UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-14210
COMPUMED, INC.
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(Exact name of registrant 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) (Zip Code)
(310) 643-5106
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(Registrant's telephone number, including area code)
Not applicable
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(Former name, former address and former fiscal year, if change since last
report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
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The registrant had 8,954,786 shares of common stock ($.01 par value)
issued and outstanding and to be issued as of February 14, 1997.
Total sequentially number pages in this document: 11
<PAGE>
COMPUMED, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated balance sheets - December 31, 1996 and September 30,
1996.
Consolidated statement of operations - three months ended
December 31, 1996 and 1995.
Consolidated statements of changes of cash flows - three months
ended December 31, 1996 and 1995.
Notes to interim unaudited consolidated financial statements.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
PART II. OTHER INFORMATION
Item 6. Exhibit and Reports on Form 8-K
SIGNATURES
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<PAGE>
CONSOLIDATED BALANCE SHEETS
COMPUMED, INC. AND SUBSIDIARIES
December 31, September 30,
1996 1996
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(Unaudited)
ASSETS
CURRENT ASSETS
Cash . . . . . . . . . . . . . . . $ 60,000 $ 155,000
Marketable securities . . . . . . . 2,173,000 2,489,000
Accounts receivable, less allowance
of $278,000 (December 1996) and
$280,000 (September 1996) . . . . 416,000 435,000
Other receivables . . . . . . . . . 18,000 48,000
Inventories . . . . . . . . . . . . 75,000 86,000
Prepaid expenses and other current 32,000 41,000
assets . . . . . . . . . . . . . ---------- ----------
TOTAL CURRENT ASSETS . . . . . 2,774,000 3,254,000
PROPERTY AND EQUIPMENT
Machinery and equipment . . . . . . 3,104,000 3,090,000
Furniture, fixtures and leasehold
improvements . . . . . . . . . . 205,000 201,000
611,000 611,000
Equipment under capital leases . . ---------- ----------
3,920,000 3,902,000
Less allowance for depreciation and 3,482,000 3,415,000
amortization . . . . . . . . . . ---------- ----------
438,000 487,000
OTHER ASSETS
Reacquired franchises, net of
accumulated amortization of
$174,000 (December 1996) and
$162,000 (September 1996) . . . . 153,000 165,000
65,000 72,000
Other assets . . . . . . . . . . . ---------- ----------
$3,430,000 $3,978,000
========== ==========
See notes to consolidated financial statements
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<PAGE>
CONSOLIDATED BALANCE SHEETS
COMPUMED, INC. AND SUBSIDIARIES
December 31, September 30,
1996 1996
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LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
CURRENT LIABILITIES
Accounts payable . . . . . . . . $ 214,000 $ 252,000
Deferred revenue . . . . . . . . 80,000 80,000
Other accrued liabilities . . . . 603,000 579,000
Current portion of capital lease 28,000 31,000
obligations . . . . . . . . . . ----------- -----------
TOTAL CURRENT LIABILITIES . . 925,000 942,000
CAPITAL LEASE OBLIGATIONS, less
current portion . . . . . . . . . 72,000 78,000
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 (December
1996 and September 1996) . . 1,000 1,000
Class B $3.50 convertible
voting preferred stock, issued
and outstanding - 2,333
(December 1996 and September
1996) . . . . . . . . . . . . . 1,000 1,000
Common stock, $.01 par value --
authorized 50,000,000 shares,
issued and outstanding --
8,954,786 shares (December
1996) and 8,949,786 shares
(September 1996) . . . . . . . 89,000 89,000
Additional paid in capital . . . 27,036,000 27,036,000
(24,694,000) (24,169,000)
Retained deficit . . . . . . . . ----------- -----------
2,433,000 2,985,000
STOCKHOLDERS' EQUITY . . . . ----------- -----------
$ 3,430,000 $ 3,978,000
=========== ===========
See notes to consolidated financial statements
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<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
COMPUMED, INC. AND SUBSIDIARIES
Three Months Ended
December 31,
1996 1995
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(Unaudited) (Unaudited)
REVENUE FROM OPERATIONS
ECG service . . . . . . . . . . $ 487,000 $ 426,000
Osteo royalties . . . . . . . . 29,000 -0-
Product sales . . . . . . . . . 37,000 53,000
Rental property . . . . . . . . -0- 99,000
30,000 74,000
Other income . . . . . . . . . ---------- ----------
583,000 652,000
COST AND EXPENSES
Cost of services . . . . . . . 290,000 300,000
