SECURITIES AND EXCHANGE COMMISSION
UNITED STATES
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, 1997
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.
-----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 95-2860434
------------------------------ -------------------------
State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1230 Rosecrans Avenue, Suite 110, Manhattan Beach, CA 90266
-----------------------------------------------------------------
(Address of Principal Executive Officers)
(310) 643-5106
-----------------------------------------------------------------
(Registrant's telephone number, including area code)
Not applicable
-----------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
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
Exchange Act 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 in for the past
90 days. Yes X No
----- -----
The registrant had 8,954,786 shares of common stock, ( $.01
par value) issued and outstanding and to be issued as of July 31,
1997.
<PAGE>
INDEX
COMPUMED, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated balance sheets - June 30, 1997 (unaudited)
and September 30, 1996.
Consolidated statement of operations - three and nine
months ended June 30, 1996 and 1997 (unaudited).
Consolidated statements of cash flows - nine months
ended June 30, 1996 and 1997 (unaudited).
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 Exhibits and Reports on Form 8K - None
SIGNATURES
2
<PAGE>
PART I
FINANCIAL INFORMATION
CONSOLIDATED CONDENSED BALANCE SHEETS
COMPUMED, INC. AND SUBSIDIARIES
June 30, September 30,
1997 1996
----------- -------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 244,000 $ 155,000
Marketable securities 1,015,000 2,489,000
Accounts Receivable, less allowance
of $273,000 (June 1997) and $280,000
(September 1996) 324,000 435,000
Other receivables 18,000 48,000
Inventories 55,000 86,000
Prepaid expenses and other current
assets 53,000 41,000
--------- ---------
TOTAL CURRENT ASSETS 1,709,000 3,254,000
PROPERTY AND EQUIPMENT
Machinery and equipment 3,130,000 3,090,000
Furniture, fixtures and leasehold
improvements 208,000 201,000
Equipment under capital leases 694,000 611,000
--------- ---------
4,032,000 3,902,000
Less allowance for depreciation and
amortization 3,607,000 3,415,000
--------- ---------
425,000 487,000
OTHER ASSETS
Required franchises, net of
accumulated amortization of $197,000
(June 1997) and $162,000
(September 1996) 130,000 165,000
Other assets 65,000 72,000
--------- ---------
$2,329,000 $3,978,000
========== ==========
See notes to interim unaudited consolidated condensed financial
statements
3
<PAGE>
CONSOLIDATED CONDENSED BALANCED SHEETS
COMPUMED, INC. AND SUBSIDIARIES
June 30, September 30,
1997 1996
---------- ------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 196,000 $ 252,000
Deferred revenue -0- 80,000
Other accrued liabilities 582,000 579,000
Current portion of capital lease
obligations 54,000 31,000
------------ ------------
TOTAL CURRENT LIABILITIES 832,000 942,000
CAPITAL LEASE OBLIGATIONS, less current
portion 109,000 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 1,000 1,000
Class B $3.50 convertible voting
preferred stock, issued and
outstanding - 2,333 shares 1,000 1,000
Common Stock, $.01 par value authorized
50,000,000 shares, issued and
outstanding-- 8,954,786 shares (June
1997) and 8,949,786 shares (September
1996) 89,000 89,000
Additional paid in capital 27,121,000 27,036,000
Retained deficit (25,824,000) (24,169,000)
------------ ------------
STOCKHOLDERS' EQUITY 1,388,000 2,985,000
------------ ------------
$ 2,329,000 $ 3,978,000
============ ============
See notes to interim unaudited consolidated condensed financial
statements
4
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
COMPUMED, INC. AND SUBSIDIARIES
Three Months Ended Nine Months Ended
June 30 June 30
------- -------
1997 1996 1997 1996
---- ---- ---- ----
REVENUES FROM OPERATIONS
ECG service $ 411,000 $ 555,000 $1,297,000 $1,463,000
Osteo royalties 33,000 12,000 89,000 20,000
Supplies sales 35,000 50,000 105,000 159,000
Rental property -0- 99,000
--------- ----------- ----------- -----------
479,000 617,000 1,491,000 1,741,000
COSTS AND EXPENSES
