SECURITIES AND EXCHANGE COMMISSION
UNITED STATES
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
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)
5777 W. Century Blvd., Suite 1285, Los Angeles, CA 90045
- -------------------------------------------------------------------------------
(Address of Principal Executive Officers)
(310) 642-2900
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
1230 Rosecrans Avenue, Suite 110, Manhattan Beach, CA 90266
- -------------------------------------------------------------------------------
(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 16,077,064 shares of common stock, ($.01 par value)
issued and outstanding as of June 30, 1999.
<PAGE>
INDEX
COMPUMED, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated balance sheets - June 30, 1999 (unaudited) and
September 30, 1998.
Consolidated statements of operations - three months and nine
months ended June 30, 1999 and 1998 (unaudited).
Consolidated statements of cash flows - nine months ended
June 30, 1999 and 1998 (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 2 Changes in Securities and Use of Proceeds
Item 6 Exhibits and Reports on Form 8K
SIGNATURES
2
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PART I
FINANCIAL INFORMATION
CONSOLIDATED CONDENSED BALANCE SHEETS
COMPUMED, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
<S> <C> <C>
June 30, September 30,
1999 1998
---- -------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 353,000 $ 51,000
Marketable securities 2,396,000 2,782,000
Accounts receivable, less allowance of $45,000
(June 1999) and $39,000 (September 1998) 295,000 214,000
Inventories 60,000 36,000
Prepaid expenses and other current assets 19,000 27,000
--------- ---------
TOTAL CURRENT ASSETS 3,123,000 3,110,000
PROPERTY AND EQUIPMENT
Machinery and equipment 1,769,000 1,758,000
Furniture, fixtures and leasehold improvements 139,000 138,000
Equipment under capital leases 1,003,000 796,000
--------- ---------
2,911,000 2,692,000
Less allowance for depreciation and amortization 2,448,000 2,374,000
--------- ---------
463,000 318,000
OTHER ASSETS 22,000 22,000
--------- ---------
$3,608,000 $3,450,000
========== ==========
</TABLE>
See notes to interim unaudited consolidated condensed financial statements
3
<PAGE>
CONSOLIDATED CONDENSED BALANCED SHEETS
COMPUMED, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
<S> <C> <C>
June 30, September 30,
1999 1998
---- -------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 111,000 $ 101,000
Other accrued liabilities 256,000 222,000
Current portion of capital lease obligations 196,000 130,000
--------- -----------
TOTAL CURRENT LIABILITIES 563,000 453,000
CAPITAL LEASE OBLIGATIONS, less current portion 175,000 112,000
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 - 0 shares
(June 1999) and 11,650 shares
(September 1998) - 946,000
Common Stock, $.01 par value--authorized 50,000,000
shares, issued and outstanding-- 16,077,064 shares
(June 1999) and 12,540,102 shares (September 1998) 161,000 125,000
Additional paid in capital 31,200,000 29,539,000
Retained deficit (28,492,000) (27,726,000)
------------ ------------
STOCKHOLDERS' EQUITY 2,870,000 2,885,000
------------ ------------
$ 3,608,000 $3,450,000
============== ============
</TABLE>
See notes to interim unaudited consolidated condensed financial statements
4
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
COMPUMED, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
June 30, June 30,
--------
1999 1998 1999 1998
---- ---- ---- ----
REVENUES FROM OPERATIONS
ECG services $ 348,000 $ 380,000 $ 1,033,000 $ 1,076,000
ECG product and supplies sales 201,000 99,000 640,000 242,000
OsteoGram services and royalties 8,000 - 16,000 42,000
---------- ---------- ----------- -----------
557,000 479,000 1,689,000 1,360,000
COSTS AND EXPENSES
Costs of ECG services 228,000 250,000 698,000 702,000
Cost of goods sold 97,000 56,000 353,000 138,000
Selling expenses 85,000 44,000 227,000 135,000
Research and development 80,000 68,000 264,000 442,000
General and administrative expenses 253,000 344,000 790,000 991,000
Depreciation 54,000 64,000 139,000 221,000
---------- ---------- ----------- ------------
LOSS FROM OPERATIONS (240,000) (347,000) (782,000) (1,269,000)
Other income 20,000 33,000 63,000 75,000
Interest expense (18,000) (11,000) (47,000) (24,000)