Cost of sales . . . . . . . . . 9,000 24,000
Selling expenses . . . . . . . 112,000 73,000
Research and development . . . 173,000 164,000
General and administrative
expenses . . . . . . . . . . 439,000 553,000
Depreciation and amortization . 81,000 102,000
3,000 85,000
Interest expense . . . . . . . ---------- ----------
$ (524,000) $ (649,000)
NET LOSS . . . . . . . . . . . . ---------- ----------
$ (.06) $ (.08)
NET LOSS PER SHARE . . . . . . . ========== ==========
Weighted average number of common 8,952,286 8,344,300
shares outstanding . . . . . . ========== ==========
See notes to consolidated financial statements
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<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
COMPUMED, INC. AND SUBSIDIARIES
Three Months Ended
December 31,
1996 1995
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(Unaudited) (Unaudited)
OPERATING ACTIVITIES:
Net Loss . . . . . . . . . . . . $(524,000) $(649,000)
Net adjustment to reconcile net
loss to net cash used in
operating activities:
Depreciation and amortization 81,000 102,000
Changes in operating assets and
liabilities:
Accounts receivable . . . . . . 19,000 54,000
Other receivables . . . . . . . 30,000 331,000
Inventories and prepaid expenses 20,000 20,000
Accounts payable and other
liabilities . . . . . . . . . (14,000) (15,000)
5,000 (29,000)
Other assets . . . . . . . . . --------- ---------
NET CASH USED IN OPERATING
ACTIVITIES . . . . . . . . . . . (383,000) (186,000)
INVESTING ACTIVITIES:
Purchase of marketable securities (500,000)
Sale of marketable securities . . 316,000 206,000
Purchases of property, plant, and (18,000) (71,000)
equipment . . . . . . . . . . . --------- ---------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES . . . . . . 298,000 (365,000)
FINANCING ACTIVITIES:
Dividends on Class A preferred
stock . . . . . . . . . . . . . (1,000) (1,000)
Principal payments on debt . . . (9,000) (11,000)
Exercise of stock options and 288,000
warrants . . . . . . . . . . . --------- ---------
NET CASH (USED) PROVIDED BY (10,000) 276,000
FINANCING ACTIVITIES . . . . . . --------- ---------
(DECREASE) INCREASE IN CASH . . . . (95,000) (275,000)
155,000 299,000
Cash at beginning of period . . . . --------- ---------
$ 60,000 $ 24,000
CASH AT END OF PERIOD . . . . . . . ========= =========
$ 3,000 $ 85,000
Cash paid for interest: ========= =========
See notes to consolidated financial statements
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<PAGE>
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
COMPUMED, INC. AND SUBSIDIARIES
NOTE A--BASIS OF PREPARATION
The balance sheet at September 30, 1996 has been derived 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 December 31, 1996 are not necessarily
indicative of the results that may be expected for the year ending
September 30, 1997. For further information, refer to the consolidated
financial statements for the year ended September 30, 1996 and the notes
thereto included in the Annual Report on Form 10-KSB.
NOTE B--PER SHARE DATA
Net loss income 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 - COMMITMENTS
In December 1996, the Company entered into a technology development
agreement with Varian Imaging Products (Varian). The Company will receive
Varian's amorphous silicon sensor x-ray imaging system for testing and for
potential integration into its second-generation OsteoSystem. Varian will
also grant exclusive marketing rights to the Company for the use of its
amorphous silicon technology in the assessment of appendicular bone mineral
density and arthritis detection for a period of three years, providing
certain sales targets are met. The Company agreed to make an initial
payment to Varian of $65,000 for the imaging system and will purchase
silicon panel assemblies at prices determined in the agreement. Varian
will supply technical and engineering assistance for incorporating its
silicon detectors into CompuMed's products.
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<PAGE>
NOTE D - CONTINGENCIES
During the quarter ended December 31, 1996 there have been no additional
events relating to agreement in principle to settle the Securities
Litigation (see NOTE G to the FORM 10KSB as of September 30, 1996). It is
anticipated that the consummation of the proposed settlement will be
completed by the end of the Company's current fiscal year.
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<PAGE>
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
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Revenues from operations for the three months ended December 31, 1996 (the
"first quarter") decreased by 11% as compared to the same period in 1995.
