UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2003
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) 258-5000
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
As of February 11, 2004, 17,951,034 shares of common stock of the issuer
were outstanding.
Transitional Small Business Disclosure Format (check one): Yes No X
INDEX
COMPUMED, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
--------------------------------
Item 1. Financial Statements (unaudited)
Balance Sheets - December 31, 2003 (unaudited) and September 30, 2003.
Statements of Operations - Three months ended December 31, 2003 and
2002 (unaudited).
Statements of Cash Flows - Three months ended December 31, 2003 and
2002 (unaudited).
Notes to condensed Financial Statements (unaudited).
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Item 3. Controls and Procedures.
PART II. OTHER INFORMATION
-----------------------------
Item 1 Legal Proceedings
Item 2 Changes in Securities
Item 3 Defaults upon Senior Securities
Item 4 Submission of Matters to a Vote of Security Holders
Item 5 Other Information
Item 6 Exhibits and Reports on Form 8-K
SIGNATURES
----------
PART I
INDEX
COMPUMED, INC. AND SUBSIDIARIES
FINANCIAL INFORMATION
BALANCE SHEETS
COMPUMED, INC.
DECEMBER 31, 2003 SEPTEMBER 30, 2003
------------------ -------------------
(UNAUDITED) (AUDITED)
------------------ -------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 31,000 $ 66,000
Marketable securities. . . . . . . . . . . . . . . . . . . . . . 190,000 181,000
Accounts receivable, less allowance of $21,000 (December 2003)
and $22,000 (September 2003). . . . . . . . . . . . . . . . . . 217,000 219,000
Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,000 25,000
Prepaid expenses and other current assets. . . . . . . . . . . . 25,000 21,000
------------------ -------------------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . . 492,000 512,000
PROPERTY AND EQUIPMENT
Machinery and equipment. . . . . . . . . . . . . . . . . . . . . 1,276,000 1,276,000
Furniture, fixtures and leasehold improvements . . . . . . . . . 42,000 42,000
Equipment under capital leases . . . . . . . . . . . . . . . . . 35,000 35,000
------------------ -------------------
1,353,000 1,353,000
Accumulated depreciation and amortization. . . . . . . . . . . . (1,197,000) (1,146,000)
------------------ -------------------
156,000 207,000
OTHER ASSETS
Patents, net of accumulated amortization of $0 . . . . . . . . . 51,000 50,000
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 11,000 11,000
------------------ -------------------
TOTAL ASSETS $710,000 $780,000
================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 92,000 $125,000
Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . 126,000 139,000
Current portion of capital lease obligations . . . . . . . . . . 5,000 7,000
------------------ -------------------
TOTAL CURRENT LIABILITIES. . . . . . . . . . . . . . . . . . . . 223,000 271,000
STOCKHOLDERS' EQUITY
Preferred Stock, $.10 par value - authorized 1,000,000 shares
Preferred Stock- Class A $3.50 cumulative convertible voting -
issued and outstanding - 8,400 shares. . . . . . . . . . . . 1,000 1,000
Preferred Stock- Class B $3.50 cumulative convertible voting -
issued and outstanding -300 shares. . . . . . . . . . . . . . - -
Common Stock, $.01 par value-authorized 50,000,000 shares,
issued and outstanding-17,951,034 shares. . . . . . . . . . . 180,000 180,000
Additional paid in capital . . . . . . . . . . . . . . . . . . . 32,304,000 32,296,000
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . (32,039,000) (31,978,000)
Accumulated other comprehensive income . . . . . . . . . . . . . 41,000 27,000
Deferred stock compensation. . . . . . . . . . . . . . . . . . . - (17,000)
------------------ -------------------
TOTAL STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . 487,000 509,000
------------------ -------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $710,000 $780,000
================== ===================
See notes to condensed financial statements.
STATEMENTS OF OPERATIONS (UNAUDITED)
COMPUMED, INC.