---------- ---------- ------------ ------------
NET LOSS $ (238,000) $ (325,000) $ (766,000) $(1,218,000)
========== ========== ============ ===========
NET LOSS PER SHARE $ (.02) $ (.03) $ (.06) $ (.19)
(Basic and diluted) ========== ========== ============ ===========
Weighted average number of
common shares outstanding 14,703,410 11,895,758 13,656,032 10,391,952
========== ========== ========== ==========
</TABLE>
See notes to interim unaudited consolidated condensed financial statements
5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
COMPUMED, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
<S> <C> <C>
Nine Months Ended
June 30, June 30,
1999 1998
---- ----
OPERATING ACTIVITIES:
Net loss $ (766,000) $ (998,000)
Adjustment to reconcile net loss to net
cash used in operating activities:
Depreciation 139,000 188,000
Changes in operating assets and liabilities:
Accounts receivable (81,000) (56,000)
Inventories, prepaid expenses and other assets (16,000) 20,000
Accounts payable and other liabilities 44,000 (308,000)
---------- -----------
NET CASH USED IN OPERATING ACTIVITIES (680,000) (1,154,000)
INVESTING ACTIVITIES:
Purchases of marketable securities - (2,208,000)
Sale of marketable securities 386,000 -
Purchases of property, plant and equipment (12,000) (2,000)
---------- ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
374,000 (2,210,000)
FINANCING ACTIVITIES:
Proceeds from the sale of Class C 7% convertible
preferred stock, net of offering costs (9,000) 3,290,000
Dividends on Class A preferred stock - (1,000)
Principal payments on capital lease obligations (143,000) (67,000)
Exercise of stock options and warrants 760,000 69,000
---------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 608,000 3,291,000
---------- -----------
INCREASE (DECREASE) IN CASH 302,000 (73,000)
Cash at beginning period 51,000 81,000
---------- -----------
CASH AT END OF PERIOD $ 353,000 $ 8,000
========== ===========
Cash paid for interest: $ 47,000 $ 24,000
========== ===========
</TABLE>
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 June 30,
1999 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 exercise 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 December 31, 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 statement of operations was recorded during the fiscal year ended
September 30, 1997.
NOTE D - CONVERSION OF CLASS C CONVERTIBLE PREFERRED STOCK
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<PAGE>
During the nine months ended June 30, 1999, Class C shareholders converted
11,650 shares of Class C preferred stock into 2,325,344 shares of Common Stock.
At June 30, 1999, there were no longer shares of Class C Preferred Stock
remaining.
NOTE E - CONVERSION OF STOCK OPTIONS AND WARRANTS
The terms of the purchase agreement for the Class C Preferred Stock include the
issuance of warrants for the purchase of Common Stock at exercise prices
equivalent to the discounted prices on the date of conversion of the Preferred
Stock to Common Stock. Warrants were issued, when the Class C Preferred Stock
was converted to Common Stock, for the purchase of 5,619,525 shares of Common
Stock at a total exercise price of $3,500,000. During June 1999, a portion of
such warrants were exercised to purchase 851,317 shares of common stock for
$398,750. During July 1999, a portion of such warrants were exercised to
purchase 478,793 shares of Common Stock for $259,136.
During the nine months ended June 30, 1999, stock options were exercised for
160,301 shares of Common Stock providing proceeds to the Company of $134,532. In
addition to the Class C Warrants above, warrants were exercised for 200,000
shares of Common Stock providing proceeds to the Company of $220,000.
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 nine months ended June 30, 1999, in addition to the Company's
transtelephonic ECG business, the Company's research and development efforts
were directed primarily toward the completion of its Automated OsteoGram 2000
software. On December 1, 1998, 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 gained market clearance from
the FDA on May 19, 1999. The Company is currently taking steps to commercialize
this technology.
RESULTS OF OPERATIONS
- ---------------------
Total revenues for the three months ended June 30, 1999 (the "Third Quarter
1999") were $557,000, as compared to $479,000 for the same period in 1998.
