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, 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 1000, Manhattan Beach, CA 90266
-----------------------------------------------------------------
(Address of Principal Executive Officers) Zip Code
(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 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 May 13,
1997.
<PAGE>
INDEX
COMPUMED, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated balance sheets - March 31, 1997
(unaudited) and September 30, 1996.
Consolidated statement of operations - three and six
months ended March 31, 1997 and 1996 (unaudited).
Consolidated statements of changes of cash flows - six
months ended March 31, 1997 and 1996 (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 4. Submission of Matters to a Vote of Security Holders
SIGNATURES
2
<PAGE>
CONSOLIDATED BALANCE SHEETS
COMPUMED, INC. AND SUBSIDIARIES
September
March 31, 30,
1997 1996
-------- -----------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 86,000 $ 155,000
Marketable securities 1,573,000 2,489,000
Accounts Receivable, less allowance of
$295,000 (March 1997) and $280,000
(September 1996) 402,000 435,000
Other receivables 18,000 48,000
Inventories 72,000 86,000
Prepaid expenses and other current assets 48,000 41,000
---------- ----------
TOTAL CURRENT ASSETS 2,199,000 3,254,000
PROPERTY AND EQUIPMENT
Machinery and equipment 3,128,000 3,090,000
Furniture, fixtures and leasehold
improvements 207,000 201,000
Equipment under capital leases 654,000 611,000
---------- ----------
3,989,000 3,902,000
Less allowance for depreciation and
amortazation 3,544,000 3,415,000
---------- ----------
445,000 487,000
OTHER ASSETS
Reacquired franchises, net of accumulated
amortization of $185,000 (March 1997)
and $162,000 (September 1996) 142,000 165,000
Other assets 65,000 72,000
---------- ----------
$2,851,000 $3,978,000
========== ==========
See notes to interim unaudited consolidated financial statements
3
<PAGE>
CONSOLIDATED BALANCED SHEETS
COMPUMED, INC. AND SUBSIDIARIES
March 31, September 30,
1997 1996
----------- -------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 205,000 $ 252,000
Deferred revenue 80,000 80,000
Other accrued liabilities 633,000 579,000
Current portion of capital
lease obligations 41,000 31,000
------------ -------------
TOTAL CURRENT LIABILITIES 959,000 942,000
CAPITAL LEASE OBLIGATIONS,
less current portion 94,000 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 1,000 1,000
Common Stock, $.01 par value
--authorized 50,000,000
shares, issued and
outstanding--8,954,786
shares (March 1997) and
8,949,786 shares (September
1996) 89,000 89,000
Additional paid in capital 27,036,000 27,036,000
Retained deficit (25,329,000) (24,169,000)
------------ -------------
STOCKHOLDERS' EQUITY 1,798,000 2,985,000
------------ -------------
$ 2,851,000 $ 3,978,000
============ =============
See notes to interim unaudited consolidated financial statements
4
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
COMPUMED, INC. AND SUBSIDIARIES
Three Months Ended Six Months Ended
March 31 March 31
-------- --------
1997 1996 1997 1996
---- ---- ---- ----
REVENUES FROM OPERATIONS
ECG service $ 412,000 $ 482,000 $ 898,000 $ 908,000
Osteo
royalties 27,000 8,000 56,000 8,000
Product sales 21,000 56,000 58,000 109,000
Rental
property -0- -0- -0- 99,000
---------- --------- ----------- -----------
460,000 546,000 1,012,000 1,124,000
COSTS AND EXPENSES
Cost of
services 303,000 359,000 597,000 659,000
Cost of sales 10,000 21,000 18,000 45,000
Selling
expenses 81,000 77,000 193,000 150,000
Research and
development 167,000 120,000 340,000 284,000
General and
administra-
tive expenses 485,000 507,000 921,000 1,060,000
Depreciation
and
amortization 76,000 81,000 156,000 183,000
---------- ---------- ----------- -----------
NET LOSS FROM
OPERATIONS (662,000) (619,000) (1,213,000) (1,257,000)
Investment
income 29,000 63,000 60,000 137,000
Interest
expense ( 3,000) (4,000) ( 7,000) (89,000)
---------- ---------- ------------ -----------
NET LOSS $(636,000) $(560,000) $(1,160,000) $(1,209,000)
========== ========== ============ ============
NET LOSS PER
SHARE $ (.07) $ (.06) $ (.13) $ (.14)
========== ========== ============ ============
Weighted
average number
of common shares
outstanding 8,954,786 8,408,200 8,953,536 8,376,200
========= ========= ========== ==========
See notes to interim unaudited consolidated financial statements
5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
COMPUMED, INC. AND SUBSIDIARIES
Six Months Ended
March 31, March 31,
1997 1996
------------ ------------
OPERATING ACTIVITIES:
Net loss $(1,160,000) $(1,209,000)
Adjustment to reconcile net
loss to net cash used in
operating activities:
Depreciation and
amortization 156,000 170,000
Changes in operating assets
and liabilities:
Accounts receivable 33,000 33,000
Other receivables 30,000 339,000
Inventories, prepaid
expenses and other assets 10,000 (32,000)
Accounts payable and other
liabilities 7,000 (205,000)
----------- -----------
NET CASH USED IN OPERATING
ACTIVITIES (924,000) (904,000)
INVESTING ACTIVITIES:
Purchase of marketable
securities (637,000)
Sale of marketable securities 916,000 1,051,000
Purchases of property, plant
and equipment (44,000) (122,000)
----------- -----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 872,000 292,000
FINANCING ACTIVITIES:
Dividends on Class A
preferred stock ( 2,000) (2,000)
Principal payments on capital
lease obligations (15,000) (16,000)
Principal payments on trust
deeds payable (3,000)
Exercise of stock options and
warrants 341,000
----------- -----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (17,000) 320,000
----------- -----------
DECREASE IN CASH (69,000) (292,000)
Cash at beginning of period 155,000 299,000
----------- -----------
CASH AT END OF PERIOD $ 86,000 $ 7,000
=========== ===========
Cash paid for interest: $ 7,000 $ 89,000
=========== ===========
See notes to interim unaudited consolidated 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 March
31, 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 fourth quarter of 1997. 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 six months ended March 31,
1996 there have been no additional events relating to agreement
in principle to settle the Securities. It is anticipated that
the consummation of the proposed settlement will be completed by
the end of 1997.