This reduction was primarily attributed to the elimination of revenues from
rental income property and to reduced investment income. Aside from the
rental property revenues, total revenues increased during the first quarter
by $30,000, or 5%, from the same quarter in 1995.
ECG service revenues were up $61,000 or 14% over the same three month
period in 1995, primarily from the TeleCor(R) (cardiac event monitor)
operations, which were not active in the prior year. Rental property
income from the IRSCO Development subsidiary was eliminated in the 1996
period, as compared to $99,000 during the 1995 period, due to the
foreclosure on this property in April 1996. Investment income decreased to
$30,000 during the 1996 three month period from $74,000 during the 1995
period due to liquidations of investment funds to $2,173,000 at December
31, 1996 from $5,017,000 at December 31,1995. Royalty income was $29,000
for the quarter from OsteoGram(R) operations being managed by a subsidiary
of Merck & Co., Inc. Royalty income did not exist during the first quarter
of 1995.
General and administrative expenses decreased during the 1996 first quarter
by $114,000, or 21% as compared to the same period in 1995, primarily due
to the elimination of the IRSCO Development operations described above and
due to the assumption of OsteoGram operations, and the related personnel
costs, by a subsidiary of Merck & Co., Inc. The elimination of the IRSCO
operations, and the related costs of those operations, were also the
primary causes for the reductions in interest expense ($82,000 reduction)
and depreciation expense ($21,000 reduction) during the 1996 quarter as
compared to 1995.
Net loss from operations for the first quarter was $524,000 or $0.06/share
compared to a loss of $649,000 or $0.08/share for the same period in 1995.
The loss for first quarter 1996 decreased by $125,000 or 19% compared to
prior year period primarily as the result of the elimination of the ongoing
losses from IRSCO and to decreases in the OsteoGram operations costs as
mentioned above. The contribution from revenue increases in ECG services
during the 1996 quarter, as compared to the prior year, also contributed to
the reduced loss.
FINANCIAL CONDITION AND LIQUIDITY
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As of December 31, 1996 the Company had $1,850,000 of working capital, a
reduction of $462,000 from September 30, 1996. The reduction in working
capital is a direct result of losses from operations, adjusted for
depreciation expense.
The Company's capital resource commitments at December 31, 1996 primarily
consist of sponsored research agreements and research and development costs
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<PAGE>
associated with the development of its second generation OsteoSystem.
During the first quarter of fiscal 1997, total research and development
expenses were $173,000. Expenditures during future periods are expected to
meet or exceed this level. Sponsored research payments with the University
of Massachusetts Medical Center are made at the rate of $25,000 per quarter
until April 30, 1996 and are $12,500 per quarter for the second year
commencing May 1, 1996. The Varian agreement (see NOTE C above) requires
payments in the total amount of $65,000 during the current fiscal year.
Additionally, other sub-contractors are being utilized for this project
under consulting arrangements.
The University of Georgia sponsored research agreement is being re-
negotiated and reduced to a rate of approximately $10,000 per quarter.
during the next quarter. Due to the long-term nature of this project, the
Company is seeking a strategic partner to participate in future
development. The Company is sponsoring a study at Cedars-Sinai Medical
Center, relating to out-patient cardiac monitoring, requiring payments in
the total amount of $31,000 during the next year. The Company also has
ongoing lease commitments, primarily for office and computer equipment.
The Company intends to pursue additional research and/or sub-contractor
agreements relating to their development projects. Additionally, the
Company is actively seeking partners and acquisition candidates of
businesses which are complementary to its own. Such investments will be
financed by the Company's working capital, through issuance of Company
securities or a combination thereof.
Due to the development nature of the Company's business activities, the
Company is anticipating losses from operations during the next year. The
Company believes that the current level of working capital is adequate to
fund the operating activities of the Company during the next year of
operations.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 - Employment agreement between the Company and Rod N.
Raynovich dated June 1, 1996.
27 Financial Data Schedule.
(b) Reports on Form 8-K - None
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<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.
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(Registrant)
/s/ James Linesch
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James Linesch
Chief Financial Officer
Date: February 13, 1997
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<PAGE>
EXHIBIT INDEX
Exhibit Description
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10.1 Employment agreement between the Company and
Rod. N. Raynovich dated June 1, 1996.