Cost of
services 306,000 313,000 888,000 872,000
Cost of goods
sold 16,000 37,000 47,000 82,000
Selling
expenses 75,000 130,000 268,000 280,000
Research and
development 179,000 93,000 519,000 377,000
General and
administrative
expenses 333,000 391,000 1,254,000 1,310,000
Depreciation
and
amortization 77,000 71,000 234,000 254,000
Provision for
litigation
settlement -0- 2,537,000 -0- 2,778,000
--------- ----------- ----------- -----------
986,000 3,572,000 3,210,000 5,953,000
--------- ----------- ----------- -----------
LOSS FROM
OPERATIONS (507,000) (2,955,000) (1,719,000) (4,212,000)
Investment
income 20,000 45,000 79,000 182,000
Interest
expense ( 6,000) (3,000) (13,000) (92,000)
--------- ----------- ----------- -----------
NET LOSS $(493,000) $(2,913,000) $(1,653,000) $(4,122,000)
========= =========== =========== ===========
NET LOSS PER $ (.06) $ (.35) $ (.18) $ (.49)
SHARE ========= =========== =========== ===========
Weighted average
number of
common shares
outstanding 8,954,786 8,420,376 8,952,286 8,362,998
========= =========== =========== ===========
See notes to interim unaudited consolidated condensed financial
statements
5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
COMPUMED, INC. AND SUBSIDIARIES
Nine Months Ended
June 30, June 30,
1997 1996
----------- -----------
(Unaudited)
OPERATING ACTIVITIES:
Net loss $ (1,653,000) $(4,122,000)
Adjustment to reconcile net
loss to net cash used in
operating activities:
Depreciation and
amortization 234,000 254,000
Changes in operating assets
and liabilities:
Accounts receivable 111,000 (87,000)
Other receivables 30,000 (660,000)
Inventories, prepaid
expenses and other assets 19,000 40,000
Accounts payable and other
liabilities (48,000) 835,000
------------- -----------
NET CASH USED IN OPERATING
ACTIVITIES (1,307,000) (3,740,000)
INVESTING ACTIVITIES:
Sale of marketable securities 1,474,000 1,436,000
Purchases of property, plant
and equipment (47,000) (198,000)
------------- -----------
NET CASH PROVIDED BY INVESTING
ACTIVITIES 1,427,000 1,238,000
FINANCING ACTIVITIES:
Stock reserved for securities
litigation settlement -0- 2,099,000
Dividends on Class A preferred
stock (2,000) (3,000)
Principal payments on capital
lease obligations (29,000) (23,000)
Principal payments on trust
deeds payable -0- (3,000)
Exercise of stock options and
warrants -0- 284,000
------------- -----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (31,000) 2,354,000
------------- -----------
INCREASE (DECREASE) IN CASH 89,000 (148,000)
Cash at beginning period 155,000 299,000
------------- -----------
CASH AT END OF PERIOD $ 244,000 $ 151,000
============= ===========
Cash paid for interest: $ 13,000 $ 92,000
============= ===========
See notes to interim unaudited consolidated condensed financial
statements
6
<PAGE>
NOTES TO INTERIM UNAUDITED CONSOLIDATED CONDENSED
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 June
30, 1997 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 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--COMMITMENTS AND CONTENGENCIES
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
7
<PAGE>
NOTE C--COMMITMENTS AND CONTINGENCIES (Continued)
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 the Company's products.
On August 5, 1996 the Company entered into a Memorandum of
Understanding to confirm the material terms of an agreement in
principle to settle the securities class action and derivative
litigation filed in the United States District Court for the
Central District of California (the "Court") on behalf of persons
who purchased Common Stock during various time periods spanning
from August 11, 1995 to October 17, 1995, inclusive and
derivatively on behalf of the Company. The Company's outside
counsel is working with plaintiffs' counsel to finalize the
Stipulation of Settlement. The Company expects the settlement to
be submitted to the Court by the first quarter of 1998. 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. During the nine months ended June 30,
1997 there have been no additional events relating to the
agreement in principle to settle the securities class action. It
is anticipated that the consummation of the proposed settlement
will be completed by the mid 1998.