THREE MONTHS ENDED DECEMBER 31,
-------------------------------
2003 2002
---------------- ------------
REVENUES FROM OPERATIONS
ECG services $384,000 $ 410,000
ECG product and supplies sales. . . . . . . . . . . . 18,000 28,000
OsteoGram(R) sales and services . . . . . . . . . . . 58,000 14,000
----------------- -----------
460,000 452,000
COSTS AND EXPENSES
Costs of ECG services . . . . . . . . . . . . . . . . 119,000 124,000
Cost of goods sold-ECG. . . . . . . . . . . . . . . . 15,000 21,000
Cost of goods sold- OsteoGram(R). . . . . . . . . . . 4,000 2,000
Selling expenses. . . . . . . . . . . . . . . . . . . 45,000 82,000
Research and development. . . . . . . . . . . . . . . 53,000 51,000
General and administrative expenses . . . . . . . . . 241,000 274,000
Depreciation. . . . . . . . . . . . . . . . . . . . . 51,000 55,000
----------------- -----------
528,000 609,000
OPERATING LOSS. . . . . . . . . . . . . . . . . . . . (68,000) (157,000)
Interest income and dividends . . . . . . . . . . . . 5,000 8,000
Realized gain on marketable securities. . . . . . . . 2,000 2,000
Interest expense. . . . . . . . . . . . . . . . . . . - -
NET LOSS $(61,000) $(147,000)
================ ============
NET LOSS PER SHARE (Basic and diluted) $ (0) $ (.01)
================ ============
Weighted average number of common shares outstanding. 17,951,034 17,869,309
================ ============
See notes to condensed financial statements.
STATEMENTS OF CASH FLOWS (UNAUDITED)
COMPUMED, INC.
THREE MONTHS ENDED
-------------------
DECEMBER 31, 2003 DECEMBER 31, 2002
----------------- ------------------
OPERATING ACTIVITIES:
Net loss $(61,000) $(147,000)
Net adjustments to reconcile net loss to net cash used in
operating activities:
Realized gain on marketable securities . . . . . . . . . . . . . . (2,000) (2,000)
Amortization of deferred stock compensation. . . . . . . . . . . . 25,000 -
Depreciation and amortization. . . . . . . . . . . . . . . . . . . 51,000 55,000
Decrease in accounts receivable . . . . . . . . . . . . . . . 2,000 33,000
Increase in inventory and prepaid expenses. . . . . . . . . . (8,000) (6,000)
Decrease (increase) in accounts payable and other liabilities (46,000) 44,000
------------------- ------------------
NET CASH USED IN OPERATING ACTIVITIES. . . . . . . . . . . . . . . (39,000) (23,000)
INVESTING ACTIVITIES:
Proceed from selling of marketable securities. . . . . . . . . . . 7,000 27,000
Purchase of other asset. . . . . . . . . . . . . . . . . . . . . . (1,000)
Purchases of property, plant and equipment . . . . . . . . . . . . - (5,000)
------------------- ------------------
NET CASH PROVIDED BY INVESTING ACTIVITIES. . . . . . . . . . . . . 6,000 22,000
FINANCING ACTIVITIES:
Principal payments on capital lease obligations. . . . . . . . . . (2,000) (2,000)
------------------- ------------------
NET CASH USED IN FINANCING ACTIVITIES. . . . . . . . . . . . . . . (2,000) (2,000)
------------------- ------------------
NET DECREASE IN CASH . . . . . . . . . . . . . . . . . . . . . . . (35,000) (3,000)
Cash and cash equivalents at beginning period. . . . . . . . . . . 66,000 78,000
------------------- ------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 31,000 $ 75,000
================== =================
Cash paid for interest $ - $ (1,000)
================== =================
See notes to condensed financial statements.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
COMPUMED, INC.
NOTE A-BASIS OF PRESENTATION AND ACCOUNTING POLICIES
The accompanying interim unaudited financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
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 accounting principles generally
accepted in the United States 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 three-month period ended December 31, 2003 are not necessarily
indicative of the results that may be expected for the year ending September 30,
2004. For further information, refer to the financial statements for the year
ended September 30, 2003 and the notes thereto included in the Company's Annual
Report on Form 10-KSB.
The balance sheet at September 30, 2003 has been derived from the Company's
year-end audited financial statements but does not include all of the
information and footnotes required by accounting principles generally accepted
in the United States for complete financial statements.
The Company has historically used existing cash and readily available marketable
securities balances to fund operating losses and capital expenditures. The
Company raised these funds in 1997 through 2000 through the placement of
Preferred Stock issuances and proceeds from the exercise of certain stock
options and warrants.