27 Financial Data Schedule.
Exhibit 10.1
EMPLOYMENT AGREEMENT
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THIS EMPLOYMENT AGREEMENT (this "Agreement"), is entered into as
of June 1, 1996 by and between COMPUMED, INC., a California corporation
("Company"), and ROD RAYNOVICH ("Executive"), with reference to the
following facts:
A. Company desires to secure the services and employment of
Executive on a full-time, exclusive basis on the terms and conditions set
forth herein.
B. Executive is willing to become an employee of Company on a
full-time, exclusive basis until Executive's employment with Company
terminates in accordance with the terms of this Agreement.
NOW, THEREFORE, in consideration of the foregoing and of the
mutual covenants and agreements of the parties contained herein, the
parties hereto agree as follows:
1. Employment Term. Subject to the terms and provisions of
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this Employment Agreement, Company hereby agrees to employ Executive and
Executive hereby agrees to be employed by Company for the period commencing
on June 1, 1996 and ending on May 31, 1998, unless sooner terminated as
hereinafter provided (the "Employment Term"). In the event Company elects
not to commence negotiations with Executive regarding renewal of this
Agreement, Company agrees to provide written notice thereof not later than
January 31, 1998. Notwithstanding the foregoing, unless Company and
Executive agree in writing to renew this Agreement or this Agreement is
terminated as provided in Section 5 hereof, the employment of Executive
shall terminate on the expiration date hereof, in which event Company shall
have no further obligation to Executive. Company shall be under no
obligation to renew this Agreement and may decline to do so with or without
cause and, except as provided to the contrary above, with or without
notice.
2. Duties and Responsibilities; Title. During the Employment Term,
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Executive shall be the President and Chief Executive Officer of Company.
Executive shall perform those duties and have those responsibilities,
commensurate with Executive's skills and experience, designated by the
Board of Directors of Company (the "Board"). During the Employment Term,
Executive agrees to devote full time and attention to the business and
affairs of Company and, to the extent necessary to discharge the
responsibilities assigned to Executive hereunder, to use Executive's best
efforts to perform faithfully and efficiently such responsibilities.
3. Election to the Board. Company shall use its best efforts to
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cause Executive to be re-elected to the Board during the Employment Term.
4. Compensation; Related Matters.
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(a) Base Salary. During the Employment Term, Company shall
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pay Executive a base salary (the "Base Salary") as follows:
(1) for the period commencing June 1, 1996 through and
including May 31, 1997 ("Year One"), Company shall pay Executive a Base
Salary of One Hundred Twenty Thousand Dollars ($120,000.00); and
(2) for the period commencing June 1, 1997 through and
including May 31, 1998 ("Year Two"), Company shall pay Executive a Base
Salary equal to the sum of (x) One Hundred Thirty-Two Thousand Dollars
($132,000.00), plus (y) One Hundred Twenty Thousand Dollars ($120,000.00)
multiplied by the percentage increase in the "Index" (as hereinafter
defined) from June 1, 1996 (or the month of adjustment of the Index closest
to and prior to June 1, 1996) to June 1, 1997 (or the month of adjustment
of the Index closest to and prior to June 1, 1997). Base Salary shall be
paid to Executive in accordance with Company's then current payroll
practices, provided that equal installments of Base Salary shall be paid to
Executive no less often than bi-weekly.
For purposes of this Agreement, the term "Index" means the
"Consumer Price Index for All Urban Consumers (1982-84
= 100), [South Bay] Average, All Items," as published by the Bureau of
Labor Statistics of the United States Department of Labor. If the Index is
not published by the Bureau of Labor Statistics or another governmental
agency at any time during the Term, or if the Index is otherwise re-named,
discontinued or superseded, then the calculations based on the Index shall
be made using the most closely comparable statistics on the purchasing
power of the consumer dollar as published by a responsible financial
authority and jointly selected by Company and Executive.
(b) Bonuses. Executive shall be entitled to receive bonuses
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based on the Company meeting performance criteria established by the Board
in its sole discretion from time to time and Executive meeting the personal
performance objectives established by the Board in its sole discretion from
time to time, provided that Executive shall not be entitled to receive
bonuses in excess of Forty Thousand Dollars ($40,000.00) in either Year 1
or Year 2.
