Filed pursuant to Rule 424(b)(3)
Registration No. 333-44805
PROSPECTUS
6,394,690 SHARES OF COMMON STOCK
($.01 PAR VALUE)
COMPUMED, INC.
COMMON STOCK
All of the shares of Common Stock, par value $.01 per share
("Common Stock") of CompuMed, Inc., a Delaware corporation (the
"Company"), offered hereby (the "Shares") are being offered for
resale by certain stockholders of the Company (the "Selling
Stockholders") as described more fully herein.
The shares of Common Stock offered hereby by the Selling
Stockholders consist of (A) 200,000 shares issuable upon the
exercise of outstanding warrants (the "Distributors Warrants")
and (B) a presently indeterminate number of shares issued or
issuable upon conversion or otherwise in respect of (i) 17,500
shares of the Company's Class C 7% Cumulative Convertible
Preferred Stock Series 1 ("Series C-1 Preferred Stock") and (ii)
17,500 shares of the Company's Class C 7% Cumulative Convertible
Preferred Stock Series 2 ("Series C-2 Preferred Stock") and a
presently indeterminate number of shares issued or issuable upon
exercise or otherwise in respect of (iii) warrants issued or
issuable upon the conversion of the Series C-1 Preferred Stock
("Series C-1 Warrants") and (iv) warrants issued or issuable upon
the conversion of the Series C-2 Preferred Stock (Series C-2
Warrants"). (The Series C-1 Preferred Stock and the Series C-2
Preferred Stock sometimes collectively, the "Class C Preferred
Stock"). For purposes of calculating the number of shares of
Common Stock to be registered hereby, the number of Common Shares
calculated to be issuable in connection with the conversion of
Class C Preferred Stock and the number of Common Shares
calculated to be issuable in connection with the exercise of the
Series C-1 Warrants and the Series C-2 Warrants (collectively,
the "Placement Warrants") is based on a conversion price of $1.13
for the Series C-1 Preferred Stock, which is derived from the
average closing bid price, as reported on the Nasdaq SmallCap
Market, of the Company's Common Stock for the ten (10)
consecutive trading days immediately preceding December 24, 1997,
the closing day for the issuance of the Series C-1 Preferred
Stock, which average price was $1.51 per share. One Placement
Warrant to purchase one share of Common Stock will be issued for
each share of Common Stock into which the Class C Preferred Stock
is converted. The number of shares available for resale is
subject to adjustment and could be materially less or more than
the amount predicted herein depending on factors which cannot be
predicted by the Company at this time, including, among others,
the future market price of the Common Stock. This presentation
is not intended, and should in no way be construed, to constitute
a prediction as to the future market price of the Common Stock.
See "RISK FACTORS -- MARKET RISKS" and "SELLING STOCKHOLDERS."
The Selling Stockholders will sell the Shares from time to
time through customary brokerage channels, either through broker-
dealers acting as agents or brokers for the seller, or through
broker-dealers acting as principals, who may then resell the
Shares in the over-the-counter market or at private sale or
otherwise, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices or at negotiated
prices. The Selling Stockholders and any agents, broker-dealers
or underwriters that participate with the Selling Stockholders in
the distribution of the Shares may be deemed to be "underwriters"
within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"), and any commission received by them and any
profit on the resale of the Common Stock purchased by them may be
deemed to be underwriting discounts or commissions under the Act.
See "PLAN OF DISTRIBUTION."
The Company will not receive any proceeds from the sale of the
Shares offered hereby. The Company has agreed to bear all
expenses of registration of the Shares, excluding the selling and
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brokerage expenses of the Selling Stockholders. It is estimated
that the Company will receive aggregate gross proceeds of
$3,720,000 upon the exercise of all of the Placement Warrants and
Distributors Warrants. See "USE OF PROCEEDS".
The Company's Common Stock is quoted on the Nasdaq SmallCap
Market under the symbol CMPD. On February 5, 1998, the closing
bid and asked prices were both $1.13 per share of Common Stock.
See "MARKET PRICE INFORMATION."
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" ON PAGES 5 THROUGH 10 HEREOF.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is February 6, 1998
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith files reports and other
information with the Securities and Exchange Commission (the
"SEC"). Such reports and other information can be inspected and
copied at the Public Reference Section of the SEC at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549; or at its
offices at Northwest Atrium Center, 500 West Madison Street, 14th
Floor, Chicago, IL 60661; or Seven World Trade Center, 13th
Floor, New York, NY 10048. Copies of this material can also be
obtained at prescribed rates by writing to the Public Reference
Section of the SEC at its principal office at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549. The SEC
maintains a Web site (http://www.sec.gov) that contains reports,
proxy statements and other information regarding registrants that
file electronically with the SEC, including the Company. The
Common Stock of the Company is quoted on the Nasdaq SmallCap
Market. In addition, copies of this material and other
information are provided to Nasdaq and can be inspected at the
Nasdaq offices maintained at the National Association of
Securities Dealers, Inc., 1735 "K" Street, Washington, D.C.
20006.
This Prospectus constitutes a part of a Registration Statement
on Form S-3 (together with all amendments and exhibits thereto,
the "Registration Statement") filed by the Company with the SEC
under the Securities Act. This Prospectus omits certain
information contained in the Registration Statement, and
reference is hereby made to the Registration Statement and to the
exhibits relating thereto for further information with respect to
the Company and the Shares offered hereby. In addition, certain
information filed by the Company with the SEC has been
incorporated herein by reference, see "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE." Any statements contained herein
concerning the provisions of any document are not necessarily
complete, and, in each instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement
or otherwise filed with the SEC. Each such statement is
qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, filed by the Company with the SEC,
are hereby incorporated by reference in this Prospectus:
1. Annual Report on Form 10-KSB for the fiscal year ended
September 30, 1997.
2. Proxy Statement, dated February 20, 1997, for an Annual
Meeting of Stockholders held on March 28, 1997.
