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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934. (FEE REQUIRED).
For the fiscal year ended September 30, 2000
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[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934. (NO FEE REQUIRED).
For the transition period from to
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Commission file number 0-14210
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COMPUMED, INC.
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(Name of Small Business Issuer in Its Charter)
Delaware 95-2860434
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(State of Incorporation or Organization) (I.R.S. Employer Identification No.)
5777 West Century Blvd., Suite 1285, Los Angeles, CA 90045
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(Address of principal executive offices) (Zip Code)
(310) 258-5000
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(Issuer's telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, $.01 PAR VALUE
COMMON STOCK PURCHASE WARRANTS
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Title of Class
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the preceding 12 months), and
(2) has been subject to such filing requirements for the past 90 days.
[X] YES [ ] NO
Check if there is no disclosure of delinquent filers in response to item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
Revenues for the fiscal year ended September 30, 2000 totaled $1,913,000.
As of September 30, 2000, 17,869,362 common shares were outstanding and the
aggregate market value of the common shares (based upon the average bid and
asked prices on such date) of the Registrant held by non-affiliates was
approximately $11,012,000.
Documents incorporated by reference: None
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
CompuMed, Inc. (the "Company" or "CompuMed") is a medical diagnostic
product and services company focusing on the testing of several costly, high
incidence diseases, particularly cardiovascular disease and osteoporosis. The
Company's primary business is the computerized interpretation of
electrocardiograms ("ECG's") and the development and marketing of its
osteoporosis testing services . 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.
During the past twelve months, the Company continued its development of
automated processing functions for the Company's bone mineral density (BMD)
analysis software, the OsteoGram-Registered Trademark-. The Company launched and
offereD for sale its FDA approved OsteoGram-Registered Trademark- in July 2000.
Prior to the launch, the OsteoGram-Registered Trademark- was introduced at a
number of trade and professional meetings. We have also implemented our new
computer system to upgrade our central-service computer center. This new
technology will make it possible for us to offer additional ECG services and to
enhance the services that we currently offer in a cost-efficient manner.
THE OSTEOGRAM-Registered Trademark-
GENERAL
The OsteoGram-Registered Trademark- is a bone density test developed by the
Company that involves taking a standard hand x-ray of three fingers, along with
an aluminum alloy calibration wedge in the field of view, utilizing existing and
widely available standard x-ray equipment. The OsteoGram-Registered Trademark-
analysis was originally delivered as a laboratorY service where physicians
obtain an x-ray of the patient's hand and deliver it to the lab where the
developed film is analyzed by using the Company's proprietary software to
determine bone density accurately. The calibration wedge is used to adjust for
any differences among x-ray equipment, exposures, and types of film and
development processes. An OsteoGram-Registered Trademark- report is then
delivered to the physician.
The scientific name for the testing technique utilized by the
OsteoGram-Registered Trademark- is radiographic absorptiometry ("RA"). RA was
developed by Skeletal Assessment Services Co. ("SASCO"), which sold the RA
technology to the Company in 1991. The Company made enhancements in image
digitalization and processing speed and named the bone density test the
OsteoGram-Registered Trademark-. The OsteoGram-Registered Trademark- is approved
for reimbursement by Medicare. The OsteoGram-Registered Trademark- can be
performed using standard x-ray equipment which can be found at locations across
the U.S., including hospitals, clinics
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and doctors' offices.
In May 1999, the Company gained clearance from the FDA to market an
automated version of its OsteoGram-Registered Trademark- software for use as a
stand-alone product by physicians. The automated OsteoGram-Registered Trademark-
software utilizes a scanner and a personal computer to digitize an x-ray film
and process a bone density measurement analysis and report. The Company is
expanding the functionality of this product which was introduced in July 2000.
At this time, the Company does not provide OsteoGram-Registered Trademark-
laboratory testing services.
OTHER OSTEOPOROSIS DETECTION AIDS
Bone mineral density measurements are the primary methods used to assist
physicians in detecting osteoporosis. Bone biopsy is also used in isolated
circumstances; however, it is rarely used because of patient risk, pain and
cost. Bone mineral density is measured by passing ultrasound or x-ray beams
through bone and determining how much energy is absorbed by the bone. In
classical techniques, a carefully calibrated source enables determination of how
much energy is absorbed by the bone before reaching the detector. Unlike the
Company's approach, use of a calibrated source necessitates the purchase of
costly special equipment for bone density measurement.
THIRD PARTY TREATMENT OF OSTEOPOROSIS
The diagnosis of osteoporosis is important as the precursor to appropriate
treatment or management. Osteoporosis treatment alternatives provided by
healthcare providers include estrogen replacement therapy, bisphosphonates,
calcitonin, selective estrogen-receptor modulators, fluoride (not yet approved
in the U.S., but widely used abroad), calcium supplements and weight-bearing
exercises.
Current FDA cleared medications for osteoporosis include the bisphosphonate
alendronate (Fosamax-Registered Trademark-, Merck & Co, Inc.), the female
hormone estrogen in pill form (Wyeth-Ayerst and several other manufacturers) and
patch form (Novartis), the bone metabolism hormone calcitonin, administered by
injection (Calcimar, Rhone-Poulenc Rorer) or nasal spray (Miacalcin,
NovartisAG), and the selective estrogen-receptor modulator raloxifene (Evista,
Eli Lilly). Estrogen replacement therapy is also approved for problems
associated with menopause, such as hot flashes and vaginal dryness.
COMPETITION
The primary competition for the Company's osteoporosis services include
bone densitometry devices that use x-rays or ultrasound to obtain relative
measures of bone mass and density. The most common x-ray-based techniques for
performing bone densitometry include dual-energy x-ray absorptiometry (DEXA),
single-energy x-ray absorptiometry (SXA), quantitative computed tomography (QCT)
and peripheral
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quantitative computed tomography (pQCT), and radiographic absorptiometry (RA).
All radiographic techniques in use today have been validated through extensive
clinical studies, and are currently approved in the U.S. for Medicare
reimbursement. Digital X-ray radiogrammetry (DXR) was introduced in 1998, a
technique using a combination of radiogrammetry and texture analysis.
Quantitative ultrasound (QUS) has recently received FDA clearance for sale in
the U.S. and is now available in the U.S. and abroad. QUS has recently been
approved for reimbursement by Medicare. The Company is subject to extensive
intrenched competition in this area but is attempting to compete based on cost
effective testing through generally available conventional technology.
DEXA is currently the mostly widely used technology, with a worldwide
installed base of approximately 11,000 machines. The DEXA market may be divided
into so-called "whole-body" machines, which are designed to measure bone mass
and density at a variety of skeletal sites (primarily the hip and spine), and
"peripheral" machines, which measure bone mass and density at appendicular sites
(forearm, hand or heel). Whole-body DEXA machines cost on average in excess of
$75,000 and require both dedicated facilities and specialized training to
operate. Peripheral DEXA machines, with an average price of $30,000, are less
costly, but are also believed to be less effective than whole-body DEXA, or than
the Company's RA (OsteoGram) technology in predicting fracture risk. The Company
believes that approximately 8,000 peripheral DEXA machines have been installed
worldwide.
The leading manufacturers of whole-body DEXA scanners include Lunar Corp.
(U.S.A.) and Hologic, Inc. (U.S.A.), which each command approximately 40% of the
worldwide DEXA market, and Norland Medical Systems, Inc. (U.S.A.), with under
10% of the market. The leading manufacturers of peripheral DEXA machines are
Norland, Osteometer (a Danish subsidiary of OSI Systems, U.S.A.), and Schick
Technologies, Inc. Schick has introduced a peripheral device that measures a
site in the finger.
QCT utilizes existing computed tomography (CT) scanners that have been
upgraded with specialized software, while pQCT utilizes specialized peripheral
CT machines. QCT and pQCT are expensive to perform and require a high degree of
expertise to operate properly.
QUS bone densitometers were introduced in the early 1990s, but their rate
of market penetration has been slow. Lunar and Hologic are leaders in the
ultrasound market segment, but the market also includes numerous regional
manufacturers such as Myriad and Sunlight (Israel), IGEA (Italy) and McCue
(Great Britain). Norland is also developing an ultrasound machine. The Company
believes that there are now approximately 3,000 QUS machines installed
worldwide.
DXR was introduced to European markets in 1998 and gained approval for
marketing in the US in 1999. Pronosco A/S (Denmark) manufactures the X-posure
system, consisting of a PC, an x-ray digitizer (scanner), a printer and
software. Pronosco has recently announced an alliance with GE Medical Systems
for the distribution of its product.
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The only manufacturer who uses the Company RA technology is Alara, Inc.
(USA). In 2000 the FDA approved their self-contained, table-top system that
performs digital RA of the hand.
BIOCHEMICAL MARKER TESTS that measure the level of bone metabolic
substances present in the blood or urine have been introduced. There is no clear
consensus yet on the appropriate use of these technologies. Although their role
in monitoring the effect of drug therapy may grow, their use at the present time
is limited. Makers of biochemical marker tests include Metra Biosystems, Inc.