NOTE D - IMPACT OF RECENTLY ADOPTED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be
adopted on December 31, 1997. At that time, the Company will be
required to change the method currently used to compute earnings
per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the
dilutive effect of stock options will be excluded. The impact of
Statement 128 on the calculation of primary earnings per share
for these quarters is not expected to be material.
8
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Form 10QSB contains forward-looking statements as defined by
the Private Securities Litigation Reform Act of 1995. Forward -
looking statements include statements concerning plans,
objectives, goals, strategies, future events or performance and
underlying assumptions and other statements which are other than
statements of historical facts. These statements are subject to
uncertainties and risks including, but not limited to, product
and service demand and acceptance, changes in technology, the
availability of appropriate acquisition candidates and/or
business partnerships, economic conditions, the impact of
competition and pricing, capacity and supply constraints or
difficulties, government regulation and other risks defined in
this document. All such forward-looking statements, whether
written or oral, and whether made by or on behalf of the Company
are expressly qualified by these cautionary statements and any
other cautionary statements which may accompany the forward-
looking statements. In addition, the Company disclaims any
obligation to update any forward-looking statements to reflect
events or circumstances after the date hereof.
RESULTS OF OPERATIONS
---------------------
Revenues from operations for the three months ended June 30, 1997
(the "Third Quarter 1997") were $479,000, a 22% reduction from
the same period in 1996. Decreased cardiac event monitoring from
the Company's TeleCor operations provided revenues of $17,000 for
the Third Quarter 1997 as compared to $102,000 during the prior
year. Beginning in August 1997, the Company no longer offers the
event monitoring services (TeleCor) and will focus operations and
marketing efforts on the core transtelephonic ECG business.
The elimination of TeleCor operations will reduce net monthly
losses by approximately $30,000, based on recent operating
results. Revenues from transtelephonic ECG services and
supplies, exclusive of TeleCor revenues, were $429,000 for the
Third Quarter 1997, which is a decrease of $74,000 from the prior
year, due to customer attrition, however such revenues increased
$42,000 from the prior quarter (ended March 31, 1997) as a result
of current marketing efforts. The Company's new ECG product, the
System 507, was introduced during the quarter and placements of
this system should provide new monthly revenues. Royalty income
was $33,000 for the Third Quarter 1997 from OsteoGram(R) operations
being managed by a subsidiary of Merck & Co., Inc. as compared to
$20,000 during the same period in 1996. Investment income
decreased to $20,000 during the Third Quarter 1997 from $45,000
during the 1996 period due to liquidations of marketable
securities.
Costs of services during the Third Quarter 1997 were
approximately the same as the prior year. General and
9
<PAGE>
administrative expenses decreased during the Third Quarter 1997
by $58,000, or 15% as compared to the same period in 1996,
primarily due to decreases in legal costs. Selling costs
decreased by 42% from the prior year to $75,000 due to reductions
in commissionable sales and the resultant decrease in expense.
Research and development costs increased by $86,000 during the
Second Quarter 1997 to $179,000 , as compared to the prior year,
due to increased salaries and direct costs relating to the
Company's development of the second generation OsteoSystem.
Net loss for the Third Quarter 1997 was $493,000 or $0.06/share
compared to a loss of 2,913,000 or $.18/share for the same period
in 1996. Exclusive of the provision for litigation settlement of
$2,537,000, the loss for the Third Quarter 1997 increased by
$117,000 from the prior year. The increased loss over the prior
year is directly attributable to decreased revenues from ECG
operations and to increased research and development
expenditures, which could not be fully offset by cost reductions.
Revenues from operations for the nine months ended June 30, 1997
(the "Nine Month Period") were $1,491,000, a decrease of $250,000
or 14% from the same period in 1996. This reduction was
primarily attributed to decreases in ECG service revenues,
through customer attrition, and the related supplies sales.