The Company has incurred recurring losses and had net losses aggregating
$208,000 in quarters ended December 31, 2003 and 2002. The Company's business
strategy includes an increase in OsteoGram (R) sales through domestic and
international marketing and distribution efforts. The Company intends to finance
this business strategy by using its current working capital resources and cash
flows from existing operations. There can be no assurance that the sales will be
sufficient to offset related expenses.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. This basis of accounting contemplates the
recovery of the Company's assets and the satisfaction of its liabilities in the
normal course of conducting its business. The Company's ability to continue as a
going concern is dependent upon various factors including, among others, its
ability to generate profits and reduce its operating losses and negative cash
flows. No assurance can be given that the Company will be able to accomplish
these objectives. The Company uses existing cash and readily available
marketable securities balances to fund operating losses and capital
expenditures. The Company had raised these funds in 1997 through 2000 through
the placement of Preferred Stock issuances and proceeds from the exercise of
certain stock options and warrants.
Management believes the Company will be able to generate sufficient revenue,
reduce operating expenses or obtain sources of financing in order to fund
ongoing operations through at least December 31, 2004. Accordingly, the
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability or classifications of liabilities that may
result from the outcome of this uncertainty.
Stock-Based Compensation
-------------------------
The Company accounts for employee stock option grants in accordance with
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees and related interpretations (APB 25), and has adopted the "disclosure
only" alternative described in Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock-Based Compensation, amended by SFAS No. 148
Accounting for Stock-Based Compensation-Transition and Disclosure.
SFAS No. 123, Accounting for Stock-Based Compensation, requires pro forma
information regarding net income (loss) using compensation that would have been
incurred if the Company had accounted for its employee stock options under the
fair value method of that statement. Options to purchase 261,087 and 0 shares
of Compumed, Inc. were granted during the three months ended December 31, 2003
and 2002, respectively. The fair value of options granted, which have been
estimated at $65,000 and $0, respectively, at the date of grant were determined
using the Black-Scholes Option pricing model with the following assumptions:
2003 2002
--------- --------
Risk free interest rate . . . . . . . 4.28% 4.05%
Stock volatility factor . . . . . . . 54% 43%
Weighted average expected option life 10 years 10 years
Expected dividend yield . . . . . . . None None
The pro forma net loss and loss per share had the Company accounted for the
options using FAS 123 would have been as follows:
2003 2002
--------- ----------
Net loss as reported . . . . . . . . . . . . $(61,000) $(147,000)
Basic and diluted loss per share as reported (0.00) (0.01)
Add: Stock-based employee ompensation
cost included in determination of net loss
as reported. . . . . . . . . . . . . . . . . 8,000 -
Deduct: Stock-based employee
compensation cost that would have been
included in the determination of net loss if
the fair value based method had been
applied to all awards. . . . . . . . . . . . (8,000) (6,000)
--------- ----------
Pro forma net loss if the fair value based
method had been applied to all awards. . . . $(61,000) $(153,000)
========= ==========
Basic and diluted pro forma loss per share
if the fair value based method had been
applied to all awards. . . . . . . . . . . . $ (0.00) $ (0.01)
========= ==========
A summary of the stock options activity, and related information for the
quarters ended December 31 follows:
2003 2002
-------------------- --------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
---------- --------- ---------- ---------
Options outstanding, beginning of period 5,027,025 0.22 3,124,466 0.51
Options exercised. . . . . . . . . . . . - - - -
Options granted. . . . . . . . . . . . . 261,087 0.34 50,000 0.20
Options forfeited/canceled . . . . . . . (1,104) 0.96 (258,076) 0.71
---------- --------- ---------- ---------
Options outstanding, end of period . . . 5,287,008 0.23 2,916,390 0.48
========== ========= ========== =========
Options exercisable, end of period . . . 4,495,347 0.22 1,698,968 0.64
========== ========= ========== =========
The following summarizes information concerning stock options outstanding at
December 31, 2003:
Weighted Weighted Number Weighted
Average Remaining Average Subject Average
Number Contractual Exercise to Exercise
Outstanding Life Price Exercise Price
----------- ----------- -------- --------- --------
Range of Exercise Prices
0.00 - $0.425. . . . . . 4,406,130 9.0 0.1319 3,614,469 0.1047
0.4251 - $0.85 . . . . . 847,375 5.4 0.6734 847,375 0.6734
0851 - $1.275. . . . . . 33,503 3.7 1.1436 33,503 1.1436
----------- ----------- -------- --------- --------
5,287,008 8.4 0.2251 4,495,347 0.2197
=========== =========== ======== ========= ========
Per share data
----------------
The Company reports its earnings (loss) per share in accordance with Statement
of Financial Accounting Standards No.128, "Accounting for Earnings Per Share"
("FAS 128"). Basic loss per share is calculated using the net loss divided by
the weighted average common shares outstanding. Shares from the assumed
conversion of outstanding warrants, options and the 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.