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 10-QSB 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 March 31,
1997 (the "Second Quarter 1997") decreased by 16%, to $460,000,
as compared to the same period in 1996. This reduction was
primarily attributed to decreases in ECG service revenues and the
related supplies sales. ECG service revenues were down $70,000
or 15% during the Second Quarter 1997 over the same period in
1996, primarily from decreased transtelephonic ECG business and
from decreased TeleCor(R) (cardiac event monitor) operations.
Royalty income was $27,000 for the Second Quarter 1997 from
OsteoGram(R) operations being managed by a subsidiary of Merck &
Co., Inc. as compared to $8,000 during the same period in 1996.
Investment income decreased to $29,000 during the Second Quarter
1997 from $63,000 during the 1996 period due to liquidations of
marketable securities.
Costs of services decreased during the Second Quarter 1997 by
$56,000, or 16% from the prior year period due to decreases in
variable operating costs such as supplies, technician fees and
shipping costs. General and administrative expenses decreased
during the Second Quarter 1997 by $22,000, or 4% as compared to
the same period in 1996, primarily due to decreases in legal
costs. Research and development costs increased by $47,000
during the Second Quarter 1997, as compared to the prior year, to
$167,000 due to increased salaries and direct costs relating to
the Company's development of a second generation OsteoSystem.
9
<PAGE>
Net loss for the Second Quarter 1997 was $636,000 or $0.07/share
compared to a loss of $560,000 or $0.06/share for the same period
in 1996. 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 six months ended March 31, 1997
(the "Six Month Period") decreased by $112,000 or 10%, to
$1,012,000, as compared to the same period in 1996. This
reduction was primarily attributed to decreases in ECG service
revenues 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 Six
Month Period by $139,000, or 13% 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
($82,000 reduction) and depreciation expense ($27,000 reduction)
during the Six Month Period as compared to the same period in
1996.
Net loss for the Six Month Period was $1,160,000 or $0.13/share
compared to a loss of $1,209,000 or $0.14/share for the same
period in 1996. The loss for the Six Month Period decreased by
$49,000 or 4% compared to the prior year period primarily as the
result of the elimination of the ongoing losses from IRSCO rental
operations. Decreases in investment income of $77,000 during
the Six Month Period, as compared to the 1996 period, contributed
to the losses from operations.
FINANCIAL CONDITION AND LIQUIDITY
---------------------------------
As of March 31, 1997 the Company had $1,240,000 of working
capital, a reduction of $1,072,000 from September 30, 1996. This
reduction in working capital is a direct result of losses from
operations, adjusted for depreciation expense.
The Company's capital resource commitments at March 31, 1997
consist primarily of sponsored research agreements and research
and development costs associated with the development of its
second generation OsteoSystem. During the second quarter of
fiscal 1997, total research and development expenses were
$167,000. 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
10
<PAGE>
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 $2 - $3 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.
11
<PAGE>
PART II
OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Shareholders was held on March
28, 1997. The following five 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 Goldberg 7,649,979 287,636
John Minnick 7,669,449 268,166
Rod Raynovich 7,542,475 395,140
John Romm 7,691,019 246,596
Robert Stuckelman 7,647,739 289,876
The shareholders also ratified the appointment of Ernst & Young
LLP as the Company's independent accountants for the 1996 fiscal
year by the following vote:
FOR : 7,886,335
AGAINST : 29,382
ABSTAIN : 21,898
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
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
Chief Financial Officer
Date: May 14, 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 CHANGES IN CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 86,000
<SECURITIES> 1,573,000
<RECEIVABLES> 402,000
<ALLOWANCES> 295,000
<INVENTORY> 72,000
<CURRENT-ASSETS> 2,199,000
<PP&E> 3,989,000
<DEPRECIATION> 3,544,000
<TOTAL-ASSETS> 2,851,000
<CURRENT-LIABILITIES> 959,000
<BONDS> 0
0
2,000
<COMMON> 89,000
<OTHER-SE> 1,707,000
<TOTAL-LIABILITY-AND-EQUITY> 2,851,000
<SALES> 1,012,000
<TOTAL-REVENUES> 1,012,000
<CGS> 18,000
<TOTAL-COSTS> 2,225,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,000
<INCOME-PRETAX> (1,160,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,160,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,160,000)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
</TABLE>