3. Form 8-K for an event of December 24, 1997 to report on
Item 5 the sale of the Series C-1 Preferred Stock.
4. Description of the Common Stock contained in the
Registration Statement on Form SB-2, filed on March 5,
1996.
All documents filed by the Company with the SEC pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent
to the date of this Prospectus and prior to the termination of
the offering of the securities covered by this Prospectus shall
be deemed to be incorporated by reference in this Prospectus and
to be a part hereof from the date of filing such documents.
Any statement contained in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be
modified or superseded for the purposes of this Prospectus to the
extent that a statement contained herein or in any other
subsequently filed document which is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this
Prospectus.
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The Company undertakes to provide without charge to each
person to whom this Prospectus is delivered, upon request of any
such person, a copy of any and all of the documents referred to
above which have been or may be incorporated by reference in this
Prospectus other than the exhibits thereto. Requests for such
copies should be directed to the Company at 1230 Rosecrans
Avenue, Suite 1000, Manhattan Beach, California 906266, Attn:
James Linesch, President; telephone (310) 643-5106.
THE COMPANY
The Company is a medical information technology and service
company focused on the diagnosis, monitoring and management of
costly, high incidence diseases, particularly cardiovascular
disease and osteoporosis. The primary focus of the Company's
business is (i) the ongoing development of its osteoporosis
testing technology and (ii) the computer interpretation of
electrocardiograms ("ECGs"). The Company applies advanced
computing, medical imaging, telecommunications and networking
technologies to provide medical professionals and patients with
affordable, point-of-care solutions for disease risk assessment
and decision support.
The Company was incorporated in the State of Delaware on July
21, 1986. The address and telephone number of the Company's
principal executive offices are 1230 Rosecrans Avenue, Suite
1000, Manhattan Beach, California 90266, telephone (310) 643-
5106.
RECENT DEVELOPMENTS
Sales of Preferred Stock. On December 24, 1997, the Company
issued an aggregate of 17,500 shares of Series C-1 Preferred
Stock to seven of the Selling Stockholders at a price of $100 per
share. As of January 22, 1998, the Company sold an aggregate of
8,750 shares of Series C-2 Preferred Stock to seven of the
Selling Stockholders at a price of $100 per share. The aggregate
net proceeds of these placements was approximately $2,500,000.
On or before February 15, 1998, the Company is expected to close
on the sale of an additional 8,750 shares of Series C-2 Preferred
Stock at a price of $100 per share, which closing may be extended
to 30 days after the effectiveness of this Registration Statement
if the Company's Common Stock does not meet certain price and
volume minimums by February 15, 1998. Pursuant to the Securities
Purchase Agreements for the Class C Preferred Stock, the Company
entered into a Registration Rights Agreement under which the
Company is obligated to file the Registration Statement. See
"SELLING STOCKHOLDERS."
Each share of Class C Preferred Stock is convertible at the
option of the Selling Stockholder into the number of fully paid
and nonassessable shares of Common Stock as is determined by:
dividing (A) $100 by (B) the respective conversion price (the
"Conversion Price") in effect at the time of conversion for each
series. The Conversion Price for the Series C-1 Preferred Stock
is equal to the lesser of: (a) $1.51 or (b) the product of
(i) .75 and (ii) the average closing bid price, as reported on
the Nasdaq SmallCap Market (or on such national securities
exchange or automated trading system on which the Common Stock
is then primarily traded), of the Common Stock for the ten (10)
consecutive trading days immediately preceding the date (the
"Notice Date") on which a notice is received by the Company
from the holder desiring to convert his Series C-1 Preferred
Stock. The Conversion Price for the Series C-2 Preferred Stock
is equal to the lesser of: (a) $1.34 or (b) the product of
(i) .775 (or .80 for original issuances after December 31, 1997)
and (ii) the average closing bid price, as reported on the Nasdaq
SmallCap Market (or on such national securities exchange or
automated trading system on which the Common Stock is then
primarily traded), of the Common Stock for the ten (10)
consecutive trading days immediately preceding the Notice Date.
Upon conversion of the Class C Preferred Stock, the holder of
the Class C Preferred Stock will obtain one Placement Warrant for
the purchase of one share of Common Stock for each share of
Common Stock into which the Class C Preferred Stock is converted
exercisable for three years at an exercise price equal to the
Conversion Price of such Class C Preferred Stock.
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Termination of Merck License Agreement. Effective September
22, 1995, the Company entered into a Technology License Agreement
(the "License Agreement") with Merck & Co., Inc. ("Merck")
pursuant to which Merck was granted a perpetual, exclusive
license of the Osteogram and the Company was to receive a
royalty payment for each Osteogram test sold by Merck to a
physician during the years 1996 through 2000, subject to certain
caps, at which time the royalties would cease. Through September
30, 1997, the Company had earned cumulative royalties on
approximately 70,000 Osteogram tests amounting to gross proceeds
of $155,000. Merck had the right to terminate the Merck License
Agreement at any time. By letter, dated January 7, 1998, Bone
Measurement Institute ("BMI"), the assignee of Merck's interest
under the License Agreement and a non-profit wholly-owned
subsidiary of Merck, gave notice of cancellation of the License
Agreement effective March 31, 1998. BMI will cease performance
of tests using the licensed technology on February 27, 1998, and
will return the licensed technology to the Company on March 31,
1998.
The OsteoView<"Registered" symbol>. The Company's research and
development efforts are currently focused primarily on producing
a stand-alone bone densitometer, the OsteoView<"Registered"
symbol>. This device will utilize a low-dose x-ray source and a
digital detector to determine bone density from a measurement of
the fingers and the wrist. The OsteoView<"Registered" symbol>
will utilize amorphous silicon as its detector which will produce
a high resolution digital x-ray image. During the 1997 fiscal
year, the Company developed a prototype model for this device.