(c) Perquisites. During the Employment Term,
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Executive shall also be entitled to receive:
(1) an automobile expense allowance in the amount of Five
Hundred Seventy-Five Dollars ($575.00) per month, payable monthly each
month during the Employment Term;
(2) a travel/moving expense allowance in the amount of Two
Thousand Four Hundred Dollars ($2,400.00) per month, payable monthly for
the six (6) month period commencing July, 1996 through and including
December, 1996, such amounts being reimbursement for expenses incurred or
to be incurred by Executive in connection with Executive's relocation from
the Boston area to the Los Angeles area so that Executive may perform his
services under this Agreement; and
(3) reimbursement of all "ordinary and necessary expenses"
(as defined in Section 162 of the Internal Revenue Code of 1986, as amended
(the "Code")) incurred by Executive in connection with performance of his
duties hereunder, provided that Executive submits to Company substantiation
of such expenses in compliance with Section 274 of the Code.
(d) Loan to Executive. Company hereby agrees to lend the sum of
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Forty-Two Thousand Dollars ($42,000.00) to Executive (the "Loan"). The
Loan shall be made to Executive within five (5) business days after
Executive certifies in writing to the Board that he has completed his move
to the Los Angeles area. Executive agrees to repay the Loan to Company in
full, without interest, upon the termination of this Agreement prior to the
expiration of the Employment Term. Notwithstanding the foregoing, Company
agrees to forgive the sum of One Thousand Seven Hundred Fifty Dollars
($1,750.00) of the principal balance of the Loan for each full month of
service provided by Executive to Company pursuant to this Agreement.
(e) Participation in Benefit Plans. During the Employment Term,
------------------------------
Executive shall be entitled to participate in and receive all other
benefits of employment under all plans, programs, policies, and
arrangements available to the members of Company's senior executive
management as may be in effect from time to time, subject to and on a basis
consistent with the terms, conditions and overall administration of such
plans and arrangements, it being agreed that the foregoing shall not
require Company to continue or to put into effect any plan, practice,
policy or program.
(f) Vacation, Holidays and Sick Leave. During the Employment
---------------------------------
Term, Executive shall be entitled to three (3) weeks of paid vacation.
Executive may not accrue any unused vacation time. Executive shall also be
entitled to all paid holidays and to reasonable sick leave in accordance
with the policies of Company applicable to its senior executive management.
(g) Deductions and Withholding. Executive agrees that Company
--------------------------
may deduct and withhold from Executive's compensation any sums which
Company is required by applicable law to be deducted and withheld from
Executive's compensation hereunder.
5. Termination of Employment.
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(a) Death. In the event Executive dies during the Employment
-----
Term, this Agreement and Executive's employment with Company shall
terminate automatically on the date of his death, provided, however, that
Company shall continue to pay an amount equal to Executive's then current
Base Salary divided by twelve (12) (the "Monthly Base Salary") to
Executive's beneficiary designated in writing to Company prior to his death
(or to his estate, if he fails to make such designation) for a period of
three (3) months from the date of death (if Executive's death occurs during
Year One) or six (6) months (if Executive's death occurs during Year Two).
Said payments of Monthly Base Salary shall be made on the same dates as
payments of Monthly Base Salary would have been paid to Executive had he
not died.
(b) Disability.
----------
(1) In the event Executive becomes "Disabled" (as
hereinafter defined) during the Employment Term, Company shall have the
right to terminate this Agreement and Executive's employment with Company.
For purposes of this Agreement, Executive shall be deemed "Disabled" if (i)
Executive is permanently unable, as a result of any medically determinable
physical or mental disease or impairment, to discharge substantially all of
the duties and responsibilities with which Executive is then charged, or
(ii) Executive becomes unable to perform any material aspect of the duties
and responsibilities with which Executive is then charged for a period of
One Hundred Twenty (120) consecutive days or One Hundred Fifty (150) days
during any One Hundred Eighty (180) day period. Notwithstanding anything
to the contrary herein, Executive shall be deemed Disabled and this
Agreement shall be terminated for purposes of subparagraph (i) above as of
the date a licensed physician so certifies the disability of Executive, and
shall be deemed Disabled and this Agreement shall be terminated for
purposes of subparagraph (ii) above as of the last day of the 12Oth day or
the last day of the 180th day, as applicable, Executive is unable to
perform any material aspect of the duties and responsibilities with which
Executive was charged as of the date of this Agreement (the "Disability
Date").
(2) In the event Company determines that Executive has
become Disabled and elects to terminate this Agreement as a result thereof,
Company shall deliver written notice (the "Disability Notice") thereof to
Executive. Within five (5) days after delivery of a Disability Notice by
Company, Executive may dispute Company's claim that he is disabled by
delivering a written notice (the "Dispute Notice") thereof to Company.
