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 December 31, 1998
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 Identification No.)
Incorporation or Organization)
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 13,329,756 shares of common stock, ($.01 par value)
issued and outstanding as of December 31, 1998.
<PAGE>
INDEX
COMPUMED, INC. AND SUBSIDIARIES
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated balance sheets - December 31, 1998 (unaudited) and
September 30, 1998. 3
Consolidated statements of operations - three months ended
December 31, 1998 and 1997 (unaudited). 5
Consolidated statements of cash flows - three months ended
December 31, 1998 and 1997 (unaudited). 6
Notes to interim unaudited consolidated financial statements. 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. 9
PART II. OTHER INFORMATION
Item 2 Changes in Securities and Use of Proceeds 12
Item 6 Exhibits and Reports on Form 8K 12
SIGNATURES 13
2
<PAGE>
PART I
FINANCIAL INFORMATION
CONSOLIDATED CONDENSED BALANCE SHEETS
COMPUMED, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
<S> <C> <C>
December 31, September 30,
1998 1998
------------ -------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 91,000 $ 51,000
Marketable securities 2,382,000 2,782,000
Accounts receivable, less allowance of $44,000
(December 1998) and $39,000 (September 1998) 249,000 214,000
Inventories 38,000 36,000
Prepaid expenses and other current assets 32,000 27,000
--------- ---------
TOTAL CURRENT ASSETS 2,792,000 3,110,000
PROPERTY AND EQUIPMENT
Machinery and equipment 1,762,000 1,758,000
Furniture, fixtures and leasehold improvements 139,000 138,000
Equipment under capital leases 834,000 796,000
--------- ---------
2,735,000 2,692,000
Less allowance for depreciation and amortization 2,347,000 2,374,000
--------- ---------
388,000 318,000
OTHER ASSETS 22,000 22,000
--------- ---------
$3,202,000 $3,450,000
========== ==========
See notes to interim unaudited consolidated condensed financial statements
</TABLE>
3
<PAGE>
CONSOLIDATED CONDENSED BALANCED SHEETS
COMPUMED, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
<S> <C> <C>
December 31, September 30,
1998 1998
------------ -------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 111,000 $ 101,000
Other accrued liabilities 236,000 222,000
Current portion of capital lease obligations 155,000 130,000
------- -------
TOTAL CURRENT LIABILITIES 502,000 453,000
CAPITAL LEASE OBLIGATIONS, less current portion 144,000 112,000
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 - 300 shares - -
Class C 7% convertible preferred stock,
issued and outstanding - 8,812 shares
(December 1998) and 11,650 shares 678,000 946,000
(September 1998)
Common Stock, $.01 par value--authorized
50,000,000 shares, issued and outstanding--
13,329,756 shares (December 1998) and
12,540,102 shares (September 1998) 134,000 125,000
Additional paid in capital 29,789,000 29,539,000
Retained deficit (28,046,000) (27,726,000)
------------ ------------
STOCKHOLDERS' EQUITY 2,556,000 2,885,000
------------ ------------
$ 3,202,000 $3,450,000
============ ==========
See notes to interim unaudited consolidated condensed financial statements
</TABLE>
4
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
COMPUMED, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
<S> <C> <C>
Three Months Ended
December 31,
------------
1998 1997
---- ----
REVENUES FROM OPERATIONS
ECG services $ 326,000 $ 349,000
ECG product and supplies sales 186,000 41,000
OsteoGram services and royalties 5,000 25,000
---------- ----------
517,000 415,000
COSTS AND EXPENSES
Costs of ECG services 236,000 237,000
Cost of goods sold 110,000 28,000
Selling expenses 60,000 44,000
Research and development 112,000 163,000
General and administrative expenses 291,000 363,000
Depreciation and amortization 38,000 68,000
--------- ----------
LOSS FROM OPERATIONS (330,000) (488,000)
Other income 24,000 14,000
Interest expense (14,000) (5,000)
---------- ----------
NET LOSS $(320,000) $(479,000)
========== ==========
NET LOSS PER SHARE $ (.02) $ (.05)
========== ==========
(Basic and diluted)
Weighted average number of
common shares outstanding 12,934,929 9,054,160
========== ==========