The Company is seeking to make the OsteoView<"Registered" symbol>
device competitive with other peripheral-site bone scanning
devices on the market. A development team has been assembled
which includes the University of Massachusetts Medical Center and
specialized high technology vendors for certain aspects of this
project. The Company coordinates and funds the development
performed by project members and will retain primary rights to
the completed product.
Elimination of Telecor Services Division. The Company's
Telecor Services Division ("Telecor") previously offered to
physicians transtelephonic cardiac event monitoring equipment and
services. Through such equipment and services physicians were
able to continuously monitor their patients' heart rate and
rhythms to detect arrhythmias and other cardiac abnormalities.
Telecor revenues reduced considerably during the second fiscal
quarter of 1997 following the termination of several key
distributors of this service. The Company elected to terminate
the offering of this service rather than invest the necessary
marketing costs to rebuild the customer base.
Cessation of Development of Detoxahol<trademark symbol>. In
March 1994, the Company acquired the rights to a potential new
pharmaceutical product called Detoxahol<trademark symbol>, a
substance intended to facilitate the rapid lowering of blood
alcohol of people who have been drinking alcohol. In June 1995,
a patent application was filed on behalf of the Company covering
the technology underlying Detoxahol<trademark symbol>. The
Company was developing Detoxahol<trademark symbol> technology
pursuant to certain agreements with the University of Georgia.
The Company now has ceased its development of Detoxahol<trademark
symbol> technology and there is no assurance that the Company
will commence development in the future or that if any
Detoxahol<trademark symbol> product is ultimately developed by
the Company such product will be cleared by the appropriate
regulatory agencies. The Company is currently seeking a
development partner for this product, however, there is no
assurance that such a partner will be secured. Significant
further research and development, including clinical testing, as
well as obtaining necessary regulatory clearances, are required
before the Company could produce a marketable Detoxahol<trademark
symbol> product.
RISK FACTORS
An investment in the Common Stock involves a high degree of
risk and, therefore, should be considered extremely speculative.
It should not be purchased by persons who cannot afford the
possibility of the loss of their entire investment. Prospective
investors should consider carefully among other risk factors, the
risk factors and other special considerations relating to the
Company and this offering set forth below. The discussion in
this Prospectus contains, in addition to historical information,
certain forward-looking statements that involve risks and
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uncertainties, such as statements of the Company's plans,
beliefs, expectations and intentions. The Company's actual
results could differ materially from the results discussed in the
forward-looking statements. Factors that could cause or
contribute to such differences include the following risk
factors, as well as factors discussed elsewhere in this
Prospectus. The cautionary statements made in this Prospectus
should be read as being applicable to all related forward-looking
statements wherever they appear in this Prospectus.
FINANCIAL RISKS
History of Losses. The Company's operations incurred net
losses of approximately $2,202,000 in 1993, $3,864,000 in 1994,
$3,390,000 in 1995, $4,647,000 in 1996, and $2,214,000 in 1997.
The Company's retained deficit at September 30, 1997 was
$26,393,000. The Company anticipates losses during the 1998
fiscal year due to future research and development costs and
corporate costs. It should also be noted that while net losses
were lower in fiscal 1997 than in fiscal 1996, net revenues were
also reduced from $2,344,000 in 1996 to $1,939,000 in 1997. See
"SELECTED FINANCIAL INFORMATION."
No Assurance of Future Sources of Capital to Support and Grow
Business. The Company will require capital to finance its
continued investment in research and development of the OsteoView
and to support and grow its existing ECG systems. Although the
Company believes it has sufficient capital to fund these
activities for at least the next 12 months as a result of the
$3.5 million private placement to the Selling Stockholders of
which $2.625 million has been received, and the balance is
expected on or before February 15, 1998, subject to extension
upon certain events. Inasmuch as the Company expects to incur
additional operating losses, there can be no assurance that the
Company will have adequate working capital to fund all of these
activities thereafter. Further, the sale or issuance of
additional equity or convertible debt securities could result in
additional dilution to the Company's stockholders, see "Market
Risks -- Shares Eligible for Future Sale." There can be no
assurance that additional financing, if required, will be
available when needed or, if available, will be on terms
acceptable to the Company. Moreover, the Securities Purchase
Agreement pursuant to which the Class C Preferred Stock was sold
provides that the Company is limited in offering or selling its
Common Stock until 100 days after the effective date of the
Registration Statement without the consent of 80% in interest of
the purchasers of the Class C Preferred Stock.
BUSINESS AND REGULATORY RISKS
Lack of Acceptance of the OsteoGram<"Registered" symbol>.
Management had expected that a significant portion of the
Company's future revenues would come from royalties under the
License Agreement. To date, the Company has received only modest
revenues under the Agreement. As discussed above, the Licensing
Agreement has been cancelled effective March 31, 1998. See "THE
COMPANY - Recent Developments."
The existence of the OsteoGram<"Registered" symbol> for
testing bone mass is currently at an early stage in market
development and is not widely recognized by the medical
profession and the public. Management had considered that the
introduction of drugs like Merck's Fosamax<trademark symbol> into
the market would have increased the public's awareness of the
OsteoGram<"Registered" symbol>, however, education of the medical
profession and public of the OsteoGram<"Registered" symbol>'s
effectiveness, low cost, ease of use and lack of any need for
specialized capital equipment to administer the test remains
vital to the success of the OsteoGram<"Registered" symbol>. In
addition, other obstacles, such as competition with other
companies that are better known and financed than the Company,
impede the OsteoGram<"Registered" symbol>'s acceptance.
FDA Regulation. The Company's medical devices, medical
services and potential pharmaceutical products are subject to
varying degrees of FDA regulation. The FDA Office of Medical
Devices regulates the safety and efficacy of medical devices.
All medical devices and their components are subject to certain
general controls, including compliance with specified
manufacturing practices. Manufacturers are required to provide
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the FDA with advance notice of their intention to introduce and
market new medical devices and demonstrate such devices' safety
and efficacy to the FDA's satisfaction prior to commencement of
their commercial use.