Rental property income from the IRSCO Development subsidiary was
eliminated in the 1997 period, as compared to $99,000 during the
1996 period, due to the foreclosure on certain property in April
1996.
General and administrative expenses decreased during the Nine
Month Period by $56,000, or 4% as compared to the same period in
1996, primarily due to the elimination of the IRSCO Development
operations described above. The elimination of the IRSCO
operations, and the related costs of those operations, were also
the primary causes for the reductions in interest expense
($79,000 reduction) and depreciation expense ($20,000 reduction)
during the Nine Month Period as compared to the same period in
1996.
Net loss for the Nine Month Period was $1,653,000 or $0.18/share
compared to a loss of $4,122,000 or $0.49/share for the same
period in 1996. The decrease in the loss for the Nine Month
Period reflected the elimination of the ongoing losses from IRSCO
rental operations and the 1996 loss included the provision for
litigation settlement of $2,778,000. Decreases in investment
income of $25,000 during the Nine Month Period, as compared to
the 1996 period, contributed to the losses from operations.
FINANCIAL CONDITION AND LIQUIDITY
---------------------------------
As of June 30, 1997 the Company had $877,000 of working capital,
10
<PAGE>
a reduction of $1,435,000 from September 30, 1996. This
reduction in working capital is a direct result of losses from
operations including product development costs, adjusted for
depreciation expense.
The Company's capital resource commitments at June 30, 1997
consist primarily of sponsored research agreements and costs
associated with the development of its second generation
OsteoSystem. During the third quarter of fiscal 1997, total
research and development expenses were $179,000. 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 $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. Components for prototype units
will be purchased during the next few quarters including digital
cameras, x-ray sources and cabinets. Additionally, other sub-
contractors are being utilized for this project under consulting
arrangements.
The University of Georgia sponsored Detoxahol research agreement
has been suspended and the Company is only supporting patent-
related costs at this time. Due to the long-term nature of this
project, the Company is seeking a strategic partner to
participate in future development.
The Company intends to pursue additional research and/or sub-
contractor agreements relating to its development projects.
Additionally, the Company is actively seeking partners and
acquisition candidates of businesses which are complementary to
its own. Such investments would 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. Based upon the current business plan, the
Company will require additional funding for research &
development, acquisitions, and losses from operations during the
next year. The level of capital requirements, based upon current
expectations is approximately $1.0 - $1.5 million. The Company
believes that these funds will become available through an
issuance of securities. There can be no assurance that the
Company will be able to successfully negotiate or obtain
additional financing through the public issuance or private
placement of its securities or that any such financing will be on
terms favorable or acceptable to the Company and the issuance of
such securities may result in substantial dilution of outstanding
securities.
The Company has extended the term of warrants to purchase 647,170
shares of Common Stock for $3.75 per share. The termination date
was extended from August 2, 1997 to August 2, 1999.
11
<PAGE>
PART II
OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) None
12
<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/ James Linesch
-------------------------------------
James Linesch
Vice President
Chief Financial Officer
Date: July 31, 1997
13
<PAGE>
EXHIBIT INDEX
Exhibit Description
------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
UNAUDITED CONSOLIDATED BALANCE SHEETS, STATEMENT OF OPERATIONS 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-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 244,000
<SECURITIES> 1,015,000
<RECEIVABLES> 597,000
<ALLOWANCES> 273,000
<INVENTORY> 55,000
<CURRENT-ASSETS> 1,709,000
<PP&E> 4,032,000
<DEPRECIATION> 3,607,000
<TOTAL-ASSETS> 2,329,000
<CURRENT-LIABILITIES> 832,000
<BONDS> 0
0
2,000
<COMMON> 89,000
<OTHER-SE> 1,297,000
<TOTAL-LIABILITY-AND-EQUITY> 2,329,000
<SALES> 1,491,000
<TOTAL-REVENUES> 1,491,000
<CGS> 47,000
<TOTAL-COSTS> 3,210,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,000
<INCOME-PRETAX> (1,653,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,653,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,653,000)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> (.18)
</TABLE>