Executive's failure to deliver the Dispute Notice within said five (5)
day period shall be deemed an election not to dispute Company's
determination that Executive is disabled or termination of this Agreement.
Within five (5) days after delivery of the Dispute Notice, Executive and
Company shall each select a physician licensed in the State of California,
and such licensed physicians shall then mutually appoint a third physician
licensed in the State of California, whose determination shall be binding
on Company and Executive. Said third physician shall endeavor to make a
determination as to the Disability of Executive as soon as possible, but in
no event later than fourteen (14) days after such appointment. Executive
hereby consents to be examined by such licensed physician and agrees to
cooperate with such examination.
(3) In the event Executive becomes Disabled during the
Employment Term and this Agreement is thereby terminated, Company shall
continue to pay to Executive (i) an amount equal to Executive's then
current Monthly Base Salary to Executive for a period of three (3) months
from the Disability Date, and (ii) an amount equal to fifty percent (50%)
of Executive's then current Monthly Base Salary for the three (3) month
period commencing with the fourth (4th) month after the Disability Date
through and including the sixth (6th) month after the Disability Date.
Said payments of Monthly Base Salary shall be made on the same dates as
payments of Monthly Base Salary would have been paid to Executive had he
not become Disabled. Any termination for Disability under this Agreement
shall not affect the rights, if any, that Executive may otherwise have
under any disability plan Company may have in effect at the date of such
termination and in which Executive is then participating.
(c) Cause. Company may terminate Executive's employment
-----
hereunder for "Cause." For purposes of this Agreement, "Cause" shall mean
that the Board shall have determined that one of the following events shall
have occurred (the "Cause Events"): (i) material neglect of Executive's
duties hereunder; (ii) the refusal by Executive to follow reasonable and
lawful directions from the Board; (iii) the engaging by Executive in
misconduct, or in acts of moral turpitude, that is or are injurious to
Company; or (iv) violation of any material provision of this Agreement or
any confidentiality, nondisclosure, noncompetition or other agreement
entered into by Executive from time to time in connection with Executive's
employment by Company. The Board shall provide written notice to Executive
setting forth the applicable Cause Event, and Executive shall have thirty
(30) days (the "Cure Period") in which to cure such Cause Event to the
reasonable satisfaction of the Board. In the event Executive fails to cure
said Cause Event to the reasonable satisfaction of the Board within the
Cure Period, this Agreement and Executive's employment hereunder shall
terminate without any further action of the parties as of the end of the
Cure Period. If Executive's employment is terminated by Company with
Cause, Company shall have no further obligation to Executive other than the
obligation of Company to pay to Executive the Base Salary earned by
Executive through the date of termination and not previously paid to
Executive and all accrued but unused vacation time.
(d) Without Cause. Company may terminate this Agreement at any
-------------
time without Cause. If Executive's employment is terminated by Company
without Cause, Company shall have no further obligation to Executive other
than the obligation of Company to pay to Executive (i) the Base Salary
earned by Executive through the date of termination and not previously paid
to Executive and all accrued but unused vacation time, and (ii) Executive's
then current Monthly Base Salary from the effective date of termination up
through and until May 31, 1998 (the "Severance Period"). Any payments
received through subsequent employment with another employer or through
self-employment during the Severance Period (including, without limitation,
salaries, fees, commissions and bonuses) shall reduce, but not below zero,
amount payable by Company to Executive pursuant to this subparagraph (d) in
an amount equal to one hundred percent (100%) of the payments received
through such subsequent employment. Additionally, the outstanding balance
of the Loan shall be forgiven.
(e) Sole Obligations of Company. Company shall have no other
---------------------------
contractual obligations to Executive upon termination of Executive's
employment for any reason, except as explicitly set forth above in this
Section 5.
6. Ownership of Property. Executive acknowledges and agrees that
---------------------
Company shall be the sole and exclusive owner of all right, title and
interest in and to any and all works, materials, ideas, products, services,
developments, projects and other matters created, suggested, submitted or
otherwise worked on by Executive at any time during the Employment Term in
connection with the performance of his duties hereunder, and all other
results and proceeds of services performed by Executive hereunder
(collectively, "Property"). Executive also acknowledges and agrees that
Company shall have the sole and exclusive right in perpetuity to use,
exploit, distribute and otherwise turn to account any or all of the
Property, and that Company may modify, change or alter all or any part of
the Property, all as Company may determine from time to time in its sole
discretion.