Medical Reimbursement Program. The OsteoGram<"Registered"
symbol> and ECG services are approved for reimbursement by
Medicare and most other third party payors. Most payments for
these services are made by the medical insurance carrier of the
patients. Government regulation may change at any time and
Medicare reimbursements for the Osteogram<"Registered" symbol> or
ECG services may be withdrawn or reduced. Further, should
Medicare reimbursement programs be significantly reduced or
should other regulatory changes affect the ability of physicians
or the Company to recover the cost of OsteoGram<"Registered"
symbol> tests or ECG services, the Company's ability to market
and sell its products would be adversely affected.
Development of the OsteoView<"Registered" symbol>. The
Company is devoting substantial efforts to develop the
OsteoView<"Registered" symbol>. The development costs could be
substantial and the development period could be longer than that
presently anticipated by the Company. There is no assurance that
the OsteoView can be commercially developed and even if so, that
it would be profitable. The Company may seek to enter into a
venture arrangement with a third party to provide financing or
other support in connection with the development of the
OsteoView<"Registered" symbol>
Lack of Patent Protection. The Company has licensed its
proprietary technology in the OsteoGram<"Registered" symbol> to
Merck in reliance on trade secret protection for the
OsteoGram<"Registered" symbol> and considers the software to
process the OsteoGram<"Registered" symbol> to be proprietary.
With the cancellation of the License Agreement, the proprietary
technology will be returned to the Company, see, "THE COMPANY -
Recent Developments." Notwithstanding the termination of the
License Agreement, Merck shall remain bound by the
confidentiality provisions of the agreement. However, such
protection may not preclude competitors from developing products
which can be marketed in competition with the
OsteoGram<"Registered" symbol>. The Company intends to file for
patents as improvements are made to the OsteoSystem or as a
second generation OsteoSystem is developed. There can be no
assurance that patent applications, if filed, will result in
issued patents or that patents, if issued will not be
circumvented or invalidated. Moreover, there is no assurance
that the Company is not infringing the patents of third parties.
In June 1995, a patent application was filed on behalf of the
Company covering the technology underlying Detoxahol<trademark
symbol>. There can be no assurance that such patent application
will be approved, that the Company can develop or acquire
Detoxahol<trademark symbol> products or methods of use that are
patentable, or even if patents are issued that they will afford
the Company's potential Detoxahol<trademark symbol> products any
competitive advantage or will not be challenged by third parties,
or that patents issued to others will not adversely affect the
development or commercialization of the Company's products. As
previously noted, the Company has ceased its development of
Detoxahol.<trademark symbol>
Competition. The primary businesses in which the Company
engages, testing for bone density and sales and processing of
ECGs, are highly competitive. There are other companies with
substantially greater market recognition and financial and
development resources than those of the Company which are engaged
in the marketing of products similar to and which compete with
the OsteoGram<"Registered" symbol> and the Company's ECG
terminals. Many radiology centers (in hospitals and free
standing) also consider themselves competitors of the Company,
because of their capital investments in expensive bone scanning
equipment. In addition, and particularly in regard to the
OsteoGram<"Registered" symbol>, physicians and other prominent
members of the medical community frequently are reluctant to
accept new products until their contribution to health care has
been established over an extended period of time. Should the
Company successfully develop a marketable product using the
OsteoView<"Registered" symbol> technology, it would be subject to
these same risks. In addition, there is no assurance that other
companies with competing technologies will not be approved for
reimbursement by Medicare and/or private insurance carriers.
New Products and Technological Change. The Company is in the
"high tech" end of the health care industry. This industry has
been historically marked by very rapid technological change and
frequent introductions of new products. Accordingly, the
Company's future growth and profitability depend in part on its
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ability to continue to respond to technological changes and
successfully develop and market new products that achieve
significant market acceptance. There is no assurance that the
Company will be able to do so.
Dependence on Third Parties for Manufacturing, Marketing and
Research. The Company currently has no capability to manufacture
apparatus used in connection with the Osteoview<"Registered"
symbol> or ECG services. The Company has entered into
arrangements with third parties for the manufacture of certain
apparatus used in connection with the Osteoview<"Registered"
symbol> and ECG services. There can be no assurance that third
party manufacturers will be able to continue to meet the
Company's quantity and quality requirements for manufactured
products.
Products Liability Exposure. The malfunction or misuse of the
medical devices assembled and sold and services rendered by the
Company may result in potential injury to physicians' patients,
thereby subjecting the Company to possible liability. Although
the Company's insurance coverage is $3,000,000 per occurrence and
$3,000,000 in the aggregate with a deductible of $1,000, which
amounts and deductibles are customary in the industry, there can
be no assurance that such insurance will be sufficient to cover
any potential liability. Furthermore, there can be no assurance
that this coverage will continue to be available or, if
available, that it can be maintained at reasonable cost. To
date, the Company has never been involved in any litigation as a
result of alleged product liability.
Professional Liability Exposure. The Company's current
liability insurance policy does not cover losses due to
misinterpreted overreads of ECG printouts by physicians retained
by the Company to provide such services. Medical professional
liability claims which may be brought against the Company for
misinterpreted overreads, which are not covered by or exceed the
coverage amount of a medical professional liability insurance
policy held by the physician performing the overread, could have
a material adverse effect on the Company's business, financial
condition or operating results. Since commencing its ECG
services, no medical professional liability claims have been made
against either physicians who perform overreads for the Company
or the Company with respect to misinterpreted overreads.
Dependence on Key Personnel. The Company is dependent upon
the continued services of James Linesch who since August 1997 has
been the President and Chief Executive Officer as well as
continuing as Chief Financial Officer and Secretary. Robert B.
Goldberg acts as the Chairman of the Board. The Company is
seeking to retain additional executive officers, however, there
is no assurance that suitable persons can be attracted to the
Company for such positions and thereafter retained.