NOTE B-OTHER AGREEMENTS
On December 23, 2004, we entered into an Investment Agreement and a Registration
Rights Agreement with Dutchess Private Equities Fund, L.P. (Dutchess), pursuant
to which Dutchess agreed to purchase up to $5,000,000 of our shares common stock
over a three year period. Purchases are made, if at all, subject to certain
conditions, upon our request. Dutchess cannot unilaterally purchase any shares
of our common stock.
Dutchess' obligation to purchase our common stock is contingent upon certain
closing conditions. Such conditions relate to the Investment Agreement and
include: (i) that our representations and warranties are true and correct as of
the funding date, (ii) that we have performed all of our covenants, agreements
and conditions required to be performed us, (iii) that trading of our common
stock has not been suspended, (iv) that no statute, rule, regulation, executive
order, decree, ruling or injunction is in force against the transactions
contemplated in the Note and Warrant Purchase Agreement, (v) that no pending or
threatened litigation exists, and (vi) that the SEC has declared effective a
registration statement covering the shares to be purchased by Dutchess. The
purchase price of our shares of common stock equal 95% the three lowest closing
best bid prices of our common stock during the pricing period.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
----------------------------------------------
We are including the following cautionary statement in this Quarterly Report on
Form 10-QSB to make applicable and take advantage of the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995 with respect to
forward-looking statements made by us, or on our behalf. 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, we may
make written or oral statements that are forward-looking including statements
contained in this report and other filings with the Securities and Exchange
Commission. These forward-looking statements are principally contained in the
section captioned "Management's Discussion and Analysis of Operations". In that
and other portions of this Form 10-QSB, the words "anticipates", "believes,"
"estimates," "seeks," "expects," "plans," "intends" and similar expressions as
they relate to us or our management are intended to identify forward-looking
statements. All such forward-looking statements are expressly qualified by these
cautionary statements.
Forward-looking statements 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 are
based on various assumptions, many of which are based, in turn, upon further
assumptions. Our expectations, beliefs and forward-looking statements are
expressed in good faith on the basis of management's views and assumptions as of
the time the statements are made, 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 our view, could cause actual results to
differ materially from those discussed in the forward-looking statements:
technological advances by our competitors, the impact of competition, dependence
on key employees and the need to attract new management, effectiveness and costs
of sales and marketing efforts, acceptance of product offerings, ability to
expand into new markets, the risks of patent claims or other third party
liability, and the risks of launching a new product or service, such as our
OsteoGram(R) 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 us. We do not intend to
update any forward-looking statements to reflect events or circumstances after
the date hereof.
OVERVIEW
--------
Our traditional core business is remote electrocardiogram (ECG) interpretation
services. Our customers are typically correctional facilities, ambulatory
surgery centers and occupational health clinics that may not have ready access
to physicians who can interpret these results or to self-interpreting ECG
equipment. Although self-interpreting ECG equipment is widely available, many of
our customers like the added benefit of knowing that they can automatically send
their ECG results to one of our cardiologists for an overread when the results
are questionable. This overread feature is a key advantage that enables us to
market our services in segments of the market where physicians may not be
available on a routine basis. We are evaluating new opportunities for our ECG
business, however, we could lose customers who choose to receive services from a
competitor or who purchase a self-interpretive machine and no longer need our
ECG interpretations. If we were to lose existing customers, they may be
difficult to replace, and that could have a material adverse impact on our
operations and financial condition.