7. Proprietary Information.
-----------------------
(a) Defined. "Proprietary Information" is all information and
-------
any idea in whatever form, tangible or intangible, pertaining in any manner
to the business or operations of Company, or to its clients, consultants,
or business associates, unless: (i) the information is or becomes publicly
known through lawful means; (ii) the information was rightfully in
Executive's possession or part of his general knowledge prior to his
employment by Company and Executive did not learn of it, directly or
indirectly, from Company; or (iii) the information is disclosed to
Executive without confidential or proprietary restriction by a third party
who rightfully possesses the information (without confidential or
proprietary restriction) and did not learn of it, directly or indirectly,
from Company.
(b) Executive agrees to hold all Proprietary Information in
strict confidence and trust for the sole benefit of Company and not to,
directly or indirectly, disclose, use, copy, publish, summarize, or remove
from Company's premises any Proprietary Information (or remove from the
premise any other property of Company), except (i) during the Employment
Term to the extent necessary to carry out Executive's responsibilities
under this Agreement, and (ii) after termination of the Employment Term as
specifically authorized in writing by the Board or as required by any law,
court order or similar process or proceeding.
(c) Upon termination of his employment for any reason, Executive
shall return to Company all books, records, notes, manuals, recordings, and
other personal property or tangible Proprietary Information obtained or
prepared by Executive during the course of his employment or otherwise
belonging to Company.
(d) It is expressly recognized and agreed that the covenants set
forth in this Section 7 are for the purposes of restricting the activities
so that Executive only to the extent necessary for the protection of the
legitimate business interests of Company, and Company and Executive agree
that said covenants are reasonable for that purpose and that such covenants
do not and will not preclude Executive from engaging in activities
sufficient for the purpose of earning a living.
8. Remedies. With respect to each and every breach or violation or
--------
threatened breach or violation by Executive of Section 7, Company, in
addition to all other remedies available to it at law or in equity
(including, without limitation, specific performance of the provisions
hereof), shall be entitled to enjoin the commencement or continuance
thereof and may, without notice to Executive, apply to any court of
competent jurisdiction for entry of an immediate restraining order or
injunction. Company may pursue any of the remedies described in this
Section 8 concurrently or consecutively in any order as to any such breach
or violation, and the pursuit of one of such remedies at any time will not
be deemed an election of remedies or waiver of the right to pursue any of
the other of such remedies.
9. Nonassignability; Successors.
----------------------------
(a) This Agreement is personal, and neither this Agreement nor
any right or interest of Executive hereunder shall be subject to voluntary
or involuntary alienation, assignment or transfer, other than by will or
the laws of descent and distribution, without Company's prior written
consent. This Agreement shall inure to the benefit of and be enforceable
by Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon Company and its successors and assigns.
10. Entire Agreement; Severability. This Agreement constitutes the
------------------------------
entire agreement between the parties hereto in respect of the employment of
Executive by Company and supersedes and cancels all prior written, implied
and oral agreements and understandings with respect to the subject matter
of this Agreement. The provisions herein shall be regarded as severable.
Any term or provision of this Agreement which is invalid or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the
extent of such invalidity or unenforceability without rendering invalid or
unenforceable the remaining terms or provisions of this Agreement or
affecting the validity or enforceability of any of the terms or provisions
of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable or invalid, such provision
shall be interpreted to be only so broad as is enforceable and valid.
11. Governing Law. The validity, construction, performance and
-------------
enforcement of this Agreement shall be governed by the laws of the State of
California, regardless of the laws that might otherwise govern under
applicable principles of conflicts of laws.
12. Notices. Any notice, communication, request, instruction or
-------
other document required or permitted hereunder or under any document
delivered pursuant hereto shall be given in writing and delivered in person
or sent by U.S. Mail, postage prepaid, return receipt requested, or by
telex, facsimile or telecopy to the addresses or facsimile numbers, as
appropriate, as set forth below:
If to Company:
CompuMed, Inc.
1230 Rosecrans Avenue
Suite 1000
Manhattan Beach, California 90260
Attention: Board of Directors
Telecopy: (___) ___-____
with a copy to:
Weissman, Wolff, Bergman,
Coleman & Silverman
9665 Wilshire Boulevard
Suite 900
Beverly Hills, California 90212
Attention: Daniel H. Wolff, Esq.
