCO"), and (ii) $95,000 in
OsteoGram(R) service revenue, that were not included in revenues
for the 1996 period. As of January 1996, the Company no longer
received any lease income from the IRSCO Property. IRSCO's
creditors, who brought foreclosure proceedings against the IRSCO
Property, 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 are secured by the IRSCO Property. In addition, the
Company did not receive any Osteogram(R) service revenue in the
second quarter of 1996 because the Company licensed its Osteosystem
technology to Merck & Co., Inc. ("Merck") in the last fiscal quarter
of fiscal 1995. In its second fiscal quarter of 1996, the Company
received $8,000 in royalties from Merck on Osteogram (R) tests sold
by Merck after January 1, 1996.
The increase in ECG service revenue during the second fiscal
quarter of 1996 is attributable to greater customer demand. In
addition, other income increased by $61,000 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").
Net loss for the second quarter was $560,000, or $.06 per share
(based on 8,408,200 weighted average shares outstanding),
compared to $455,000, or $0.08 per share (based on 5,599,600
weighted average shares outstanding), for the same period last
year.
Costs and expenses for the second quarter included legal expenses
of $130,000 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 general and administrative expenses.
The Company maintains that the lawsuits are without merit and
will defend itself vigorously. Legal expenses for the six months
ended March 31, 1996 related to these lawsuits were $241,537.
Interest expense for the three and six month period ended March
31, 1996 was down $85,000 and $106,000, respectively due to no
interest payments having been made with respect to IRSCO in the
second fiscal quarter of 1996. Research and development expense
increased $62,000 and $179,000, respectively, for the three and
six month period ended March 31, 1996 due to expenses incurred in
connection with the development of a second generation
OsteoSystem and Detoxahol research.
For the first six months of the fiscal year, total revenues were
$1,017,000, compared to $930,000 for the same period of the
previous fiscal year. The 1995 period included lease income of
$238,000 from the Irsco Property and $267,000 in OsteoGram(R)
service revenue. Net loss for the first six months was $1,209,000,
or $0.14 per share (based on 8,376,200 weighted average shares
outstanding), compared to $784,000, or $0.15 per share (based on
5,204,400 weighted average shares outstanding), for the same
period last year.
Financial Condition and Liquidity
---------------------------------
The Company included in current assets at March 31, 1996
approximately $4.3 million in marketable securities which
represents funds received from the Placement which have not yet
been used for operations. At March 31, 1996, the ratio of
current assets to current liabilities was 1.0 to 1.0 as compared
to 2.7 to 1.0 at September 30, 1995. This decrease in the ratio
resulted from the classification as a current asset of the
Secured Promissory Note in the amount of $2,963,765, dated
December 31, 1986 (the "Note"), in favor of Principal Mutual Life
Insurance Company, due December 1, 1996. The Note was
reclassified as a result of a default by IRSCO on the payment of
the indebtedness evidenced by the Note. The Note, like the Deeds
of Trust, is secured by the IRSCO Property. The Company has
incurred $669,000 in current liabilities related to the payment
of the Deeds of Trust. IRSCO's revenues in fiscal year 1995 were
$431,000 and costs were $419,000, excluding $197,000 of
depreciation.
As of April 30, 1996, the IRSCO Property was sold in foreclosure.
This sale will be reflected in the statement for the third fiscal
quarter. Neither the Company nor IRSCO will receive any cash or
other proceeds as a result of such sale. The asset (IRSCO
Property) had been written down to fair value as of September 30,
1995. There will not be any future revenues from the IRSCO
Property and the long-term debt, classified as current at March
31, 1996, will be eliminated. The Company expects the ratio of
current assets to current liabilities to move closer to the ratio
that existed at September 30, 1995 as a result of the sale of the
IRSCO Property because current liabilities relating to the IRSCO
Property will be removed from the consolidated balance sheet of
the Company as a result of such sale.
The Company's primary capital resource commitments at March 31,
1995 consist of the remaining lease commitments, primarily for
computer equipment and the sale through foreclosure of the IRSCO
Property.