Our other business is the development and marketing of medical imaging software
tools that automatically make precise measurements to assist radiologists and
orthopedic surgeons in the diagnosis of disease. We anticipate significant
growth in this business. Our initial product, the OsteoGram(R) is an automated
system for the screening, diagnosis and monitoring of osteoporosis, a disease
that affects more than 200 million people worldwide. Osteoporosis is a "silent
disease" that costs the U.S. healthcare system over $16 billion dollars
annually, and we predict that health care providers will come under increased
scrutiny from Medicare to test patients at risk and offer early intervention for
this treatable disease.
The OsteoGram(R) is available in both film-based and DICOM (Digital Imaging and
Communications in Medicine) versions. In its initial film-based configuration,
the OsteoGram(R) utilizes a standard hand x-ray film coupled with proprietary,
desktop computer imaging technology to accurately and precisely determine bone
mineral density, the marker for osteoporosis. We market this system to
hospitals, clinics and physicians' offices, both in the domestic and
international markets. DICOM is the information standard that allows digital
imaging equipment to interconnect, enabling clinicians to readily move, archive
and retrieve images over networks. The DICOM OsteoGram(R) is the newest version
of the product that can be integrated into the workstations of digital
(filmless) x-ray equipment, a high growth segment of the medical imaging market.
As these digital systems proliferate, we believe that physicians will want to
increase the utilization of their equipment through laborsaving computer
programs that automate their daily routines. Our goal is to develop a series of
applications that will be directed towards the needs of radiologists and
orthopedic surgeons. Our underlying OsteoGram(R) technology can be applied to a
number of novel applications in the fields of bone disease, dental disease and
the identification of specific cancers. Our new business model fits well with
the companies developing digital radiography platforms, and we have been seeking
partnerships where our products represent value-added tools that are available
on a 24/7 basis.
For the quarter ended December 31, 2003 we focused on the implementation of our
initial strategic partnerships with Orex Computed Radiography and Medstrat, Inc.
Orex, an emerging leader in the field of computed radiography (CR), launched our
fully integrated DICOM OsteoGram(R) at the December Annual Meeting of the
Radiological Society of North America (RSNA), the largest medical exhibition in
the U.S. We were highly encouraged with the preliminary feedback from customers
at the RSNA who viewed the future of "Workstation Consolidation", and we look
forward to enjoying a steady revenue stream as Orex begins to deliver systems to
the global market.
Medstrat is Fuji Medical's largest distributor of CR products in the U.S. The
company has coupled the Fuji SmartCR platform with a unique server system to
offer a complete digital solution to the orthopedic office market. We are
currently integrating our OsteoGram(R) software on the Medstrat system, and we
expect to launch the product at the annual meeting of the American Association
of Orthopaedic Surgeons in San Francisco in March 2004. In addition, we are
working diligently to develop relationships with other manufacturers of digital
platform, and strengthening our domestic and international distribution
networks. In November 2003, we attended Medica, the world's largest all medical
trade show, in Dusseldorf, Germany where we identified new distribution partners
in a number of target markets. After the 2002 Medica we signed distribution
agreements with a number of new distributors from Asia, and OsteoGram(R) revenue
in the first quarter of this fiscal year was bolstered by sales from these
distributors primarily in China and Korea.
RECENT EVENTS
--------------
On December 23, 2004, we entered into an Investment Agreement and a Registration
Rights Agreement with Dutchess Private Equities Fund, L.P. (Dutchess), pursuant
to which Dutchess agreed to purchase up to $5,000,000 of our shares common stock
over a three year period. Purchases are made, if at all, subject to certain
conditions, upon our request. Dutchess cannot unilaterally purchase any shares
of our common stock.
Dutchess' obligation to purchase our common stock is contingent upon certain
closing conditions. Such conditions relate to the Investment Agreement and
include: (i) that our representations and warranties are true and correct as of
the funding date, (ii) that we have performed all of our covenants, agreements
and conditions required to be performed us, (iii) that trading of our common
stock has not been suspended, (iv) that no statute, rule, regulation, executive
order, decree, ruling or injunction is in force against the transactions
contemplated in the Note and Warrant Purchase Agreement, (v) that no pending or
threatened litigation exists, and (vi) that the SEC has declared effective a
registration statement covering the shares to be purchased by Dutchess. The
purchase price of our shares of common stock equal 95% the three lowest closing
best bid prices of our common stock during the pricing period.