MARKET RISKS
Securities Market Volatility. The trading price of the
Company's Common Stock is subject to wide fluctuations in
response to variations in operating results of the Company,
actual or anticipated announcements of technical innovations or
new products by the Company or its competitors or alliances
formed with other industry participants, general conditions in
the industry and the worldwide economy, and other events or
factors. In the past two fiscal years, the Company's stock
traded from a high of $19.13 to a low of $0.50. See "MARKET
PRICE INFORMATION." In addition, there have been periods of
extreme volatility in the stock markets, which in many cases were
unrelated to the operating performance of, or announcements
concerning, the issuers of the affected stock. The Company's
Common Stock has been traded at a high volume and the bid and
asked prices for its Common Stock have fluctuated significantly
as a result of such volume. General market price declines or
market volatility or factors related to the general economy or
the Company in the future could adversely affect the price of the
Common Stock.
Absence of dividends. The Company has never paid a cash
dividend on its Common Stock since its inception. At the present
time, the Company's anticipated working capital requirements are
such that it intends to follow a policy of retaining any earnings
in order to finance the development of its business.
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Dilution. The market price of the Common Stock is presently
in excess of net tangible book value, which was $.09 per share on
September 30, 1997. Investors who purchase Common Stock would
absorb immediate dilution in the net tangible book value per
share of Common Stock.
Shares Eligible for Future Sale. At December 31, 1997,
9,041,857 shares of the Company's Common Stock were outstanding.
In addition, (i) 8,200 shares of Common Stock are issuable upon
conversion of the outstanding Class A Preferred Stock and Class B
Preferred Stock, (ii) 994,918 shares of Common Stock are issuable
upon the exercise of outstanding stock options, (iii) 770,000
shares of Common Stock and warrants for the exercise of 1,920,000
shares of Common Stock are issuable upon finalization of a class
action settlement, (v) 669,170 shares of Common Stock are
issuable upon the exercise of outstanding public warrants and
(vi) 372,000 shares of Common Stock are issuable upon the
exercise of other warrants. The foregoing excludes the presently
indeterminable number of shares of Common Stock issuable upon the
conversion of the Class C Preferred Stock, subject to certain
limitations on conversion if the market price of the Common Stock
is less than $1.00 on the Notice Date, the exercise of the
Placement Warrants issuable upon conversion of the Class C
Preferred Stock, and the 200,000 Distributors Warrants. The sale,
or availability for sale, of substantial amounts of Common Stock
in the public market could adversely affect the prevailing market
price of the Common Stock and could impair the Company's ability
to raise additional capital when needed through the sale of its
equity securities.
Risk of Losing Nasdaq SmallCap Market Listing. The total
assets and capital surplus reported in the Company's annual
report on Form 10-KSB for the fiscal year ended September 30,
1997 did not meet the Nasdaq SmallCap Market's minimal asset and
capital surplus requirements, and the company received notice of
the same from Nasdaq. This deficiency was corrected with the
December 1997 placement of the Class C Preferred Stock, and
Nasdaq has concluded that the Company now meets its current
listing requirements, subject to the Company filing a Form 8-K
by February 13, 1998 with respect to pro forma adjustments to
its balance sheet and statement of operations reflecting the
December 1997 placement and the second placement of Series C
Preferred Stock in January 1998. Nevertheless, should the
Company continue to incur losses, be unable to raise additional
equity capital, or the market price of its Common Stock decline,
there can be no assurance that the Company will continue to meet
the present listing requirements of the Nasdaq SmallCap Market.
Should the Company fail to meet such listing standards, it would
be delisted from the Nasdaq SmallCap Market. Trading, if any,
in the listed securities would thereafter be conducted on the
OTC Electronic Bulletin Board or the National Quotation Bureau's
"pink sheets." As a result, should delisting occur, an investor
may find it difficult to dispose of, or to obtain accurate
quotations of the price of, the Company's securities. This
would likely have a material adverse effect on the market price
of the Company's Common Stock and on the Company's ability to
raise additional capital.
Risks Relating to Low-Priced Stock; Possible Effect of "Penny
Stock" Rules on Liquidity for the Company's Securities. If the
Company's Common Stock ceases to be listed on the Nasdaq SmallCap
Market, the Common Stock would become subject to Rule 15g-9 under
the Exchange Act. This Rule (the "Penny Stock Rule") imposes
additional sales practice requirements on broker-dealers that
sell such securities to persons other than established customers
and "accredited investors" (generally, individuals with a net
worth in excess of $1,000,000 or annual incomes exceeding
$200,000, or $300,000 together with their spouses). For
transactions covered by Rule 15g-9, a broker-dealer must make a
special suitability determination for the purchaser and have
received the purchaser's written consent to the transaction prior
to sale. Consequently, such Rule may affect the ability of
broker-dealers to sell the Company's securities and may affect
the ability of purchasers to sell any of the Company's securities
in the secondary market.
The SEC has adopted regulations that define a "penny stock" to
be any equity security that has a market price (as therein
defined) of less than $5.00 per share or with an exercise price
of less than $5.00 per share, subject to certain exceptions. For
any transaction involving a penny stock, unless exempt, the rules
require delivery, prior to any transaction in a penny stock, of a
disclosure schedule prepared by the SEC relating to the penny
stock market. Disclosure is also required to be made about sales
commissions payable to both the broker-dealer and the registered
representative and current quotations for the securities.
Finally, monthly statements are required to be sent disclosing
9
<PAGE>
recent price information for the penny stock held in the account
and information on the limited market in penny stock.
The foregoing required penny stock restrictions will not apply
to the Company's Common Stock if the Company meets a $2 million
minimum net tangible assets or, a $1 market price or other Nasdaq
rules. There can be no assurance that the Company's Common Stock
will qualify for exemption from the penny stock restrictions. In
any event, even if the Company's Common Stock were exempt from
such restrictions, the Company would remain subject to Section
15(b)(6) of the Exchange Act, which gives the SEC the authority
to restrict any person from participating in a distribution of
penny stock, if the SEC finds that such a restriction would be in
the public interest.