Telecopy: (310) 550-7191
If to Executive:
Rod Raynovich
_________________________
_________________________
Telecopy: (___) ___-____
with a copy to:
_________________________
_________________________
_________________________
Attention: ______________
Telecopy: (___) ___-____
or to such other address or telecopy number as may have been specified by
like notice. Notice given in person as set forth above shall be deemed
delivered on the day of delivery; notice given by mail as set forth above
shall be deemed delivered on the fifth day following the date the same is
postmarked; notice given by telecopy shall be deemed delivered when
received if during normal business hours on a business day (or if not, the
next business day after delivery) provided that such telecopy is legible
and that at the time such telecopy is sent the sending party receives
written confirmation of receipt.
13. Modification and Waivers. No provision of this Agreement may be
------------------------
modified, altered or amended except by an instrument in writing that is
executed by the parties hereto and makes specific reference to this
Agreement. No waiver by either party hereto of any breach by the other
party hereto of any provision of this Agreement to be performed by such
other party shall be deemed a waiver of a similar or dissimilar provision
at the time or any prior or subsequent time.
14. Headings. The headings contained herein are solely for the
--------
purpose of reference, are not part of this Agreement and shall not in any
way affect the meaning or interpretation of this Agreement.
15. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed to be an original but all of
which together shall constitute one and the same instrument.
16. Survival of Provisions. Notwithstanding anything to the contrary
----------------------
in this Agreement, Sections 7 and 8 of this Agreement shall survive the
termination of this Agreement for the period of time so specified or
implied in such Section, respectively.
17. Arbitration. Subject to a party's right to obtain provisional
-----------
equitable relief in a court of applicable jurisdiction pending a final
award of the arbitrators and other than any controversy or claim arising
out of Executive's obligations pursuant to Section 7 hereof, any
controversy or claim arising out of or relating to this Agreement, or the
breach thereof, shall be settled by expedited arbitration in accordance
with the expedited Rules of the American Arbitration Association,
notwithstanding the amount in controversy, and judgment upon the award
rendered by the arbitrators, which shall be final and binding upon the
parties, and application for enforcement of an award of equitable relief,
may be entered in any Court having jurisdiction thereof, provided that (i)
the legal and accounting fees incurred in connection with the arbitration
by the prevailing party (as determined by the arbitrators) shall be paid by
the other party; (ii) the number of arbitrators shall be three (3); (iii)
the selection of the arbitrators shall be made utilizing the "alternate
strike method" from a panel of potential arbitrators provided by the AAA
and consisting of not less than seven (7) persons who each have at least
five (5) years of recent, consistent experience in health care matters or
shall be a lawyer or retired judge; (iv) the parties shall have the right
of discovery set forth in Section 1283.05 of the California Code of Civil
Procedure; (v) the arbitration shall take place in Los Angeles, California;
and (vi) the parties agree that it is their mutual desire that any
arbitration hereunder be consummated within sixty (60) days of the
assertion of a claim before the AAA.
IN WITNESS WHEREOF, Company has caused this Agreement to be
executed by authority of its Board of Directors, and Executive has hereunto
set his hand, the day and year first above written.
COMPUMED, INC.
By: /s/ Robert Funari
--------------------------------
Its:
-------------------------------
/s/ Rod Raynovich
-----------------------------------
ROD RAYNOVICH
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
UNAUDITED CONSOLIDATED BALANCE SHEETS, STATEMENT OF OPERATIONS AND
STATEMENTS OF CHANGES IN CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 60,000
<SECURITIES> 2,173,000
<RECEIVABLES> 416,000
<ALLOWANCES> 278,000
<INVENTORY> 75,000
<CURRENT-ASSETS> 2,774,000
<PP&E> 3,920,000
<DEPRECIATION> 3,482,000
<TOTAL-ASSETS> 3,430,000
<CURRENT-LIABILITIES> 925,000
<BONDS> 0
0
2,000
<COMMON> 89,000
<OTHER-SE> 2,342,000
<TOTAL-LIABILITY-AND-EQUITY> 3,430,000
<SALES> 553,000
<TOTAL-REVENUES> 583,000
<CGS> 9,000
<TOTAL-COSTS> 1,107,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,000
<INCOME-PRETAX> (524,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (524,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (524,000)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