Revenues from ECG product and supplies sales increased to $201,000, from $99,000
during the same period in fiscal 1998, due to increased sales of
electrocardiograph units and related supplies. The increase in sales of
electrocardiograph units is a result of the execution of specific marketing
programs designed to increase these sales. Revenues from the Company's
OsteoGram(R) services were $8,000, with no revenues in the prior year period.
The Company has commenced offering OsteoGram services directly to research
institutions and revenues from such services are anticipated to continue in the
future.
Cost of goods sold consists of the costs of supplies and electrocardiograph
9
<PAGE>
equipment sold. The overall costs, as a percentage of product sales, are a
result of the mix between supplies and equipment sales and the available
equipment and supplies costs attainable, based on volumes purchased and vendor
pricing availability. During the Third Quarter 1999, costs of sales decreased,
as a percentage of sales, to 48% from 57% during the prior year. The decrease is
primarily due to the lower unit costs for electrocardiograph units pursuant to
the purchase terms for such units. The unit costs decrease throughout the period
ending November 1999, based on volumes purchased.
Overall operating costs decreased by 4% during the Third Quarter 1999 to
$797,000, as compared to $826,000 for the same period in fiscal 1998. General
and administrative expenses decreased by 26% to $253,000, as compared to
$344,000 for the same period in fiscal 1998, primarily due to reductions in
professional fees, consulting expenses and payroll. Research and development
costs increased by 18% to $80,000 during the Third Quarter 1999, as compared to
$68,000 for the same period in fiscal 1998, primarily as a result of increased
salaries and consulting fees that have been necessary as the Company approaches
the commercialization of the OsteoGram 2000 product. Selling expenses increased
by $41,000 during the Third Quarter 1999, as compared to the same period in
fiscal 1998, primarily as a result of sales commissions earned on products sold
and increased promotional activities.
The Company recorded other income during the Third Quarter 1999 of $20,000 and
$33,000 for the same period in fiscal 1998, which is comprised of interest
income from investments in marketable securities. The decrease is due to lower
invested funds in the Third Quarter of 1999 as compared to the prior year.
Net loss for the Third Quarter 1999 was $238,000 compared to a loss of $325,000
for the same period in fiscal 1998. The decreased loss is due to the cost
reductions enacted by the Company primarily in the area of general and
administrative expenses, and to the increases in revenues to $557,000 from
$479,000 in the prior year.
Revenues for the nine months ended June 30, 1999 were $1,689,000, as compared to
$1,360,000 for the same period in 1998. Revenues from ECG product and supplies
sales increased to $640,000 from $242,000 during the same period in fiscal 1998,
due to increased sales of electrocardiograph units and related supplies. The
increase in sales of electrocardiograph units is a result of the execution of
specific marketing programs designed to increase these sales. Revenues from the
Company's OsteoGram(R) services were $16,000, as compared to $42,000 during the
same period in fiscal 1998, due to the termination of the Merck & Co., Inc.
license agreement. In the prior year OsteoGram revenues were from royalty income
and in the current year revenues were primarily from contract processing of
OsteoGram tests. Revenues from OsteoGram testing are anticipated to continue in
the future.
10
<PAGE>
Costs of sales decreased during the nine months ended June 30, 1999, as a
percentage of sales, to 55% from 57% during the prior year. The decrease is
primarily due to the lower unit costs for electrocardiograph units pursuant to
the purchase terms for such units. The unit costs decrease throughout the period
ending November 1999, based on volumes purchased.
Overall operating costs decreased by 6% during the nine months ended June 30,
1999 to $2,471,000, as compared to $2,629,000 for the same period in fiscal
1998. General and administrative expenses decreased by 20% to $790,000, as
compared to $991,000 for the same period in fiscal 1998, primarily due to
reductions in professional fees, consulting expenses and payroll. Research and
development costs decreased by 40% to $264,000, as compared to $442,000 for the
same period in fiscal 1998, primarily as a result of reduced salaries,
consulting fees and contracted research fees. Selling expenses increased by
$92,000 during the nine months ended June 30, 1999, as compared to the same
period in fiscal 1998, primarily as a result of sales commissions earned on
products sold and increased trade show attendance.