If the Company's Common Stock were subject to the rules on
penny stocks, the market liquidity for the Company's Common Stock
could be materially adversely affected.
Antitakeover Effect of Certain Charter Provisions. Certain
provisions of the Company's Certificate of Incorporation and
Bylaws and of Delaware law could discourage potential acquisition
proposals and could delay or prevent a change in control of the
Company. Such provisions could diminish the opportunities for a
stockholder to participate in tender offers, including tender
offers at a price above the then current market value of the
Common Stock. Such provisions may also inhibit fluctuations in
the market price of the Common Stock that could result from
takeover attempts. In addition, the Board of Directors, without
further stockholder approval, may issue Preferred Stock that
could have the effect of delaying or preventing a change in
control of the Company. The issuance of Preferred Stock could
also adversely affect the voting power of the holders of Common
Stock, including the loss of voting control to others.
MARKET PRICE INFORMATION
The Company's Common Stock is included on the Nasdaq SmallCap
System under the symbol CMPD. The following table sets forth,
for the Company's fiscal years indicated, the quarterly high and
low bid prices for the Common Stock as reported by Nasdaq for the
periods indicated. These prices are based on quotations between
dealers, and do not reflect retail mark-up, mark-down or
commissions, and may not necessarily represent actual
transactions.
Common Stock High Low
------------ ---- ---
Fiscal 1996
-----------
First Quarter $ 19.13 $ 3.00
Second Quarter 5.06 2.31
Third Quarter 3.75 2.25
Fourth Quarter 2.63 .94
Fiscal 1997
-----------
First Quarter 1.94 .54
Second Quarter 1.38 .69
Third Quarter 1.22 .50
Fourth Quarter 3.09 .59
10
<PAGE>
Fiscal 1998
-----------
First Quarter 2.09 1.34
Second Quarter (through 1.41 1.09
February 5, 1998)
See the cover page of this Prospectus for the last sales price of
the Common Stock reported on the Nasdaq SmallCap Market as of a
recent date. Investors should check the market prices of the
Common Stock before making an investment decision with respect to
securities of the Company.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale
of the Shares by the Selling Stockholders. Through the placement
of the Class C Preferred Stock, the Company has obtained gross
proceeds of $2,625,000 and is expected to receive the balance of
$875,000 by February 15, 1998 (which may be extended to 30 days
after the effective date of the Registration Statement if the
average closing bid price of the Common Stock for the ten trading
days prior to the closing date is less than $1.50 per share),
prior to a 4% distributors fee and placement expenses. The
additional closing is also subject to (i) the continuing material
accuracy of representations and warranties by the Company in the
Securities Purchase Agreement, (ii) the average closing bid price
of the Common Stock is at least $1.00 per share and (iii) the
average dollar volume for the 20 trading days preceding such
closing shall be at least $159,000.
The Company estimates that it will also receive (i) gross
proceeds of $220,000 upon exercise in full of the Distributors
Warrants in accordance with the terms thereof and (ii) an amount
equal to the number of Placement Warrants issuable upon the
conversion of the Class C Preferred Stock multiplied by the
exercise prices thereof, which exercise prices will be equal to
the respective Conversion Prices of such Class C Preferred Stock.
There can be no assurance that the Selling Stockholders will
exercise any or all of the Placement Warrants or Distributors
Warrants. The Company would use the net proceeds from exercise
of the Warrants for further research and development and for
general corporate purposes.
The Company will bear the expenses of the registration of the
Shares. The Company estimates that these expenses will be
approximately $20,000.
SUMMARY FINANCIAL INFORMATION
The following tables set forth historical consolidated
financial data of the Company for the fiscal years ended
September 30, 1997, September 30, 1996 and September 30, 1995.
The selected historical consolidated financial data for each of
the fiscal years presented below were derived from the
consolidated financial statements of the Company. This data
should be read in conjunction with the Company's financial
statements and "Management's Discussion and Analysis or Plan of
Operation" incorporated by reference herein to the Company's
Annual Report on Form 10-KSB for the fiscal year ended September
30, 1997.
11
<PAGE>
STATEMENT OF OPERATIONS DATA:
YEAR ENDED SEPTEMBER 30
---------------------------------------
1997 1996 1995
REVENUES:
ECG services . . . . . . . . $ 1,674,000 $2,008,000 $ 1,643,000
Osteo royalty revenues . . . 119,000 37,000 327,000
Product sales . . . . . . . . 146,000 200,000 573,000
Rental property . . . . . . . -0- 99,000 431,000
----------- ---------- -----------
1,939,000 2,344,000 2,974,000
COST OF SALES . . . . . . . . . 4,222,000 7,123,000 6,026,000
OTHER INCOME (EXPENSE) . . . . 69,000 132,000 (338,000)
----------- ---------- -----------
NET LOSS . . . . . . . . . . . $(2,214,000) $(4,647,000) $(3,390,000)
=========== ========== ===========
NET LOSS PER SHARE . . . . . . $(.25) $(.54) $(.55)
----------- ---------- -----------
Weighted average number of 8,965,045 8,534,276 6,150,500
common shares outstanding . . . =========== ========== ===========
BALANCE SHEET DATA:
SEPTEMBER 30,
------------------------
1997 1996
---- ----
CASH AND MARKETABLE SECURITIES . . . $ 931,000 $2,644,000
TOTAL ASSETS . . . . . . . . . . . . 1,776,000 3,978,000
TOTAL CURRENT LIABILITIES . . . . . . 756,000 942,000
TOTAL STOCKHOLDERS' EQUITY . . . . . 868,000 2,958,000
SELLING STOCKHOLDERS
The Shares offered by this Prospectus may be offered from time
to time by the Selling Stockholders. All Selling Stockholders
were purchasers under Securities Purchase Agreements including
First Geneva Holdings, Inc. which also is the holder of the
Distributors Warrants. None of the Selling Stockholders has held
any position, office or material relationship with the Company or
any of its predecessors or affiliates within three years of the
date of this Prospectus. On December 24, 1997, the Company
issued an aggregate of 17,500 shares of Series C-1 Preferred
Stock and as of January 22, 1998, the Company issued an aggregate
of 8,750 shares of Series C-2 Preferred Stock. On or before
February 17, 1998 (which may be extended to 30 trading days after
the date of this Prospectus by reason of the Common Stock not
meeting certain price or volume amounts as of February 17, 1998),
certain of the Selling Stockholders are expected to close on the
purchase of 8,750 shares of Series C-2 Preferred Stock. See "USE
OF PROCEEDS." Upon conversion of the Class C Preferred Stock, the
Selling Stockholders will obtain Placement Warrants for the
12
<PAGE>
purchase of one share of Common Stock for each share of Common
Stock into which the Class C Preferred Stock is converted at an
exercise price equal to the respective Conversion Prices and
exercisable for three years.