See notes to interim unaudited consolidated condensed financial statements
</TABLE>
5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
COMPUMED, INC. AND SUBSIDIARIES
Three Months Ended
December 31, December 31,
1998 1997
---- ----
OPERATING ACTIVITIES:
Net loss $(320,000) $(479,000)
Adjustment to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 38,000 68,000
Changes in operating assets and liabilities:
Accounts receivable (35,000) (28,000)
Inventories, prepaid expenses and other assets (7,000) 24,000
Accounts payable and other liabilities 24,000 (24,000)
-------- ----------
NET CASH USED IN OPERATING ACTIVITIES (300,000) (439,000)
INVESTING ACTIVITIES:
Purchases of marketable securities - (1,675,000)
Sale of marketable securities 400,000 406,000
Purchases of property, plant and equipment (5,000) (2,000)
-------- ----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 395,000 (1,271,000)
FINANCING ACTIVITIES:
Proceeds from the sale of Class C 7% convertible
preferred stock, net of offering costs (9,000) 1,654,000
Dividends on Class A preferred stock - (1,000)
Principal payments on capital lease obligations (46,000) (29,000)
Exercise of stock options and warrants - 25,000
-------- ----------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (55,000) 1,669,000
-------- ----------
INCREASE (DECREASE) IN CASH 40,000 (41,000)
Cash at beginning period 51,000 81,000
-------- ----------
CASH AT END OF PERIOD $91,000 $ 40,000
======== ==========
Cash paid for interest: $ 14,000 $ 5,000
======== ==========
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, 1998 has been derived from the Company's
year-end audited financial statements.
The accompanying interim unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the period ended December
31, 1998 are not necessarily indicative of the results that may be expected for
the year ending September 30, 1999. For further information, refer to the
consolidated financial statements for the year ended September 30, 1998 and the
notes thereto included in the Company's Annual Report on Form 10-KSB.
NOTE B--PER SHARE DATA
Basic 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, Class B Preferred Stock and Class C
Preferred Stock are omitted from the computations of diluted loss per share
because the effect would be antidilutive.
NOTE C--COMMITMENTS AND CONTENGENCIES
On January 26, 1998, the United States District Court for the Central District
of California approved the settlement of the class action and derivative
lawsuits on the terms agreed to by the parties in the Memorandum of
Understanding entered into on August 5, 1996. The final settlement is
anticipated to be completed by June 30, 1999 and will involve the issuance of
770,000 shares of Common Stock and the issuance of 1,870,000 warrants for the
purchase of Common Stock at a price of $3.00. The effect of these issuances on
the Company's net loss was recorded during the fiscal year ended September 30,
1997.
7
<PAGE>
NOTE D - CONVERSION OF CLASS C CONVERTIBLE PREFERRED STOCK
During the fiscal quarter ended December 31, 1998, Class C shareholders
converted 2,838 shares of Class C preferred stock into 789,654 shares of Common
Stock. At December 31, 1998, there were 8,812 shares of Class C Preferred Stock
remaining, including 5,375 shares of Series 1 and 3,437 shares of Series 2.
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 that 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.
OVERVIEW
- --------
During the fiscal quarter ended December 31, 1998, in addition to the Company's
ongoing transtelephonic ECG business, the Company's research and development
efforts were directed toward the completion of its Automated OsteoGram 2000
software. On December 1, 1999, the Company filed for market clearance with the
U.S. Food and Drug Administration (FDA) to sell its Automated OsteoGram 2000
software to Physicians and Clinicians. The Company is currently seeking
distributors for this software and is developing a marketing plan, pending FDA
clearance.
RESULTS OF OPERATIONS
- ---------------------
Total revenues for the three months ended December 31, 1998 (the "First Quarter
1999") were $517,000, as compared to $415,000 for the same period in 1998.