RESULTS OF OPERATIONS
-----------------------
For the quarter ended December 31, 2003, revenues from ECG operations decreased
by 8% to $402,000 from $438,000 for the same period in fiscal year 2002. The
decrease is mostly due to lower sales of ECG equipment, supplies, and
maintenance agreements. ECG transmissions declined by 1%. Revenues from
OsteoGram(R) sales and services for the quarter ended December 31, 2003
increased by 314% to $58,000 from $14,000 for the same period in fiscal 2002 due
to increased software sales in China and other Asian countries.
Cost of services and goods sold consists of the costs of ECG services provided,
supplies, electrocardiograph equipment sold and OsteoGram(R) systems sold.
During the quarter ended December 31, 2003, costs of services of ECG decreased
by 4% to $119,000 from $124,000 for the same period in fiscal 2002, mostly due
to staff reductions and the adoption of new telecommunication carriers. During
the quarter ended December 31, 2003, cost of goods sold of ECG decreased by 29%
to $15,000 from $21,000 for the same period in fiscal 2002, mainly due to the
reduced purchase of ECG equipment. Cost of goods sold for OsteoGram(R)
increased 100% during the quarter ended December 31, 2003 to $4,000 from $2,000
for the same period in fiscal 2002, due to purchase of materials for the
increased number of OsteoGram(R) systems sold.
Selling expenses decreased by 45% during the quarter ended December 31, 2003 to
$45,000 from $82,000 for the same period in fiscal 2002, primarily due to
decreased OsteoGram(R) marketing expenses in the domestic market. As we focus
more on the international arena, our marketing outlays decline, since our
distribution partners assume the burden of local marketing expenses.
General and administrative expenses decreased by 12% during the quarter ended
December 31, 2003 to $241,000, as compared to $274,000 for the same period in
fiscal 2002, almost entirely due to decreased expenses for professional
services.
Research and development costs, generally for the OsteoGram(R) product,
increased by 4% during the quarter ended December 31, 2003 to $53,000 from
$51,000 for the same period in fiscal 2002, due to salary adjustments.
Interest income decreased by 38% during the quarter ended December 31, 2003 to
$5,000 from $8,000 for the same period in fiscal 2002, primarily due to
decreased investments in marketable securities and reduced interest income in
such investments.
Net loss for the quarter ended December 31, 2003 decreased by 59% to $61,000
from $147,000 for the same period in fiscal 2002 due to company-wide
cost-cutting measures implemented during the current year period.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
---------------------------------------------------------
At December 31, 2003, we had approximately $221,000 in cash and marketable
securities, as compared to a balance of $247,000 at September 30, 2003. The net
decrease of $26,000 in cash and marketable securities is primarily due to cash
used in operations. There were no purchases of property, plant and equipment in
the quarter ended December 31, 2003.
We have historically used existing cash and readily available marketable
securities balances to fund operating losses and capital expenditures. We
raised these funds in 1997 through 2000 through the placement of preferred stock
issuances and proceeds from the exercise of certain stock options and warrants.
Our business strategy includes an increase in OsteoGram(R) sales through
domestic and international marketing and distribution efforts. We intend to
finance this business strategy by using our current working capital resources
and cash flows from existing operations, including the ECG and OsteoGram(R)
businesses. There can be no assurance that the ECG and OsteoGram(R) sales will
be sufficient to offset related expenses.
We anticipate that our cash flow from operations, available cash and marketable
securities will be sufficient to meet our anticipated cash requirements for at
least the next 12 months. However, in certain circumstances we may need to
raise additional capital in the future, which might not be available on
reasonable terms or at all. Failure to raise capital when needed could
adversely impact our business, operating results and liquidity. If additional
funds are raised through the issuance of equity or convertible securities, the
percentage of ownership of existing stockholders would be reduced. Furthermore,
these equity and convertible securities might have rights, preferences or
privileges senior to our Common stock. Our Common Stock is currently traded on
the over-the-counter (OTC) bulletin board, which will make it more difficult to
raise funds through the issuance of equity or convertible securities. We cannot
assure you that such additional sources of financing will be available on
acceptable terms, if at all.
Our primary capital resource commitments at December 31, 2003 consist of capital
and operating lease commitments, primarily for computer equipment and for our
corporate office facility.
We intend to pursue additional research and/or sub-contractor agreements
relating to our development projects. Additionally, we may seek partners and
acquisition candidates of businesses that are complementary to our own. Such
investments would be subject to our obtaining financing through issuance of debt
or other securities. No assurance can be given that any acquisition would not
be dilutive to stockholders.