If on the last trading date preceding a notice of conversion
from a holder, the closing bid price is less than $1.00 per
share, the number of shares of Series C Preferred Stock which may
be converted by the holder then seeking conversion would be
limited to an amount which does not exceed 5% of the amount of
Series C-1 or C-2 Preferred Stock initially purchased by such
holder, and such limitations shall be for a 30-day period
following the Notice Date. The Company, at its sole discretion,
may force conversion of any or all shares of Series C-1 Preferred
Stock outstanding on November 30, 1999 and of Series C-2 Preferred
Stock outstanding on December 31, 1999.
The following table sets forth, as of January 22, 1998 and
upon completion of this offering, information with regard to the
beneficial ownership of the Company's Common Stock by each of the
Selling Stockholders. The table assumes the conversion of all
the Class C Preferred Stock and the exercise of all of the
Distributors Warrants and the Placement Warrants. For purposes
of calculating the number of shares of Common Stock beneficially
owned by the Selling Stockholders, the Conversion Price of the
Class C Preferred Stock is assumed to be $1.13, which is 75% of
the average closing bid price, as reported on the Nasdaq SmallCap
Market, of the Company's Common Stock for the ten consecutive
trading days immediately preceding December 24, 1997, the closing
date for the sale of the Series C-1 Preferred Stock. The
Registration Statement includes, in accordance with Rule 416
of the Securities Act, an indeterminate number of shares
issuable upon conversion of the Class C Preferred Stock and
exercise of the Placement Warrants as a result of the floating
rate conversion features of the Class C Preferred Stock. The use
of such hypothetical conversion prices is not intended, and should
in no way be construed, to constitute a prediction as to the
future market price of the Common Stock.
The information included below is based upon information
provided by the Selling Stockholders. Because the Selling
Stockholders may offer all, some or none of their Common Stock,
no definitive estimate as to the number of shares thereof that
will be held by the Selling Stockholders after such offering can
be provided and the following table has been prepared on the
assumption that all shares of Common Stock offered under this
Prospectus will be sold.
AMOUNT AMOUNT
BENEFICIALLY BENEFICIALLY
OWNED OWNED
PRIOR TO SHARES TO BE AFTER
NAME(1) OFFERING OFFERED OFFERING(3)
---- --------------- ------------- --------------
The Shaar Fund Ltd. . . 1,769,912(4) 1,769,912 0
Shaar Advisory Services
Ltd. . . . . . . . . 1,238,938(5) 1,238,938 0
First Geneva Holdings,
Inc. . . . . . . . . 907,966(6) 907,966 0
Firmvest Capital Corp. 884,956(7) 884,956 0
Nachum Stein and Feige
Stein . . . . . . . . 398,230(8) 398,230 0
Peter Chenam . . . . . 353,982(9) 353,982 0
Rutgers Casualty, Inc. 309,734(10) 309,734 0
The Gross Foundation . 176,991(11) 176,991 0
NSI Partnership . . . . 176,991(12) 176,991 0
Kentucky National
Insurance Co. . . . . 132,742(13) 132,742 0
Alexander Hasenfeld, Inc.
Profit Sharing
Retirement Plan . . 44,248(14) 44,248 0
===========================================================================
------------------------------
(1) Unless otherwise indicated in the footnotes to this table, the persons
and entities named in the table have sole voting and sole investment
power with respect to all shares beneficially owned, subject to
community property laws where applicable.
13
<PAGE>
(2) As required by regulations of the SEC, the number of shares shown as
beneficially owned includes shares which can be purchased within 60
days after January 23, 1998. The actual number of shares of Common
Stock beneficially owned is subject to adjustment and could be
materially less or more than the estimated amount indicated depending
upon factors which cannot be predicted by the Company at this time,
including, among others, the market price of the Common Stock
prevailing at the actual date of conversion of Class C Preferred
Stock.
(3) Assumes the sale of all shares offered hereby.
(4) Includes 1,769,912 shares underlying Series C-1 Preferred Stock and
Series C-1 Warrants.
(5) Includes (i) 796,460 shares underlying Series C-1 Preferred Stock and
Series C-1 Warrants and (ii) 442,478 shares underlying Series C-2
Preferred Stock and Series C-2 Warrants.
(6) Includes (i) 707,964 shares underlying Series C-2 Preferred Stock and
Series C-2 Warrants and (ii) 200,000 shares underlying the
Distributors Warrants exercisable at $1.10 per share until December 1,
1999.
(7) Includes 884,956 shares underlying Series C-2 Preferred Stock and
Series C-2 Warrants.
(8) Includes (i) 44,248 shares underlying Series C-1 Preferred Stock and
Series C-1 Warrants and (ii) 353,982 shares underlying Series C-2
Preferred Stock and Series C-2 Warrants.
(9) Includes 353,982 shares underlying Series C-2 Preferred Stock and
Series C-2 Warrants.
(10) Includes (i) 152,744 shares underlying Series C-1 Preferred Stock and
Series C-1 Warrants and (ii) 176,990 shares underlying Series C-2
Preferred Stock and Series C-2 Warrants.