(U.S.A.), Ostex, Inc. (U.S.A.) and Hybritech, Inc. (a subsidiary of Beckman
Coulter, U.S.A.).
ECG SERVICES
GENERAL
CompuMed currently provides ECG products and services to over 1,000
point-of-care sites nationwide. Customers include physicians, correctional
healthcare facilities, surgery centers, clinics, rural hospitals and
occupational health facilities. Customers are provided electrocardiograph (ECG)
terminals, which access the company's centralized computers and custom software
to produce on-line ECG's and their computer interpretations. When requested, the
Company also arranges for an independent cardiologist "overread" of the ECG,
which is a specialist's opinion regarding the computer interpretation. In
addition, the Company sells a full range of ECG supplies including electrodes,
recording paper, gel, patient cables and related supplies. The Company's ECG
terminals are connected via modem to its ECG computer laboratory in Los Angeles,
CA. Physicians, nurses or technicians can perform ECG tests at any remote
location and then transmit the ECG by telephone to the Company. Results are then
digitally archived on the Company's computer and transmitted back to the
customer for a printed interpretation, all within three minutes.
ECG terminals are available for purchase or rent, and additional fees are
charged on a per-transmission basis. Customers who choose to purchase an ECG
terminal are charged either hardware maintenance fees or repair fees for
maintaining and repairing the equipment. In Fiscal Year 2000, ECG revenues
consisted of approximately 25% from sales of terminal systems, and approximately
75% were rental fees.
Upon a customer's request, the Company arranges for the services of a
board-certified cardiologist to assist in overreading a computerized ECG
interpretation. The Company bills for this service on a per-ECG basis.
ECG analysis services are available to users by telephone 24 hours a day,
seven days a week. The computer laboratory is staffed (or on-call) at all times
and has been recently upgraded to provide additional features and faster turn
around time for overreads by replacing telephone requests with electronic
notification.
The Company maintains liability insurance on its current products and is
not aware of any claims based on the use or failure of its products that are
expected to have
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material adverse effect on the Company's operations or financial condition.
There is no assurance that claims made in the future with respect to the
Company's products will be successfully defended or that insurance carried by
the Company will be sufficient. Furthermore, there is no assurance that
liability insurance will continue to be available to the Company on acceptable
terms.
MARKETING - ECG SERVICES
The Company's sales efforts for its ECG products and services are directed
toward physicians, correctional healthcare facilities, surgery centers, rural
hospitals and occupational health facilities located throughout the U.S. The
Company maintains a long-standing customer base with contracts for services
extending between one to three years. New customers are generated mostly by the
Company's direct sales efforts. The Company advertises in trade journals and
attends national and regional medical conventions to generate leads for selling
its services, equipment and supplies. The Company's in-house sales staff of 3
employees handle sales leads, and the Company's customer service representatives
of 3 employees handle new customer installations, primarily by telephone.
The Company currently offers several service and equipment purchase options
to new customers. Its latest ECG terminals are more compact and lightweight than
previous equipment models offered by the Company, and it has the ability to
store multiple ECG recordings before transmitting ECG data for processing.
COMPETITION - ECG SERVICES
The computer interpreted ECG business is made up of several domestic
companies. Most are offering ECG terminals and systems that perform ECG analysis
and interpretation on site from the cardiograph itself, with data being stored
at a central location. The Company estimates that its form of business,
centralized computerized ECG analyses via a service bureau, constitutes less
than 1% of the total number of ECG's taken each year in the United States. The
overall domestic ECG market is mature and expanding at a minimal rate; however,
the Company believes that the demand for the centralized ECG services that it
provides is increasing due to the trend toward decentralized diagnostic testing
with central interpretation and data storage. The principal methods under which
the Company competes are service, ease of use and price.
ASSEMBLY, REPAIR AND CUSTOMER SERVICE
The Company repairs and maintains most of the electrocardiographs rented or
sold to its customers. All repair and assembly operations are conducted at the
Company's headquarters. Quality control procedures used in testing the products
have been cleared by the FDA and are subject to periodic inspections by the FDA.
The Company's internal customer service staff handles customer equipment
and training problems. Initial installation and set-up is also handled by the
Company's
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customer service department, usually over the telephone.
GOVERNMENT REGULATION
The Health Care Finance Administration approves diagnostic tests for
reimbursement by Medicare. The OsteoGram-Registered Trademark- is approved for
reimbursement by Medicare as a laboratory test and on a stand-alone basis.
Government regulations may change at any time and Medicare reimbursement for the
OsteoGram-Registered Trademark- test, as well as for other bone mineral density
tests, may be withdrawn or reduced. Furthermore, other forms of testing for bone
mineral density as an indicator of osteoporosis have been or may be approved for
reimbursement, which may reduce the market share or profit margins for such
services.
The Company's OsteoGram-Registered Trademark- laboratory test and automated
software have been approved by the FDA for use and sale. The
OsteoGram-Registered Trademark- software is subject to regulation as a medical
device.
PATENTS AND PROPRIETARY RIGHTS
The Company currently does not have any patents for the
OsteoGram-Registered Trademark- and relies upon maintaining such information
proprietary by keeping it as a trade secret. The Company's technology involves
proprietary algorithms and software that have been developed and refined over a
10-year period. In November 1999, the Company filed for two patents covering
certain aspects of its software design and a copyright. There is no assurance,
however that either patent will be issued, that any issued patents will be broad
enough to provide protection from competitors, or that any patents, if
challenged, will be upheld by the courts. The OsteoGram-Registered Trademark-
trademark is a registered trademark.
EMPLOYEES
At September 30, 2000, the Company had 17 full-time and 2 part-time
employees. None of the Company's employees is represented by a labor union and
the Company has experienced no work stoppages. The Company considers its
relations with its employees to be good. The Company also retains consultants
from time to time when necessary. Independent cardiologists are retained for ECG
overreads on a per-diem basis, and management believes that such relationships
are good.
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RESEARCH AND DEVELOPMENT
Research and development costs were $330,000 during fiscal year 2000 and
$364,000 during fiscal year 1999. The decline was due primarily as a result of
reduced consulting and contract research expenditures paid to outside parties.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's corporate office, computer center and warehouse facilities
are located in 9,496 square feet in an office building located at 5777 West
Century Blvd., Los Angeles, CA 90045. This facility is leased through August
2004 at a monthly rental of $9,577 per month during the first year with 3%
annual increases in the ensuing lease years. The lease gives the Company the
option to extend the term for an additional five years. This is a full service
lease that includes utilities, maintenance and taxes on the property, janitorial
and security service. The Company moved its computer center to the corporate
office location during the fiscal year 2000.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material litigation proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to stockholders during the fourth quarter
of the fiscal year ended September 30, 2000.
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PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Common Stock is currently listed on the over-the-counter (OTC) bulletin
board under the symbol "CMPD.OB". Prior to December 1, 1999, the Company's
Common Stock was listed on NASDAQ. The following table sets forth the range of
high and low bid prices for the Common Stock during the periods indicated. For
the period after December 1, 1999, the prices set forth below represent
inter-dealer prices, which do not include retail mark-ups and mark-downs, or any
commission to the broker-dealer, and may not necessarily represent actual
transactions.
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<CAPTION>
Year ended September 30, 1999: Common Stock
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Quarter Ended: High Low
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December 31, 1998 $1.25 $ .34
March 31, 1999 .75 .38
June 30, 1999 4.03 .38
September 30, 1999 2.06 .75
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<CAPTION>
Year ended September 30, 1999: Common Stock
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Quarter Ended: High Low
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December 31, 1999 $1.41 $ .13
March 31, 2000 1.50 .50
June 30, 2000 1.31 .63
September 30, 2000 .88 .52
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As of September 30, 2000, there were approximately 855 record holders of
Common Stock. Such amounts do not include Common Stock held in "nominee" or
"street" name.
The Company has not paid cash dividends on its Common Stock since its
inception. At the present time, the Company intends to follow a policy of
retaining any earnings in order to finance the development of its business and
does not anticipate paying any cash dividends in the foreseeable future.
On December 1, 1999, NASDAQ notified the Company that it had not met the
minimum bid price requirement for a sufficient duration and the Company's common
stock was delisted from the SmallCap Market on that date, and has since been
traded on the OTC Bulletin Board.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This analysis should be read in conjunction with the consolidated financial
statements and notes thereto. See ITEM 7 "Financial Statements" and ITEM 13
"Exhibits and Reports on Form 8-K".
RESULTS OF OPERATIONS
FISCAL YEAR ENDED SEPTEMBER 30, 2000 AS COMPARED TO 1999
Total revenues for fiscal 2000 were $1,913,000 representing a decrease from
1999 of $412,000, or 18%. The ECG Services revenues increased from $1,385,000 in
1999 to $1,435,000 in 2000. However ECG product and supplies sales decreased by
$458,000 resulting in an overall decrease in ECG revenue. This was primarily due
to the large demand of institutions which favor leasing equipment over
purchasing. Total OsteoGram-Registered Trademark- revenues remained at low
levels and consisted of testing services from limited contract research.