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 as a result of the Placement, it has enough 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 Company's ongoing research and development activities
associated with Detoxahol(TM) and the second generation OsteoSystem
technology and the current manufacture of its ECG terminals are
all subject to federal, state, local and in some instances,
foreign authorities. In June 1995 the Company filed patent
applications on Detoxahol(TM). Subject to obtaining such patents,
the Company would seek strategic partners to help fund the
research and development of Detoxahol(TM) at the University of
Georgia. The regulatory approval process for Detoxahol can take
years and require expenditure of substantial resources.
In April 1996, the Company received an FDA letter through Merck
consultants, CL. L. McIntosh and Associates. The letter
confirmed the pre-amendment status of the OsteoGram(R), meaning
that a 510(k) does not need to be filed with the current labeling.
The FDA also concluded that the OsteoGram(R) is a device subject
to GMP's. As part of the Licensing Agreement with Merck, Merck
is responsible for regulatory compliance.
<PAGE>
PART II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
For a discussion of certain securities class action lawsuits and
a derivative lawsuit brought against the Company and certain of
its officers and directors alleging violations of federal
securities laws, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Item 3. DEFAULTS ON SENIOR SECURITIES
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 is in default under the Note for
failure to make a debt service payment under the Note. The Note,
which secures obligations in the outstanding amount of
$2,971,489, gives 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 will receive 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Shareholders was held on March
28, 1996 The following six directors, consisting of all the
directors of the Company, were elected to serve until the next
Annual Meeting of Shareholders and thereafter, until their
successors are elected and qualified.
Name Votes "FOR" Votes "WITHHELD"
--------------- ----------- ----------------
Robert Funari 5,926,069 272,352
Robert Goldberg 5,918,569 279,852
John Minnick 5,919,299 279,122
Rod Raynovich 5,915,519 282,902
Robert Stuckelman 5,930,079 268,342
Russell Walker 5,956,399 242,022
The shareholders also approved and amendment to the Company's
1992 Stock Option Plan increasing the number of shares available
for option from 480,000 shares to 880,000 shares by the following
vote:
FOR : 5,163,480
AGAINST : 777,220
ABSTAIN : 67,732
The shareholders also ratified the appointment of Ernst & Young
as the Company's independent accountants for the 1996 fiscal year
by the following vote:
FOR : 6,094,151
AGAINST : 62,985
ABSTAIN : 41,285
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27. Financial Data Schedule
(b) Reports on Form 8-K
On January 4, 1996, the Company filed a Current Report
on Form 8-K for an event of January 2, 1996, relating
to the notice of default on the Note received by IRSCO.
<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)
By: /s/ Rod N Raynovich
--------------------------------------
Rod N. Raynovich
President and Chief Executive Officer
By: /s/ DeVere B. Pollom
--------------------------------------
DeVere B. Pollom
V.P. Finance, Chief Financial Officer
and Secretary
<PAGE>
EXHIBIT INDEX
Exhibit Description
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27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
UNAUDITED CONSOLIDATED AND CONDENSED BALANCE SHEETS, STATEMENTS OF
OPERATIONS AND STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 7,000
<SECURITIES> 4,309,000
<RECEIVABLES> 661,000
<ALLOWANCES> (225,000)
<INVENTORY> 101,000
<CURRENT-ASSETS> 4,984,000
<PP&E> 7,726,000
<DEPRECIATION> (3,653,000)
<TOTAL-ASSETS> 9,453,000
<CURRENT-LIABILITIES> 4,969,000
<BONDS> 0
0
6,000
<COMMON> 84,000
<OTHER-SE> 24,972,000
<TOTAL-LIABILITY-AND-EQUITY> 9,453,000
<SALES> 609,000
<TOTAL-REVENUES> 609,000
<CGS> 380,000
<TOTAL-COSTS> 785,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,000
<INCOME-PRETAX> (560,000)
<INCOME-TAX> (560,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (560,000)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