(11) Includes 176,690 shares underlying Series C-1 Preferred Stock and
Series C-1 Warrants.
(12) Includes 176,690 shares underlying Series C-2 Preferred Stock and
Series C-2 Warrants.
(13) Includes 132,744 shares underlying Series C-1 Preferred Stock and
Series C-1 Warrants.
(14) Includes 44,248 shares underlying Series C-1 Preferred Stock and
Series C-1 Warrants.
Pursuant to the Securities Purchase Agreement for the Class C Preferred
Stock, the Company entered into a Registration Rights Agreement with the
Selling Stockholders under which the Company is obligated to file the
Registration Statement and to use its best efforts to cause the
Registration Statement to become effective by March 24, 1998. Otherwise,
the Company will pay the holders of the outstanding Class C Preferred Stock
an amount equal to 0.5% of their purchase price for the seven day period
beyond March 24, 1998 that the effective day is delayed.
PLAN OF DISTRIBUTION
The Selling Stockholders have advised the Company that, prior to the
date of this Prospectus, they have not made any agreement or arrangement
with any underwriters, brokers or dealers regarding the distribution and
resale of the Shares. If the Company is notified by a Selling Stockholder
that any material arrangement has been entered into with an underwriter for
the sale of the Shares, a supplemental prospectus will be filed to disclose
such of the following information as the Company believes appropriate: (i)
the name of the participating underwriter; (ii) the number of the Shares
involved; (iii) the price at which such Shares are sold, the commissions
paid or discounts or concessions allowed to such underwriter; and (iv)
other facts material to the transaction.
14
<PAGE>
The Company expects that the Selling Stockholders will sell their Shares
covered by this Prospectus through customary brokerage channels, either
through broker-dealers acting as agents or brokers for the seller, or
through broker-dealers acting as principals, who may then resell the Shares
in the over-the-counter market, or at private sale or otherwise, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices. The Selling Stockholders may effect
such transactions by selling the Shares to or through broker-dealers, and
such broker-dealers may receive compensation in the form of concessions or
commissions from the Selling Stockholders and/or the purchasers of the
Shares for whom they may act as agent (which compensation may be in excess
of customary commissions). The Selling Stockholders and any broker-dealers
that participate with the Selling Stockholders in the distribution of
Shares may be deemed to be underwriters and commissions received by them
and any profit on the resale of Shares positioned by them might be deemed
to be underwriting discounts and commissions under the Securities Act.
There can be no assurance that any of the Selling Stockholders will sell
any or all of the Shares offered by them hereunder.
Sales of the Shares on the Nasdaq SmallCap System or other trading
system may be by means of one or more of the following: (i) a block trade
in which a broker or dealer will attempt to sell the Shares as agent, but
may position and resell a portion of the block as principal to facilitate
the transaction; (ii) purchases by a dealer as principal and resale by such
dealer for its account pursuant to this Prospectus; and (iii) ordinary
brokerage transactions and transactions in which the broker solicits
purchasers. In effecting sales, brokers or dealers engaged by the Selling
Stockholders may arrange for other brokers or dealers to participate.
The Selling Stockholders are not restricted as to the price or prices at
which they may sell their Shares. Sales of such Shares at less than market
prices may depress the market price of the Company's Common Stock.
Moreover, the Selling Stockholders are not restricted as to the number of
Shares which may be sold at any one time.
Pursuant to the Registration Rights Agreements, the Company will pay all
of the expenses incident to the offer and sale of the Shares to the public
by the Selling Stockholders other than commissions and discounts of
underwriters, dealers or agents. The Company and the Selling Stockholders
have agreed to indemnify each other and certain persons, including broker-
dealers or others, against certain liabilities in connection with the
offering of the Common Stock, including liabilities arising under the
Securities Act.
The Company has advised the Selling Stockholders that the anti-
manipulative rules under the Exchange Act, including Regulation M, may
apply to sales in the market of the Shares offered hereby and has furnished
the Selling Stockholders with a copy of such rules. The Company has also
advised the Selling Stockholders of the requirement for the delivery of
this Prospectus in connection with resales of the Shares offered hereby.
The Company has been advised by each Selling Stockholder that it will
comply with Regulation M promulgated under the Exchange Act, in connection
with all resales of the Shares offered hereby. The Company has also been
advised by the Selling Stockholders that none of them has, as of January
22, 1998, entered into any arrangement with a broker-dealer for the sale of
the Shares through block trade, special offering, exchange distribution or
secondary distribution of a purchase by a broker-dealer.
LEGAL MATTERS
Certain legal matters in connection with the validity of the shares of
Common Stock offered hereby will be passed upon for the Company by Reid &
Priest LLP, New York, New York.
15
<PAGE>
EXPERTS
The consolidated financial statements of the Company appearing in its
Annual Report on Form 10-KSB for the two fiscal years ended September 30,
1997 have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein
by reference in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
16
<PAGE>
=========================================================================
No person is authorized in connection with any offering made hereby to
give any information or to make any representation not contained in this
Prospectus, and, if given or made, such information or representation
must not be relied upon as having been authorized by the Company or any
Underwriter. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any security other than the shares of
Common Stock offered hereby, nor does it constitute an offer to sell or a
solicitation of any offer to buy any of the securities offered hereby to
any person in any jurisdiction in which it is unlawful to make such an
offer or solicitation. Neither the delivery of this Prospectus nor any
sale made hereunder shall under any implication that the information
contained herein is correct as of any date subsequent to the date hereof.
TABLE OF CONTENTS
PAGE
----
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 3
INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE . . . . . . . . . . . . . . . . . . . . . 3
THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
MARKET PRICE INFORMATION . . . . . . . . . . . . . . . . . . . . . 10
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SUMMARY FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . 11
SELLING STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . 12
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . 14
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
========================================================================
=======================================================================
6,394,690 Shares of Common Stock
COMPUMED, INC.
------------------------
P R O S P E C T U S
------------------------
February 6, 1998
=====================================================================