Cost of Services for fiscal 2000 were $888,000, or 62% of services revenues
as compared to $958,000, or 69% of services revenues in fiscal 1999. The
decrease is due to the automation of the overread process and the consolidation
of facilities. Cost of goods sold for fiscal 2000 were $238,000, or 52% of
product sales revenues, as compared to $471,000, or 51% of product sales
revenues during the prior year. Selling costs increased from $320,000 in 1999 to
$792,000 in 2000 due to increased advertising and promotion activities,
including tradeshow attendance of ECG and the introduction of the
OsteoGram-Registered Trademark-. The Company expects such trend of increased
selling costs to continue with the launch of its new product.
General and administrative expenses decreased during fiscal 2000 by
$115,000, representing a 11% decrease, primarily as a result of a reduction in
the number of employees, consulting fees and legal costs. Research and
development costs decreased by $34,000 to $330,000 during fiscal 2000 primarily
as a result of reduced consulting and contract research expenditures paid to
outside parties.
The net loss of $1,445,000 is primarily a result of research and
development costs, selling expenses of $324,000 associated with the development
and marketing of the OsteoGram-Registered Trademark- software, and to the
general and administrative costs of the Company including those corporate costs
relating to the requirements of a public company.
Interest income and realized gain increased in 2000 due to increases in
investment of marketable securities.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, the Company had approximately $1,683,000 in cash and
marketable securities, as compared to a balance of $2,643,000 at September 30,
1999. The net decrease of $960,000 in cash and marketable securities during
fiscal 2000 is
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primarily due to losses from operations, and the Company's decision to purchase
EKG terminals rather than lease them. Purchases of property, plant and equipment
increased to $712,000 in fiscal 2000 compared to $82,000 in fiscal 1999. The
decrease in working capital has been offset by increases from proceeds of the
exercise of stock options and warrants, which have contributed approximately
$684,000 to working capital.
Management anticipates that the Company's current working capital amounts
will be sufficient to meet its anticipated financial needs for the next 12
months. This belief relies on the expectation that revenues for its
OsteoGram-Registered Trademark- services will increase and that cash from stock
options and warrants will continue to be realized at historical levels. If
revenues from the OsteoGram-Registered Trademark- services or from stock options
or warrants are not realized as projected, the Company may need to seek
additional financing. Any additional financings, if needed, might not be
available on reasonable terms or at all. Failure to raise capital when needed
could seriously harm the Company's business and operating results. If additional
funds are raised through the issuance of equity securities, the percentage of
ownership of existing stockholders would be reduced. Furthermore, these equity
securities must have rights, preferences or privileges senior to the Company's
common stock.
The Company's primary capital resource commitments at September 30, 2000
consist of capital and operating lease commitments, primarily for computer
equipment and for facilities.
The Company intends to pursue additional research and/or sub-contractor
agreements relating to its development projects. Additionally, the Company
regularly seeks partners and acquisition candidates of businesses that are
complementary to its own. Such investments would be subject to the Company
obtaining financing through issuance of debt or other Company securities. No
assurance can be given that any acquisition would not be dilutive to
stockholders.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
The Company is including the following cautionary statement in this Annual
Report on Form 10-KSB to make applicable and take advantage of the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995 for any
forward-looking statements made by, or on behalf of, the Company.
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. From time
to time, the Company may publish or otherwise make available forward-looking
statements of this nature. All such subsequent forward-looking statements,
whether written or oral, and whether made by or on behalf of the Company, are
also expressly qualified by these cautionary statements. Certain statements
contained herein are forward-looking statements and accordingly involve risks
and uncertainties that could cause actual results or outcomes to differ
materially from those expressed in the forward-looking statements. The
forward-looking statements contained herein include but are not limited to (i)
statements made in Item 1 under the caption "THE OSTEOGRAM-Registered
Trademark-" relating
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to the expectation that the bone densitometer under development will determine
bone density utilizing a low-dose x-ray source from a measurement of the fingers
and the wrist and (ii) statements made in Item 6 under the caption "FINANCIAL
CONDITION, LIQUIDITY AND CAPITAL RESOURCES" relating to management's projection
that present working capital amounts will be sufficient for at least the next 12
months.
The forward-looking statements contained herein are based on various
assumptions, many of which are based, in turn, upon further assumptions. The
Company's expectations, beliefs and forward-looking statements are expressed in
good faith, but there can be no assurance that management's expectations,
beliefs or projections will result or be achieved or accomplished.
In addition to other factors and matters discussed elsewhere herein, the
following are important factors that, in the view of the Company, could cause
actual results to differ materially from those discussed in the forward-looking
statements: technological advances by the Company's competitors, the impact of
competition, dependence on key employees and the need to attract new management,
the risks of patent claims or other third party liability, and the risks of
launching a new product or service, such as the Company's OsteoGram-Registered
Trademark- test, changes in health care regulation, including reimbursement
programs, capital needs to fund any delays or extensions of research programs
and the availability of capital on terms satisfactory to the Company. The
Company disclaims any obligation to update any forward-looking statements to
reflect events or circumstances after the date hereof.
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ITEM 7. FINANCIAL STATEMENTS
The following financial statements are included as a separate section
following the signature page to this Form 10-KSB:
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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PAGE
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Report of Independent Auditors...............................................F-2
Consolidated Balance Sheet as of
September 30, 2000 .........................................................F-3
Consolidated Statements of Operations for the years ended
September 30, 2000 and 1999.................................................F-5
Consolidated Statements of Stockholders' Equity for the years
ended September 30, 2000 and 1999...........................................F-6
Consolidated Statements of Cash Flows for the years
ended September 30, 2000 and 1999...........................................F-7
Notes to Consolidated Financial Statements...................................F-8
</TABLE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Executive Officers and Directors
The following table sets forth certain information concerning the directors
and executive officers of the Company as of September 30, 2000:
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<CAPTION>
Year Became
Name Position With Company Director Age
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<S> <C> <C> <C>
Robert Goldberg Chairman of the Board & CFO 1994 67
Herbert S. Lightstone President, CEO & Director 1997 67
John Minnick Director 1985 52
John Romm, M.D. Director 1997 70
Robert Stuckelman Director 1973 69
Stuart L. Silverman M.D. Director 1999 53
Phuong Dang Secretary and Principal Financial 44
Officer
</TABLE>
The terms of the Board of Directors will expire at the next annual meeting
of stockholders. The Company's officers are elected by the Board of Directors
and hold office at the will of the Board.
BACKGROUND EXPERIENCE OF DIRECTORS AND OFFICER
MR. GOLDBERG is a senior partner in the firm of Francis, Goldberg & Powers, a
Certified Public Accounting Firm, and has been associated with such firm since
January 1995. Prior thereto, he was a senior partner in the Los Angeles office
of Bernstein, Fox, Goldberg & Licker, Certified Public Accountants. He is
certified in both California and New York and has been a member of the New York
State Bar. Mr. Goldberg attended Lehigh University, Brooklyn Law School and New
York University School of Law and has lectured for the Practicing Law Institute
and The American College of Life Underwriters. He is a member of the Estate
Planning Council, Professional Planners Forum and various accounting societies.
MR. LIGHTSTONE has served as President and CEO of the Company since June 2000.
Prior to assuming this role, he served as Vice President, Corporate Development,
with ICN Pharmaceuticals (NYSE:ICN) where he also had been responsible for ICN's
global public and investor relations activities. He rejoined ICN in 1994 and
also served with ICN from 1968 until 1981. Prior to ICN, Mr. Lightstone served
as a Director, and subsequently as Chairman & CEO of Immunetech Pharmaceuticals
from 1983 through 1986. In 1981 and 1982 he served as President of Revlon
Ophthalmic International. He has been a consultant to numerous emerging
companies.
MR. MINNICK is President of Minnick Capital Management, an investment management
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<PAGE>
firm that he founded in 1972. Mr. Minnick is a member of the Kansas and Federal
Bar. He has served as a director on other corporate and non-profit boards and is
a member of the Association for Investment Management and Research (AIMR). Mr.
Minnick is a graduate of Washburn University (BA) and the Washburn University
School of Law (JD).
DR. ROMM has practiced internal medicine and gastroenterology in private
practice since 1962. He earned his MD at Wayne State College of Medicine and
also holds a BS in biology. He is an associate professor of medicine at the
University of California, Los Angeles and is an attending physician at
Cedars-Sinai Medical Center.
MR. STUCKELMAN founded the Company in 1973 and served as its President until
1982. From 1982 through 1989, Mr. Stuckelman was a business consultant for small
and medium size companies. In 1989, he rejoined the Company as President and
Chief Executive Officer in which capacities he served until October 1994. Mr.
Stuckelman has been a director of the Company since its incorporation. Since
1994, he has been President of Technical Management Consultants, which provides
business consulting services to many companies. He is also on the Board of
Directors of Medical Resources Management, Inc., a public company that rents
laser surgery equipment to doctors and hospitals. He holds an MSEE from the
University of Southern California and a BEE from Cornell University.