ITEM 3. CONTROLS AND PROCEDURES
We carried out an evaluation required by the 1934 Act, under the supervision and
with the participation of our principal executive officer and principal
financial officer, of the effectiveness of the design and operation of our
disclosure controls and procedures as of the end of the period covered by this
report. Based on this evaluation, our principal executive officer and principal
financial officer concluded that our disclosure controls and procedures are
effective in timely alerting them to material information required to be
included in our periodic SEC reports. It should be noted that the design of any
system of controls is based in part upon certain assumptions, and there can be
no assurance that any design will succeed in achieving its stated goals.
During the most recent fiscal quarter, there has not occurred any change in our
internal control over financial reporting that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting. Our chief executive officer and principal financial officer do not
expect that our disclosure controls or our internal controls over financial
reporting will prevent all error and all fraud. A control system, no matter how
well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the system are met. Further, the design of a
control system must reflect the fact that there are resource constraints, and
the benefits of controls must be considered relative to their costs. Because of
the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within the Company have been detected. These inherent limitations include
the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two
or more people, or by management override of the control. The design of any
system of controls also is based partly on certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions.
PART II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None
Item 2. CHANGES IN SECURITIES
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
3.1 Certificate of Incorporation [Incorporated by reference to Exhibit 3.1 to
our Registration Statement on 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 our 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 our 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 our Registration Statement on Form S-2 (File No. 33-48437), filed
November 7, 1995]
3.5 By-Laws, as currently in effect **
3.6 Amendment to By-Laws **
4.1 Form of Preferred Stock Certificate [Incorporated by reference to Exhibit
4.2 to our Registration Statement on Form S-1 (File No. 33-46061),
effective May 7, 1992]
4.2 Certificate of Designation of Class A Preferred Stock [Incorporated by
reference to Exhibit 4.5 to our Annual Report on Form 10-KSB for the fiscal
year ended September 30, 1995 (File No. 0-14210)]
4.3 Certificate of Designation of Class B Preferred Stock [Incorporated by
reference to Exhibit 4.6 to our Annual Report on Form 10-KSB for the fiscal
year ended September 30, 1995 (File No. 0-14210)]
10.1 Employment Agreement entered on November 2, 2002 between CompuMed, Inc. and
Mr. McLaughlin McLaughlin [Incorporated by reference to Exhibit 10.6 to the
Company's quarterly report on Form 10-QSB for the quarter ended December
31, 2002 (File No. 0-14210), filed February 14, 2003]
10.2 Amendment to Employment Agreement dated November 2, 2002 between the
Company and Mr. McLaughlin [Incorporated by reference to Exhibit 10.6 to
the Company's Form 10KSB for the year ended September 30, 2003 (File No.
0-14210), filed December 24, 2003].
10.3 2003 Stock Incentive Plan [Incorporated by reference to Exhibit 99.2 to the
Company's Registration Statement on Form S-8 (file No. 33-105770), filed
June 2, 2003]
10.4 Investment Agreement dated December 22, 2003, by and between the Company
and Dutchess Private Equities Fund, L.P. [Incorporated by reference to
Exhibit 10.9 to the Company's Current Report on Form 8-K dated December 22,
2003]
10.5 Registration Rights Agreement dated December 22, 2003, by and between the
Company and Dutchess Private Equities Fund, L.P. [Incorporated by reference
to Exhibit 10.10 to the Company's Current Report on Form 8-K dated December
22, 2003]
11 Statement re: computation of per share earnings*
31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer**
31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer**
32.1 Section 1350 Certification of Chief Executive Officer**
32.2 Section 1350 Certification of Chief Financial Officer**
* Data required is provided in note B to the consolidated financial
statements in this report.
** Included herein
(b) Form 8-K - During the fiscal quarter ended December 31, 2003, we did not
file any reports on Form 8-K.
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)
------------
Date February 11, 2004 By: /s/ John G. McLaughlin
-------------------------
John G. McLaughlin
President and Chief Executive Officer
(Chief Executive Officer)
Date February 11, 2004 By: /s/ Phuong Dang
-----------------
Phuong Dang
Controller (Principal Financial and
Accounting Officer)