The Company recorded other income during the 1999 nine-month period of $63,000
and $75,000 for the same period in fiscal 1998, which is comprised of interest
income from investments in marketable securities. The decrease is due to lower
invested funds during fiscal 1999.
Net loss for the nine months ended June 30, 1999 was $766,000 compared to a loss
of $1,218,000 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, and to the increases in
revenues to $1,673,000 from $1,318,000 in the prior year.
FINANCIAL CONDITION AND LIQUIDITY
- ---------------------------------
As of June 30, 1999 the Company had $2,560,000 of working capital, a decrease of
$97,000 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 and to principal payments on lease financing.
The decrease in working capital has been offset by increases from the exercise
of stock options and warrants, which have contributed approximately $760,000 to
working capital.
The Company's capital resource commitments at June 30, 1999 consist primarily of
costs associated with the development and commercialization of its bone
densitometry technology. During the nine months ended June 30, 1999, total
research and development expenses were $264,000. Expenditures during future
11
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periods may meet or exceed this level. Additionally, the Company is anticipating
incurring additional costs associated with the projected market introduction of
the OsteoGram 2000 software product. Revenues generated by the sales of this
product may offset such costs.
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
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 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.
As part of the Company's compliance program, formal communications with
customers, suppliers and other support service providers have been initiated. To
date, the Company is not aware of any supplier or subcontractor with a Year 2000
issue that would materially affect the Company's results of operations,
liquidity or capital resources. The Company will continue to monitor the Year
2000 compliance of third parties with which it does business.
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 believes that it does not have material exposure to contingencies
related to the Year 2000 Issue for the products it has sold.
12
<PAGE>
While the Company currently expects that the Year 2000 issue will not pose
significant operational problems, a failure to identify all Year 2000
dependencies in the Company's systems and the systems of its suppliers and
customers could have material adverse consequences, including inability to take
customer orders, ship products, invoice customers or collect payments. In
addition, disruptions in the economy generally resulting from Year 2000 issues
could adversely affect the Company. The amount of potential lost revenue cannot
be reasonably estimated at this time.
NASDAQ LISTING EXCEPTION
- ------------------------
On April 22, 1999 an oral hearing was held before a Nasdaq Listing
Qualifications Panel (the "Panel") to make a determination regarding the
Company's request for continued inclusion on the Nasdaq SmallCap Market. The
Company had been notified of potential delisting actions due to its inability to
meet the $1.00 per share minimum bid price requirement for continued listing on
the Nasdaq SmallCap Market. The Panel also expressed concerns with respect to
the Company's marginal compliance with the net tangible assets requirement and
its ability to meet this requirement in the future. In May 1999 compliance with
the minimum bid price requirement was regained and the Company has been in
compliance since that time. In June 1999 the Company increased its tangible net
assets by approximately $760,000 as a result of exercises of stock options and
warrants.
On July 19, 1999, the Company was granted a temporary exception from its prior
inability to meet the minimum bid price standard, subject to its meeting certain
conditions. The exception will expire on December 31, 1999, or upon filing of
its year-end Form 10-KSB. In the event the Company is deemed to have met the
terms of the exception, it shall continue to be listed on The Nasdaq SmallCap
Market. The Company believes that it can meet these conditions, however, there
can be no assurance that it will do so. If at some future date the Company's
securities should cease to be listed on The Nasdaq SmallCap Market, they may
continue to be listed in the OTC-Bulletin Board.
13
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PART II
OTHER INFORMATION
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) During the fiscal quarter ended June 30, 1999, the Company (i) issued an
aggregate of 1,535,690 shares of Common Stock upon the conversion of 8,812
shares of Class C Preferred Stock, and 1,535,690 warrants, which issuances were
exempt from the registration requirements of the Securities Act of 1933 by
reason of Section 3(a)(q) thereof, and issued an aggregate of 851,317 shares of
Common Stock upon the exercise of warrants, which issuances were exempt from the
registration requirements of the Securities Act by reason of Section 4(2)
thereof.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None
(b) Form 8-K - During the fiscal quarter ended June 30, 1999, the
Company did not file a report on Form 8-K.
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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:
---------------------------------------
James Linesch
President and Chief Financial Officer
Date: August 10, 1999
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