DR. SILVERMAN is the Medical Director of the Osteoporosis Medical Center in
Beverly Hills, CA, a nationally recognized clinical research center for
osteoporosis, and is also a Clinical Professor of Medicine at the UCLA School of
Medicine. Dr. Silverman is a graduate of the Johns Hopkins University Medical
School (1973) and earned his undergraduate degree from Princeton University
(1969) Cum Laude in biology. He is an internationally recognized authority on
osteoporosis and related fields and has been principal investigator for six
research grants in the field of osteoporosis and has authored numerous published
articles in the field.
PHUONG DANG has been with the Company from 1990 to present as Accountant,
Controller and Corporate Secretary.
There is no family relationship among the directors or executive officers
of the Company.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of two meetings during
the fiscal year ended September 30, 2000. No director attended fewer than 75% of
the aggregate of all meetings of the Board of Directors.
The Audit Committee is primarily responsible for approving the services
performed by the Company's independent auditors and reviewing reports of the
Company's internal and external auditors regarding the Company's accounting
practices and systems of internal accounting controls. This Committee currently
consists of Mr. Stuckelman and Mr. Goldberg. The Audit Committee met once during
the fiscal year
-14-
<PAGE>
ended September 30, 2000.
The Compensation Committee reviews and approves the Company's compensation
policy and has assumed responsibility for administration of the Company's 1992
Stock Option Plan. This Committee currently consists of Mr. Minnick and Dr.
Romm. The Compensation Committee met once during the fiscal year ended September
30, 2000
The Executive Committee is comprised of Mr. Goldberg, Mr. Minnick and Mr.
Lightstone. The Executive Committee meets periodically. Mr. Stuckelman was added
to the Executive Committee during fiscal year 2000.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of its Common
Stock, to file reports of ownership and changes of ownership with the Securities
and Exchange Commission ("SEC") and each exchange [or market quotation system]
on which the Company's securities are registered. Officers, directors and
greater than ten-percent stockholders are required by SEC regulation to furnish
the Company with copies of all ownership forms they file.
Based solely on its review of the copies of such forms received by it, or
written representations that no Form 5 was required, the Company believes that,
during the year ended September 30, 2000, its officers, directors, and greater
than ten-percent beneficial owners complied with all applicable filing
requirements.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the compensation for the fiscal year ended
September 30, 2000 for the Company's chief executive officer and all executive
officers whose compensation exceeded $100,000 for such fiscal year.
<TABLE>
<CAPTION>
Annual Compensation Long-Term
------------------- Compensation
Name and Principal Position Fiscal Year Annual Salary Bonus Stock Options
--------------------------- ----------- ------------- ------- -------------
<S> <C> <C> <C> <C>
Herbert S. Lightstone(1) 2000 $47,308 $50,000 250,000
President, CEO & Director
</TABLE>
(1) Mr. Lighstone was appointed as President and CEO of the Company on June 1,
2000. Accordingly, the amounts shown in the table with respect to "Annual
Compensation" for 2000 are for a period of less than a full year.
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with Herbert S. Lightstone,
CEO/President from May 31, 2000 through May 31, 2002. That agreement provides a
base salary of $150,000 a year, a bonus up to $150,000 a year and options to
purchase
-15-
<PAGE>
225,000 shares of common stock each year.
EMPLOYEE STOCK OPTION PLANS
The Company established its 1992 Stock Option Plan (the "1992 Plan") to enable
the Company to recruit and retain selected officers and other employees by
providing equity participation in the Company to such individuals. Under the
1992 Plan, regular salaried employees, including directors who are full time
employees, may be granted options exercisable at not less than 100% of the fair
market value of the Common Stock on the date of grant. The exercise price of any
option granted to an optionee who owns stock possessing more than 10% of the
voting power of all classes of stock of the Company must be 110% of the fair
market value of the Common Stock on the date of grant and the duration of the
options granted may not exceed five years. Options generally become exercisable
at a rate of 33% of the shares subject to an option one year after its grant.
The remaining shares generally become exercisable over an additional 24 months.
The duration of options may not exceed ten years. Options under the Plan are
nonassignable, except in the case of death and may be exercised only while the
optionee is employed by the Company or, in certain cases, within three months
after termination of employment or twelve months after death or disability. The
purchase price and number of shares of Common Stock that may be purchased upon
exercise of options are subject to adjustment in certain cases, including stock
splits, recapitalizations and reorganizations.
Under the 1992 Plan, the Company may grant qualified or non-qualified options
for the purchase of up to 2,400,000 shares of Common Stock. During fiscal year
2000, the Board of Directors granted 1,114,500 options to employees, officers
and directors under the Plan. At September 30, 2000, there were 1,990,618 shares
reserved for exercise of options granted, of which 829,323 were exercisable and
409,382 were available for grant under such Plan. The weighted average exercise
price of options outstanding under the Plan is $.72 per share.
Both the amount of options granted and to whom they are granted are determined
by the Board of Directors with the recommendation of the Compensation Committee,
at their discretion. There are no specific criteria, performance formulas or
measures applicable to the determination of the amount of options to be granted
and to whom such options are to be granted.
The foregoing description of the 1992 Plan is qualified in all respects by the
actual provisions of the 1992 Plan which is filed as an exhibit to the Company's
registration statement on Form S-1 effective May 7, 1992.
-16-
<PAGE>
NON PLAN STOCK OPTIONS
Between February 1992 and July 1999, a total of 1,581,513 stock options were
granted to directors, officers and consultants outside the 1992 Plan. As of
September 30, 2000, 468,240 of these non-qualified stock options were exercised,
579,590 were canceled and 533,683 were still outstanding. The average exercise
price of these non-plan stock options outstanding is $.92 per share. These
options were granted at exercise prices equal to the fair market value of the
Common Stock on the respective dates of grant (or re-pricing), and they expire
between 1999 and 2001.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------------
Number of Securities % of Total Options
(shares of Common Stock) Granted to Exercise
Underlying Options Employees/Directors Price Expiration
Name Granted (1) in Fiscal Year ($/share) Date
---- ------------------------ ------------------- --------- ----------
<S> <C> <C> <C> <C>
H. Lightstone 250,000 22% $ .74 2010
</TABLE>
(1) 100,000 options are vested over a three-year period and 150,000
options are vested immediately.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
The following table sets forth certain information regarding the exercise of
stock options during the fiscal year ended September 30, 2000 and the fiscal
year-end value of unexercised options for the Company's named executive
officers.
<TABLE>
<CAPTION>
Number of Securities
(Shares of Common Stock) Value of Unexercised
Shares Underlying Unexercised In-the-money Options at
Acquired Value Options at Fiscal Year End Fiscal Year End (1)
Name On Exercise Realized Exercisable/Unexercisabe Exercisable/Unexercisable
---- ----------- -------- -------------------------- -------------------------
<S> <C> <C> <C> <C>
H. Lightstone - - 255,000 / 140,000 $0 / $0
</TABLE>
(1) Based upon the closing market price of the Company's Common Stock as
reported on the over-the-counter bulletin board on September 30, 2000
minus the respective option exercise prices.
SAVINGS AND RETIREMENT PLANS
-17-
<PAGE>
In July 1987, the Company instituted a Savings and Retirement Plan (the "S&R
Plan"). Under the S&R Plan, every full-time salaried employee who is 18 years of
age or older may contribute up to 15% of his or her annual salary to the S&R
Plan. The Company will make a matching contribution of $.25 for every $1.00 of
the employee's contribution for an employee contribution of up to but not
exceeding 6% of the employee's annual salary. Company contributions are 100%
vested after 60 months of contributions to the S&R Plan. Benefits are payable
under the S&R Plan upon termination of a participant's employment with the
Company or at retirement. The S&R Plan meets the requirements of Section 401(k)
of the Internal Revenue Code. Internal Revenue Service regulations limit the
percentage of tax-deferred contributions that can be made by higher-compensated
participants. There are restrictions upon withdrawal of tax deferred
contributions, but participants are permitted to borrow against the value of
their tax deferred accounts.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
(a) MANAGEMENT
The following table sets forth information concerning beneficial ownership
of the Company's Common Stock as of September 30, 2000 by: (a) each
director of the Company; and (b) all executive officers named in the
Executive Compensation Table in item 10 and directors of the Company as a
group.
<TABLE>
<CAPTION>
Amount and Nature
Name and Address* -----------------
of Beneficial Owner Beneficial Ownership (1) Percent of Class
------------------- ------------------------ ----------------
<S> <C> <C>
Robert Stuckelman 280,797 (2) 2%
John Minnick 254,423 (3) 1%
Robert Goldberg 348,099 (4) 2%
Herbert S. Lightstone 255,000 (5) 1%
John Romm, M.D. 45,000 (6) **
Stuart Silverman 62,500 (7) **
All officers and
Directors as a group (6 persons) 1,245,819 (8) 6%
============= ==
</TABLE>
-18-
<PAGE>
Each person named in the table has (or could have upon exercise of an option
vested or vesting within 60 days after September 30, 2000) sole voting and
investment power (or such power together with any spouse of such person, if they
are joint tenants), with respect to securities beneficially owned by such person
as set forth opposite such person's name:
(1) Includes options exercisable as of or within September 30, 2000.