Revenues from ECG product and supplies sales increased to $186,000, from $41,000
during the same period in fiscal 1998, due to sales of electrocardiograph units
and related supplies. During the prior fiscal year, the Company provided
electrocardiographs primarily on a rental-only basis, so equipment sales were
negligible. Revenues from the Company's OsteoGram(R) services were $5,000, as
compared to $25,000 during the same period in fiscal 1998. There was no royalty
income earned during the First Quarter 1999 from OsteoGram(R) operations being
managed by a subsidiary of Merck & Co., Inc. (compared to $25,000 in 1998),
since the license agreement was terminated on March 31, 1998, however; the
Company has commenced offering OsteoGram(R) services directly to research
institutions and revenues from such services are anticipated to continue in the
future.
9
<PAGE>
Overall operating costs decreased by 6% during the First Quarter 1999 to
$847,000, as compared to the same period in fiscal 1998. General and
administrative expenses decreased by 20% to $291,000, as compared to the same
period in fiscal 1998, primarily due to reductions in professional fees,
consulting expenses and payroll. Research and development costs decreased by 31%
to $112,000 during the First Quarter 1999, as compared to the same period in
fiscal 1998, primarily as a result of reduced salaries, consulting fees and
contracted research fees. Selling expenses increased by $16,000 during the First
Quarter 1999, as compared to the same period in fiscal 1998, primarily as a
result of sales commissions earned on products sold.
The Company recorded other income during the quarter of $24,000, which is
comprised of interest income from investments in marketable securities.
Net loss for the First Quarter 1999 was $320,000 compared to a loss of $479,000
for the same period in fiscal 1998. The decreased loss is due to the cost
reductions enacted by the Company primarily in the areas of research and
development and general and administrative expenses.
FINANCIAL CONDITION AND LIQUIDITY
- ---------------------------------
As of December 31, 1998 the Company had $2,290,000 of working capital, a
decrease of $367,000 from September 30, 1998. This decrease in working capital
is primarily a result of losses from operations, including research and
development costs, adjusted for depreciation expense.
The Company's capital resource commitments at December 31, 1998 consist
primarily of costs associated with the development of its bone densitometry
technology. During the three months ended December 31, 1998, total research and
development expenses were $112,000. Expenditures during future periods may meet
or exceed this level.
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 has been 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 that are
10
<PAGE>
complementary to its own. Such investments would be financed either by the
Company's working capital, through issuance of Company securities or a
combination thereof. No assurance can be given that any acquisition would not be
dilutive to stockholders.
Depending on the extent of development activities borne by the Company, the
Company will continue to incur losses from operations until sales of products
currently under development will commence. Current working capital levels are
considered adequate for the Company's business activities during the next 12
months.
IMPACT OF THE YEAR 2000
- -----------------------
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the Year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
Based on a recent assessment, the Company determined that its computer systems
will function properly with respect to dates in the year 2000 and thereafter.
The Company has determined it has no exposure to contingencies related to the
Year 2000 Issue for the products it has sold.
11
<PAGE>
PART II
OTHER INFORMATION
Item 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) During the fiscal quarter ended December 31, 1998, 2,838 shares of
Class C Preferred Stock were converted into an aggregate of 789,654 shares of
Common Stock. These conversions were exempt from registration under the
Securities Act by reason of Section 3(a)(9) thereof.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None
(b) Form 8-K - During the fiscal quarter ended December 31, 1998, the
Company did not file a report on Form 8-K.
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
President and Chief Financial Officer
Date: February 9, 1999
13
<PAGE>
EXHIBIT INDEX
Exhibit Description
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27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
COMPUMED, INC. FORM 10-QSB FOR THE PERIOD ENDED DECEMBER 31, 1998,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 91,000
<SECURITIES> 2,382,000
<RECEIVABLES> 249,000
<ALLOWANCES> 44,000
<INVENTORY> 38,000
<CURRENT-ASSETS> 2,792,000
<PP&E> 2,735,000
<DEPRECIATION> 2,347,000
<TOTAL-ASSETS> 3,202,000
<CURRENT-LIABILITIES> 502,000
<BONDS> 0
0
679,000
<COMMON> 134,000
<OTHER-SE> 1,743,000
<TOTAL-LIABILITY-AND-EQUITY> 2,556,000
<SALES> 517,000
<TOTAL-REVENUES> 517,000
<CGS> 110,000
<TOTAL-COSTS> 847,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,000
<INCOME-PRETAX> (320,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (320,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (320,000)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