(2) Includes 126,282 shares subject to non-qualified and qualified
stock options.
(3) Includes 185,138 shares subject to non-qualified stock options.
(4) Includes 322,500 shares subject to non-qualified stock options.
(5) Includes 255,000 shares subject to non-qualified stock options.
(6) Includes 45,000 shares subject to non-qualified stock options.
(7) Includes 62,000 shares subject to non-qualified stock options.
(8) See notes (2) through (7)
(*) c/o CompuMed, Inc, 5777 West Century Blvd, Suite 1285, Los Angeles, CA
90045 (**) Less than 1%.
(b) FIVE PERCENT STOCKHOLDERS
None, to the Company's knowledge.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has retained the services of an investment advisor, Minnick Capital
Management, controlled by John Minnick a member of its Board of Directors, to
provide advice on its investment portfolio. The Company incurred fees of $17,000
and $0 for these services during the fiscal years ended September 30, 2000 and
1999. The Company also incurred $67,000 of expenses provided by two other
members of the Board of Directors for accounting and clinical research services.
The Company believes that the costs of such services are at comparable market
rates for the services involved.
-19-
<PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
3.1 Certificate of Incorporation of the Company [Incorporated by reference to
Exhibit 3.1 to the Company's Registration Statement of Form S-1 (File No.
33-46061), effective May 7, 1992]
3.2 Certificate of Amendment of Certificate of Incorporation [Incorporated by
reference to Exhibit 3.1a to Amendment No. 1 to Post-Effective Amendment
No. 1 to the Company's Registration Statement on Form S-2 (File No.
33-48437), filed June 28, 1994]
3.3 Certificate of Amendment of Certificate of Incorporation [Incorporated by
reference to Exhibit 3.1b to Amendment No. 2 to Post-Effective Amendment
No. 1 to the Company's Registration Statement on Form S-2 (File No.
33-48437), filed November 7, 1994]
3.4 Certificate of Correction of Certificate of Amendment [Incorporated by
reference to Exhibit 3.1c to Amendment No. 2 to Post-Effective Amendment
No. 1 to the Company's Registration Statement on Form S-2 (File No.
33-48437), filed November 7, 1995]
3.5 By-Laws of the Company, as currently in effect [Incorporated by reference
to Exhibit 3.2 to the Company's Registration Statement on Form S-1 (File
No. 33-46061), effective May 7, 1992]
4.1 Form of Underwriter's Warrant Agreement [Incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement on Form S-2 (File No.
33-48437), effective August 3, 1992]
4.2 Form of Warrant Agreement and Warrant [Incorporated by reference to Exhibit
4.5 to the Company's Registration Statement on Form S-2 (File No.
33-48437), effective August 3, 1992]
4.3 Specimen Common Stock Certificate [Incorporated by reference to Exhibit 4.1
to the Company's Registration Statement on Form S-1 (File No. 33-46061),
effective May 7, 1992
-20-
<PAGE>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
4.4 Form of Preferred Stock Certificate [Incorporated by reference to Exhibit
4.2 to the Company's Registration Statement on Form S-1 (File No.
33-46061), effective May 7, 1992]
4.5 Certificate of Designation of Class A Preferred Stock [Incorporated by
reference to Exhibit 4.5 to the Company's Annual Report on Form 10-KSB for
the fiscal year ended September 30, 1995 (File No. 0-14210)]
4.6 Certificate of Designation of Class B Preferred Stock [Incorporated by
reference to Exhibit 4.6 to the Company's Annual Report on Form 10-KSB for
the fiscal year ended September 30, 1995 (File No. 0-14210)]
4.7 Certificate of Designation of Class C 7% Convertible Preferred Stock
[incorporated by reference to Exhibit 3.1 to the Company's Form 8-K for an
event of December 24, 1997].
4.8 Certificate of Correction for the Class C 7% Convertible Preferred Stock
[incorporated by reference to Exhibit 3.2 to the Company's Form 8-K for an
event of December 24, 1997]
4.9 Form of Class C Warrant Agreement [incorporated by reference to Exhibit
10.2 to the Company's Form 8-K for an event of December 24, 1997]
10.1 Agreement, dated May 23, 1991 (the "SASCO Agreement"), for the purchase by
the Company of substantially all of the assets of Skeletal Assessment
Services Company ("SASCO") [Incorporated by reference to Exhibit 10.4 to
the Company's Registration Statement on Form S-1 (File No. 33-46061),
effective May 7, 1992].
10.2 Amendment to the SASCO Agreement, dated August 11, 1995, between the
Company and SASCO [Incorporated by reference to Exhibit 10.3 to the
Company's Annual Report on Form 10-KSB for the fiscal year ended September
30, 1995 (File No. 0-14210)]
10.3 First Amendment to Warrant to Purchase Common Stock, dated as of June 1,
1995, between the Company and SASCO [Incorporated by reference to Exhibit
10.4 to the Company's Annual Report on Form 10-KSB for the fiscal year
ended September 30, 1995 (File No. 0-14210)]
10.4 1992 Stock Option Plan [Incorporated by reference to Exhibit 10.12 to the
Company's Registration Statement on Form S-1 (File No. 33-46061), effective
May 7, 1992]
10.5 Form of Non-Qualified Stock Option Agreement [Incorporated by reference to
Exhibit 10 to the Company's Registration Statement on Form S-8 (File No.
33-63435), filed October 14, 1995]
10.6 Form of Securities Purchase Agreement for sale of Class C 7% Convertible
Preferred Stock [incorporated by reference to Exhibit 10.1 to the Company's
Form 8-K for an event of December 24, 1997].
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
10.7 Registration Rights Agreement [incorporated by reference to Exhibit 10.3 to
the Company's Form 8-K for an event of December 24, 1997].
-21-
<PAGE>
10.10 Research Agreement, dated January 3, 1994, between the Company and the
University of Georgia Research Foundation, Inc. [Incorporated by reference
to Exhibit 10.20 to the Company's Annual Report on Form 10-KSB for fiscal
year 1994]
10.11 Exclusive License Agreement, dated January 3, 1994, between the Company
and the University of Georgia Research Foundation, Inc. [Incorporated by
reference to Exhibit 10.21 to the Company's Annual Report on Form 10-KSB
for fiscal year 1994]
10.12 Exclusive License Agreement, dated January 3, 1994, between the Company
and the University of Georgia Research Foundation, Inc. [Incorporated by
reference to Exhibit 10.21 to the Company's Annual Report on Form 10-KSB
for fiscal year 1994]
10.17 Sponsored Research Agreement, effective as of May 1, 1996, between UMMC
and the Company. [Incorporated by reference to Exhibit 10.17 to the
Company's Annual Report on Form 10-KSB for fiscal year 1996 (the "1996
Form 10-KSB")]
10.18 Exclusive License Agreement, effective as of May 1, 1996, between UMMC and
the Company [Incorporated by reference to Exhibit 10.18 of the Company's
1996 Form 10-KSB].
10.19 Evaluation and Development Agreement between Varian Associates and the
Company dated December 10, 1996 [Incorporated by reference to Exhibit
10.19 of the Company's 1996 Form 10KSB].
10.20 Agreement of Settlement and Mutual General Release, dated April 23, 1996
among the Company, Robert Stuckelman, William Barnett, Allan Gelbard and
Barry Silverton [Incorporated by reference to Exhibit 10.20 of the
Company's 1996 Form 10KSB].
10.21 Settlement Agreement and General Release, effective September 15, 1996,
between the Company and Howard L. Mark, M.D. [Incorporated by reference to
Exhibit 10.21 of the Company's 1996 Form 10KSB].
10.22 Settlement Agreement and General Release, effective August 1, 1996 between
the Company and Mark C. Branigan [Incorporated by reference to Exhibit
10.22 of the Company's Form 10KSB at September 30, 1997].
10.23 Commercial Office Lease, dated August 30, 1996 between the Company and
USAA Income Properties III Limited Partnership [Incorporated by reference
to Exhibit 10.23 to the Company's 1996 Form 10-KSB].
10.24 Commercial Office Lease dated August 16, 1999 between the Company and
L.A.T. Investment Corporation, a California corporation [Incorporated by
reference to Exhibit 10.24 to the Company's 1999 Form 10-KSB].
-22-
<PAGE>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
10.25 Final Judgment and Order of Dismissal, CompuMed, Inc. Securities
Litigation dated October 20, 1997 [Incorporated by reference to
Exhibit 10.25 of the Company's Form 10-KSB at September 30, 1999].
21* Subsidiaries of the Company
23* Consent of Ernst & Young LLP
27* Financial data schedule
------------------------------------
* Filed herewith.
B. REPORTS ON FORM 8-K
None.
-23-
<PAGE>
SIGNATURES
In accordance with Section 13 or 15 (d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
COMPUMED, INC.
----------------------------
Registrant
By: /s/ PHUONG DANG
------------------------
Phuong Dang, Secretary and Principal Financial Officer
Date: December 27, 2000
----------------------------
In accordance with Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ HERBERT S. LIGHTSTONE President, CEO & Director December 27, 2000
--------------------------------
Herbert S. Lightstone
/s/ ROBERT B. GOLDBERG Chairman of the Board December 27, 2000
-------------------------------- and CFO
Robert B. Goldberg
/s/ JOHN D. MINNICK Director December 27, 2000
--------------------------------
John D. Minnick
/s/ ROBERT STUCKELMAN Director December 27, 2000
--------------------------------
Robert Stuckelman
/s/ JOHN ROMM Director December 27, 2000
--------------------------------
John Romm
/s/ STUART SILVERMAN Director December 27, 2000
--------------------------------
Stuart Silverman
</TABLE>
-24-
<PAGE>
COMPUMED, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors..............................................F-2
Consolidated Balance Sheet as of
September 30, 2000.........................................................F-3
Consolidated Statements of Operations for the years ended
September 30, 2000 and 1999................................................F-5
Consolidated Statements of Stockholders' Equity for
the years ended September 30, 2000 and 1999................................F-6
Consolidated Statements of Cash Flows for the years
ended September 30, 2000 and 1999..........................................F-7
Notes to Consolidated Financial Statements..................................F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
CompuMed, Inc.
We have audited the accompanying consolidated balance sheet of CompuMed, Inc. as
of September 30, 2000, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the two years in the period
ended September 30, 2000. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of CompuMed, Inc. at
September 30, 2000, and the consolidated results of its operations and its cash
flows for each of the two years in the period ended September 30, 2000, in
conformity with accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Los Angeles, California
December 5, 2000
F-2
<PAGE>
COMPUMED, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 30,
2000
-----------
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 129,000
Marketable securities 1,554,000
Accounts receivable, less allowance of $49,000 275,000
Inventory 180,000
Prepaid expenses and other current assets 11,000
-----------
TOTAL CURRENT ASSETS 2,149,000
PROPERTY AND EQUIPMENT
Machinery and equipment 814,000
Furniture, fixtures and leasehold
improvements 100,000
Equipment under capital leases 953,000
-----------
1,867,000
Accumulated depreciation and amortization (924,000)
-----------
943,000
OTHER ASSETS
Other assets 44,000
-----------
TOTAL ASSETS $ 3,136,000
===========
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
COMPUMED, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 30,
2000
-------------
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 441,000
Accrued liabilities 180,000
Unearned revenue 76,000
Current portion of capital lease obligations 127,000
-------------
TOTAL CURRENT LIABILITIES 824,000
Capital lease obligations, less current portion 63,000
Commitments and contingencies
STOCKHOLDERS' EQUITY
Preferred Stock- Class A $3.50 cumulative convertible voting
- issued and outstanding -8,400 shares 1,000
Preferred Stock- Class B $3.50 convertible voting
- issued and outstanding - 300 shares --
Common stock, $.01 par value--authorized
50,000,000 shares, issued and
outstanding- 17,869,362 179,000
Additional paid in capital 32,234,000
Accumulated deficit (30,212,000)
Accumulated other comprehensive income 97,000
Deferred stock compensation (50,000)
-------------
STOCKHOLDERS' EQUITY 2,249,000
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,136,000
=============
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
COMPUMED, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended September 30,
2000 1999
------------ ------------
<S> <C> <C>
REVENUES
ECG services $ 1,435,000 $ 1,385,000
ECG product and supplies sales 465,000 923,000
OsteoGram services and royalty income 13,000 17,000
------------ ------------
1,913,000 2,325,000
COST AND EXPENSES
Cost of ECG services 888,000 958,000
Cost of goods sold 238,000 471,000
Selling expenses 792,000 320,000
Research and development 330,000 364,000
General and administrative expenses 969,000 1,084,000
Depreciation and amortization 288,000 199,000
------------ ------------
3,505,000 3,396,000
OPERATING LOSS (1,592,000) (1,071,000)
Interest income and dividends 184,000 90,000
Realized gain on marketable securities 7,000 -0-
Interest expense (44,000) (60,000)
------------ ------------
NET LOSS $ (1,445,000) $ (1,041,000)
============ ============
NET LOSS PER SHARE- Basic and Diluted $ (.08) $ (.07)
------------ ------------
Weighted average number of common
shares outstanding 17,295,226 14,328,343
============ ============
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
COMPUMED, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accum.
Additional Other
Preferred Common Paid In Accumulated Compreh Deferred Stock
Stock Stock Capital (Deficit) Income Compensation Total
--------- ----------- ----------- ------------ ------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at September 30, 1998: $ 947,000 $ 125,000 $29,539,000 $(27,726,000) $ -- $ -- $ 2,885,000
Conversion of 11,650 shares of Class C
Preferred Stock to 2,325,344 shares of (946,000) 23,000 923,000 -- -- -- --
Common Stock
Registration costs -- -- (2,000) -- -- -- (2,000)
Proceeds from issuance of 1,330,110
shares of Common Stock upon exercise of -- 14,000 644,000 -- -- -- 658,000
Class C Preferred Stock warrants
Proceeds from issuance of 200,000 shares
of Common Stock upon conversion of -- 2,000 218,000 -- -- -- 220,000
Underwriter warrants
Proceeds from issuance of 217,930 shares
of Common Stock upon exercise of stock -- 2,000 184,000 -- -- -- 186,000
options
Dividends paid on Class A Preferred -- -- (2,000) -- -- -- (2,000)
Stock
Net Loss -- -- -- (1,041,000) -- -- (1,041,000)
--------- ----------- ----------- ------------ ------- --------------- -----------
Balances at September 30, 1999: $ 1,000 $ 166,000 $31,504,000 $(28,767,000) -- -- $ 2,904,000
Unrealized gain on marketable securities -- -- -- -- 97,000 -- 97,000
Proceeds from issuance of 1,083,450
shares of Common Stock upon exercise of -- 11,000 551,000 -- -- -- 562,000
Class C Preferred Stock warrants
Proceeds from issuance of 172,426 shares
of Common Stock upon exercise of stock -- 2,000 120,000 -- -- -- 122,000
options
Stock options issued for services -- -- 59,000 -- -- (59,000) --
Amortization of deferred compensation -- -- -- -- -- 9,000 9,000
Net Loss -- -- -- (1,445,000) -- -- (1,445,000)
--------- ----------- ----------- ------------ ------- --------------- -----------
Balances at September 30, 2000: $ 1,000 $ 179,000 $32,234,000 $(30,212,000) 97,000 (50,000) $2,249,000
========= =========== =========== ============= ======= =============== ===========
</TABLE>
Comprehensive loss for the year ended September 30, 2000 and 1999 is
($1,348,000) and ($1,041,000), respectively.
See notes to consolidated financial statements.
F-6
<PAGE>
COMPUMED, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended September 30,
2000 1999
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(1,445,000) $(1,041,000)
Net adjustments to reconcile net loss to net cash
used in operating activities:
Realized gain on marketable securities (7,000) -0-
Amortization of deferred compensation 9,000 -0-
Depreciation and amortization 288,000 199,000
Changes in operating assets and liabilities:
Accounts receivable 222,000 (283,000)
Inventory and prepaid expenses (116,000) (11,000)
Accounts payable, accrued liabilities and unearned revenue 211,000 164,000
Other assets (11,000) (11,000)
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (849,000) (983,000)
----------- -----------
INVESTING ACTIVITIES:
Investments in marketable securities (2,392,000) (45,000)
Proceeds from sale of marketable securities 992,000 -0-
Purchases of property, plant and equipment (712,000) (82,000)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (2,112,000) (127,000)
----------- -----------
FINANCING ACTIVITIES:
Dividends on Class A Preferred Stock -0- (2,000)
Principal payments on capital lease obligations (192,000) (186,000)
Proceeds from the exercise of stock options and warrants 684,000 1,063,000
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 492,000 875,000
----------- -----------
DECREASE IN CASH AND CASH EQUIVALENTS (2,469,000) (235,000)
Cash and cash equivalents at beginning of year 2,598,000 2,833,000
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 129,000 $ 2,598,000
=========== ===========
SUPPLEMENTAL NON-CASH INFORMATION:
During fiscal year 1999, computer and office equipment were acquired under
capital lease obligations for $326,000.
Cash paid for interest $ 44,000 $ 60,000
=========== ===========
</TABLE>
See notes to consolidated financial statements
F-7
<PAGE>
COMPUMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A-BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of CompuMed, Inc. and its wholly-owned subsidiary (together referred to
as the Company). All material intercompany transactions and accounts have been
eliminated.
DESCRIPTION OF BUSINESS: CompuMed, Inc. is a medical diagnostic product and
services company focusing on the diagnosis, monitoring and management of several
costly, high incidence diseases, particularly cardiovascular disease and
osteoporosis. The Company's primary business is the development and marketing of
its osteoporosis testing technology and the computer interpretation of
electrocardiograms ("ECG's"). 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.
CASH EQUIVALENTS: The Company considers all highly liquid debt instruments with
a maturity of three months or less when purchased, and investments in money
market accounts to be cash equivalents. Cash and cash equivalents consist of
cash on hand, cash in money market funds and demand deposit accounts.
MARKETABLE SECURITIES: Marketable securities consist of investments in equity
and corporate bonds of publicly traded domestic companies and are stated at
market value based on the most recently traded price of these securities at
September 30, 2000. All marketable securities are classified as available for
sale at September 30, 2000 and for the two years then ended. Unrealized gains
and losses, determined by the difference between historical purchase price and
the market value at each balance sheet date, are recorded as a component of
Accumulated Other Comprehensive Income in Stockholders' Equity. Unrealized gains
and losses were insignificant in the year ended September 30, 1999. Realized
gains and losses are determined by the difference between historical purchase
price and gross proceeds received when the marketable securities are sold. The
Company's investments in corporate bonds mature between 2001 and 2005. At
September 30, 2000, the Company's investments in marketable securities are as
follows:
<TABLE>
<CAPTION>
Investment Types Amount
---------------- ----------
<S> <C>
Corporate Bonds $ 766,000
Convertible Preferred Stock 170,000
Common Stock 618,000
----------
Total $1,554,000
==========
</TABLE>
INVENTORY: Inventory consists of ECG terminals, component parts and ECG medical
supplies. Inventory, primarily finished goods, is stated at the lower of cost
(weighted average or first-in first-out method) or market.
PROPERTY AND EQUIPMENT: Property and equipment are stated at cost. Depreciation
and amortization are computed on the straight-line basis over 3 to 5 years.
F-8
<PAGE>
COMPUMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE A-BASIS OF PRESENTATION SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
REVENUE RECOGNITION: Standard ECG services and supplies are recorded as revenue
when billed to the customer in conjunction with services performed. Product
sales are recorded upon shipment of product and passage of title to the
customer.
ADVERTISING COSTS: The Company expenses advertising costs when incurred. The
amounts charged to expense during the years ended September 30, 2000 and 1999
were $52,000 and $17,000 respectively.
INCOME TAXES: The Company utilizes the liability method to determine the
provision for income taxes, whereby deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.
PER SHARE DATA: The Company reports its earnings (loss) per share in according
with the Statement of Financial Accounting Standards No.128, "Accounting for
Earnings Per Share" ("FAS 128"). Basic loss per share is calculated using the
net loss, less preferred stock dividends ($3,000 in 2000 and $2,000 in 1999)
divided by the weighted average common shares outstanding. Shares from the
assumed conversion of outstanding warrants, options and effect of the conversion
of the Class A Preferred Stock and Class B Preferred Stock are omitted from the
computations of diluted loss per share because the effect would be antidilutive.
FINANCIAL INSTRUMENTS: The carrying value of short-term financial instruments
such as cash equivalents, accounts receivable, accounts payable and accrued
expenses approximates their fair value based on short-term maturities of these
instruments.
LONG-LIVED ASSETS: Long-lived assets used in operations are reviewed
periodically to determine whether the carrying values are not impaired and, if
indications of impairment are present or if long-lived assets are expected to be
disposed of, impairment losses are recorded. Any impairment is charged to
expense in the period in which the impairment is determined. The Company has not
recorded impairment charges during the years ended September 30, 2000 and 1999.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions affecting the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
STOCK BASED COMPENSATION: The Company accounts for employee and director's stock
option grants using the intrinsic method. Generally, the exercise price of the
Company's employee stock options equal or exceeds the market price of the
underlying stock on the date of grant and no compensation expense is recognized.
If the option price is less than market value, the Company records compensation
expense over the vesting period of the option.
F-9
<PAGE>
COMPUMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE A-BASIS OF PRESENTATION SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
The Company accounts for equity instruments issued to non-employees in exchange
for goods or services using the fair value method and records expense based on
the values determined.
CONCENTRATION OF CREDIT RISK: The Company sells its products throughout the
United States. The Company performs periodic credit evaluations of its
customers' financial condition and generally does not require collateral. Credit
losses have been within management's expectations. For the years ended September
30, 2000 and 1999, no single customer accounted for more than 10% of the
Company's net revenues.
FINANCIAL STATEMENT PRESENTATION: Certain balances from the September 30, 1999
financial statements have been reclassified to conform to the September 30, 2000
presentation.
NOTE B-INCOME TAXES
At September 30, 2000, the Company has available for federal income tax
purposes, net operating loss carryforwards of approximately $9.2 million which
expire between 2001 and 2020. The utilization of the above net operating loss
carryforwards are subject to significant limitations under the tax codes due to
changes in ownership and portions may expire prior to utilization.
Significant components of the Company's deferred tax liabilities and assets as
of September 30, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Deferred tax liabilities:
Depreciation and amortization $ (40,000) $ (2,000)
Deferred tax assets:
Account receivable allowance 22,000 14,000
Accrued expenses 16,000 17,000
Tax credits 9,000 9,000
Net operating loss carryforwards 7,238,000 6,648,000
----------- -----------
Total deferred tax assets 7,285,000 6,688,000
Valuation allowance for
deferred tax assets (7,245,000) (6,686,000)
----------- -----------
Net deferred tax assets 40,000 2,000
----------- -----------
Total $ 0 $ 0
=========== ===========
</TABLE>
F-10
<PAGE>
COMPUMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE C-STOCKHOLDERS' EQUITY
COMMON STOCK: On August 13, 1992, the Company issued 8,000,000 units, each unit
consisting of one share of Common Stock and one warrant to purchase one-tenth of
one share of Common Stock. This offering was sold at $.25 per unit for net
proceeds of $1,505,000. On September 17, 1992, the 8,000,000 shares of Common
Stock became separately tradable. The 8,000,000 warrants were originally
exercisable to purchase 800,000 shares of Common Stock until August 2, 1997.
This entitles a holder of 10 warrants to purchase one share of the Company's
Common Stock at $3.75 per share. The outstanding warrants were callable by the
Company at any time after August 3, 1994, at a price of $.05 per warrant. A
total of 1,528,300 of the warrants were exercised as of September 30, 1997. The
expiration date of the warrants was extended until August 2, 2000 at which time
all such remaining warrants expired.
CLASS A $3.50 CUMULATIVE CONVERTIBLE VOTING PREFERRED STOCK: The holders of
Class A Preferred Stock are entitled to receive, when and as declared by the
Board of Directors of the Company, dividends at an annual rate of $.35 per
share, payable quarterly. Dividends are cumulative from the date of issuance.
Every two shares of the Class A Preferred Stock are presently convertible,
subject to adjustment, into one share of Common Stock. In the event of any
liquidation, the holders of the Class A Preferred Stock are entitled to receive
$2.00 in cash per share plus accumulated and unpaid dividends out of assets
available for distribution to stockholders, prior to any distribution to holders
of Common Stock or any other stock ranking junior to the Class A Preferred
Stock. The Class A Preferred Stock may be redeemed by the Company, upon 30-days'
written notice, at a redemption price of $3.85 per share. Class A Preferred
Stock stockholders have the right to convert their shares into Common Stock
during such 30-day period.
Shares of Class A Preferred Stock have one vote each. Shares of Class A
Preferred Stock vote along with shares of Common Stock and shares of Class B
Preferred Stock as a single class on all matters presented to the stockholders
for action except as follows: Without the affirmative vote of the holder of a
majority of the Class A Preferred Stock then outstanding, voting as a separate
class, the Company may not (i) amend, alter or repeal any of the preferences or
rights of the Class A Preferred Stock, (ii) authorize any reclassification of
the Class A Preferred Stock, (iii) increase the authorized number of shares of
Class A Preferred Stock or (iv) create any class or series of shares ranking
prior to the Class A Preferred Stock as to dividends or upon liquidation. A
total of 4,200 shares of Common Stock are currently issuable upon conversion of
the remaining 8,400 shares of the Class A Preferred Stock.
CLASS B $3.50 CONVERTIBLE VOTING PREFERRED STOCK: In August 1994, the Company
issued 52,333 shares of Class B $3.50 Convertible Preferred Stock ("Class B
Preferred Stock") in connection with the acquisition of certain property. The
holders of Class B Preferred Stock are entitled to receive dividends only, when
and as declared by the Board of Directors of the Company. Each share of Class B
Preferred Stock is convertible, subject to adjustment, into ten shares of Common
Stock. In the event of any liquidation, the holders of the Class B Preferred
Stock are entitled to receive $3.50 in cash per share plus accumulated and
unpaid dividends out of assets available for
F-11
<PAGE>
COMPUMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE C-STOCKHOLDERS' EQUITY (CONTINUED)
distribution to stockholders, prior to any distribution to holders of Common
Stock or any other stock ranking junior to the Class B Preferred Stock. Each
share of Class B Preferred Stock may be redeemed by the Company, upon 30-days'
written notice, at a redemption price of $3.85 per share. Class B Preferred
Stock stockholders have the right to convert their shares into Common Stock
during this 30-day period.
Shares of Class B Preferred Stock are entitled to one vote each. Shares of Class
B Preferred Stock vote as a single class on all matters presented to the
stockholders for action except as follows: Without the affirmative vote of the
holder of a majority of the Class B Preferred Stock then outstanding, voting as
a separate class, the Company may not (i) amend, alter or repeal any of the
preferences or rights of the Class B Preferred Stock, (ii) authorize any
reclassification of the Class B Preferred Stock, (iii) increase the authorized
number of shares of Class B Preferred Stock or (iv) create any class or series
of shares ranking prior to the Class B Preferred Stock as to dividends or upon
liquidation. A total of 3,000 shares of Common Stock are currently issuable upon
conversion of the remaining 300 shares of Class B Preferred Stock.
CLASS C CONVERTIBLE PREFERRED STOCK: On December 24, 1997, the Company closed
the placement of 17,500 shares of Series 1 Class C 7% Convertible Preferred
Stock (the "Series C-1 Preferred Stock") at a price of $100 per share, or an
aggregate purchase price of $1,750,000 pursuant to Securities Purchase
Agreements. The Series C-1 Preferred Stock was immediately convertible into
shares of the Company's Common Stock at a conversion ratio equal to $100 divided
by the lesser of (i) $1.51or (ii) 75% of the average closing bid price for the
ten consecutive trading days prior to the notice of conversion. The Securities
Purchase Agreements also provided for the issuance of 17,500 shares of Series 2
Class C 7% Convertible Preferred Stock (the "Series C-2 Preferred Stock" and
together with the Series C-1 Preferred Stock, the "Class C Preferred Stock").
The Series C-2 Preferred Stock was identical to the Series C-1 Preferred Stock
except that the conversion ratio was equal to $100 divided by the lessor of (i)
$1.34 or (ii) 80% of the average closing bid price for the ten consecutive
trading days prior to the notice of conversion (or 77.5% if the Company received
full payment for such shares prior to December 31, 1998). On January 22, 1998,
the Company sold an additional 8,750 shares of such Series C-2 Preferred Stock
for $875,000 and, on March 31, 1998, the Company sold an additional 8,750 shares
of such Series C-2 for $875,000.
The net proceeds from the placement of the Series C Preferred Stock were
approximately $3,281,000 after payment of a 4% fee to the distributor and other
placement expenses. During the fiscal year ended September 30, 1998, Class C
shareholders converted 23,350 shares of Class C preferred stock into 3,294,182
shares of Common Stock. During the fiscal year ended September 30, 1999, Class C
shareholders converted the remaining 11,650 shares of Class C preferred stock
into 2,325,344 shares of Common Stock. Upon conversion of the Series C Preferred
Stock, the holder received warrants (the "Warrants") to purchase the same number
of shares of Common Stock as was issued on the conversion, at an exercise price
equal to the conversion price and exercisable for three years from issuance.
F-12
<PAGE>
COMPUMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE D - STOCK OPTIONS AND WARRANTS
STOCK OPTIONS: The Company's Stock Option Plan provides for the granting of
options to key employees, officers and certain individuals to purchase shares of
the Company's Common Stock. Options intended to be incentive stock options
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended, and nonqualified options may be granted under the Stock Option Plan.
Incentive stock options granted under the Stock Option Plan shall be exercisable
for a period of not more than ten years from the date of grant. The purchase
price per share of Common Stock issuable under the Stock Option Plan will not be
less than the fair market value of such shares on the date the option is
granted. In addition to options issued pursuant to the Plan, the Company has
granted non-qualified stock options to certain members of the Board of
Directors, management and consultants of the Company. Such options have been
granted at the market prices at the date of grant and are for a term of five or
ten years. During 2000, the Company issued options to purchase 149,843 shares of
common stock in exchange for services provided over a period of one to two
years. These options were valued by the Company, using the fair value method, at
$59,000 of which $9,000 was expensed in fiscal year 2000.
In accordance with FAS 123, pro forma information regarding net loss and loss
per share has not been presented because the effect of the employee stock option
grants is immaterial in 2000 and 1999.
A summary of the Company's stock option activity, and related information for
the years ended September 30 follows:
<TABLE>
<CAPTION>
2000 1999
---------------------------------------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
--------- -------- ---------- --------
<S> <C> <C> <C> <C>
Options outstanding, beginning of year 1,440,315 .84 1,289,425 1.32
Options exercised (172,426) .68 (217,930) .86
Options granted 1,263,843 .68 1,090,325 .67
Options forfeited/canceled (56,636) .66 (721,505) 1.44
--------- ----------
Options outstanding, end of year 2,475,096 .84 1,440,315 .84
========= ==========
Exercisable at end of year 1,288,801 .87 896,568 .94
========= ==========
</TABLE>
The weighted average remaining contract life of the stock options was 7.3 years
as of September 30, 2000. The exercise prices for options outstanding at
September 30, 2000 ranged from $.63 to $4.25.
F-13
<PAGE>
COMPUMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE D - STOCK OPTIONS AND WARRANTS (CONTINUED)
WARRANTS: At September 30, 2000, the Company had the following warrants
outstanding for the purchase of its common stock:
<TABLE>
<CAPTION>
Expiration Number of Exercise
Description Date Shares Issuable Price
----------- -------------- --------------- --------
<S> <C> <C> <C>
SASCO September 2001 147,000 $2.50
Class action settlement January 2003 1,870,000 $3.00
Class action insurance carrier January 2003 50,000 $3.00
---------
Total warrants outstanding 2,067,000
=========
</TABLE>
In connection with the conversion of the Class C preferred stock, warrants were
issued for the purchase of 5,619,525 shares of Common Stock at an average price
of $0.62 per share. During fiscal year ended September 30, 2000, 1,083,450
shares of common stock were issued from the exercise of such warrants.
On December 24, 1997, the Company issued warrants (the "1995 Warrants")
exercisable for the purchase of 200,000 shares of its Common Stock at an
exercise price of $1.10 per share, until December 1, 1999, related to certain
placements effected by the Company in 1995 and 1996. During fiscal 1999, all of
such warrants were converted into Common Stock.
NOTE E - COMMITMENTS
The Company has capital leases for computer and office equipment that expire
through 2004 and has a noncancelable operating lease for a facility expiring in
August 2004 (with an option to extend the term of this lease for an additional
five years) which is included in the operating lease amounts below. The
following is a summary as of September 30, 2000 of future minimum lease payments
together with the present value of the net minimum lease payments on capital
leases:
F-14
<PAGE>
COMPUMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE E - COMMITMENTS (CONTINUED)
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
-------- ---------
<S> <C> <C>
Year ending September 30
2001 146,000 114,000
2002 51,000 117,000
2003 9,000 121,000
2004 8,000 102,000
2005 -0- -0-
-------- ---------
Total minimum lease payments $214,000 $ 454,000
=========
Less amount representing interest 24,000
--------
Net minimum lease payments $190,000
Less current portion 127,000
--------
Present value of net minimum
payments, less current portion $ 63,000
=========
</TABLE>
Included in accumulated depreciation and amortization at September 30, 2000 is
$721,000 related to assets leased under capital leases. Rental expense under
operating leases was $156,000 (2000) and $238,000 (1999).
The Company entered into an employment agreement with Herbert S. Lightstone,
CEO/President from May 31, 2000 through May 31, 2002. That agreement provides a
base salary of $150,000 a year, a bonus up to $150,000 a year and options to
purchase 225,000 shares of common stock each year.
NOTE F - SAVINGS AND RETIREMENT PLANS
The Company has a Savings and Retirement Plan (the "Plan") under which every
full-time salaried employee who is 18 years of age or older may contribute up to
15 percent of his or her eligible annual salary to the Company's Plan. For an
employee contribution of up to but not exceeding 6 percent of the employee's
annual salary the Company will make a matching contribution of $.25 for every
$1.00 of the employee's contribution. The Company's contributions are 100%
vested after 60 months of contributions to the Plan. Benefits are payable under
the Plan upon termination of a participant's employment with the Company or at
retirement. The Plan meets the requirements of Section 401(k) of the Internal
Revenue Code. The Company's matching contribution, which was charged to expense,
were $12,000 and $6,000 in fiscal 2000 and 1999, respectively.
NOTE H - RELATED PARTY TRANSACTIONS
The Company has retained the services of an investment advisor, who is also a
member of its Board of Directors, to provide advice on its investment portfolio.
During fiscal years ended September 30, 2000 and 1999, the Company incurred, for
these services, $17,000 and $ 0 respectively. During 2000, the Company also
incurred $67,000 of expenses from other members of the Board of Directors for
services pertaining to its operations.
F-15
