** **

**SECURITIES AND EXCHANGE COMMISSION**

**UNITED STATES**

**WASHINGTON, D.C. 20549**

 

**FORM 10-QSB**

**(MarkOne)**

 

**ý        QUARTERLYREPORT UNDER SECTION 13 OR 15(D) OF**

**THE SECURITIES EXCHANGE ACT OF 1934**

 

**Forthe quarterly period ended December 31, 2001**

 

**or**

 

**o        TRANSITIONREPORT UNDER SECTION 13 OR 15(D) OF**

**THE SECURITIES EXCHANGE ACT OF 1934**

 

**Forthe transition periodfrom                to               **

 

**CommissionFile Number:  0-14210**

 

**COMPUMED, INC.**

(Exact name of registrant as specified in its charter)

 

| **Delaware**                                                                        |   | **95-2860434**                        |
|-------------------------------------------------------------------------------------|--------|---------------------------------------|
| (State or Other  Jurisdiction of Incorporation or Organization)                     |   | (I.R.S. Employer  Identification No.) |
|                                                                                |   |                                  |
| **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) |

 

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Exchange Act during the preceding 12 months (or forsuch 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  ý    No o

 

The registrant had17,869,309 shares of common stock, ($.01 par value) issued and outstanding asof December 31, 2001.

 

 

 

INDEX

 

COMPUMED, INC. ANDSUBSIDIARIES

 
| PART I.  FINANCIAL INFORMATION |
|-------------------------------------|
|                                |   |   |
|                                | Item 1. | Financial Statements (unaudited) |
|                                |   |   |
|                                |   | Balance Sheets – December 31, 2001  (unaudited) and September 30, 2001. |
|                                |   |   |
|                                |   | Statements of  Operations – three months ended December 31, 2001 and 2000 (unaudited). |
|                                |   |   |
|                                |   | Statements of Cash  Flows – Three months ended December 31, 2001 and 2000 (unaudited). |
|                                |   |   |
|                                |   | Notes to  Financial Statements (unaudited). |
|                                |   |   |
|                                | Item  2. | Management’s  Discussion and Analysis of Financial Condition and Results of Operations. |
|                                |   |   |
| 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                          |

 

2

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PART I

 

FINANCIAL INFORMATION

 

BALANCE SHEETS

COMPUMED, INC.
|                                                                                                         |   | **December  31, 2001** |      | **September  30, 2001** |   |
|--------------------------------------------------------------------------------------------------------------|--------|------------------------|-----------|-------------------------|--------|
|                                                                                                         |   | **(Unaudited)**        |      | **(Audited)**           |   |
| ASSETS                                                                                                       |   |                   |      |                    |   |
|                                                                                                         |   |                   |      |                    |   |
| CURRENT ASSETS                                                                                               |   |                   |      |                    |   |
| Cash and cash  equivalents                                                                                   |   | $                      | 153,000   |                    | $      | 239,000 |   |
| Marketable  securities                                                                                       |   | 468,000                |      | 424,000                 |   |
| Accounts  receivable, less allowance of $80,000 (December 2001 and $69,000 (September  2001)                 |   | 212,000                |      | 224,000                 |   |
| Inventory                                                                                                    |   | 81,000                 |      | 83,000                  |   |
| Prepaid expenses  and other current assets                                                                   |   | 36,000                 |      | 23,000                  |   |
|                                                                                                         |   |                   |      |                    |   |
| TOTAL CURRENT  ASSETS                                                                                        |   | 950,000                |      | 993,000                 |   |
|                                                                                                         |   |                   |      |                    |   |
| PROPERTY AND  EQUIPMENT                                                                                      |   |                   |      |                    |   |
| Machinery and  equipment                                                                                     |   | 1,105,000              |      | 994,000                 |   |
| Furniture,  fixtures and leasehold improvements                                                              |   | 100,000                |      | 100,000                 |   |
| Equipment under  capital leases                                                                              |   | 221,000                |      | 326,000                 |   |
|                                                                                                         |   | 1,426,000              |      | 1,420,000               |   |
|                                                                                                         |   |                   |      |                    |   |
| Accumulated  depreciation and amortization                                                                   |   | (836,000               | )         | (762,000                | )      |
|                                                                                                         |   | 590,000                |      | 658,000                 |   |
|                                                                                                         |   |                   |      |                    |   |
| OTHER ASSETS                                                                                                 |   |                   |      |                    |   |
| Other Assets                                                                                                 |   | 28,000                 |      | 28,000                  |   |
|                                                                                                         |   |                   |      |                    |   |
| TOTAL ASSETS                                                                                                 |   | $                      | 1,568,000 |                    | $      | 1,679,000 |   |
|                                                                                                         |   |                   |      |                    |   |
| LIABILITIES AND  STOCKHOLDERS’ EQUITY                                                                   |   |                   |      |                    |   |
|                                                                                                         |   |                   |      |                    |   |
| CURRENT  LIABILITIES                                                                                         |   |                   |      |                    |   |
| Accounts payable                                                                                             |   | $                      | 149,000   |                    | $      | 174,000 |   |
| Accrued  liabilities                                                                                         |   | 117,000                |      | 76,000                  |   |
| Unearned revenue                                                                                             |   | 7,000                  |      | 18,000                  |   |
| Current portion  of capital lease obligations                                                                |   | 28,000                 |      | 47,000                  |   |
|                                                                                                         |   |                   |      |                    |   |
| TOTAL CURRENT  LIABILITIES                                                                                   |   | 301,000                |      | 315,000                 |   |
|                                                                                                         |   |                   |      |                    |   |
| Capital lease  obligations, less current portion                                                             |   | 13,000                 |      | 15,000                  |   |
|                                                                                                         |   |                   |      |                    |   |
| Commitments  (Note C)                                                                                        |   |                   |      |                    |   |
|                                                                                                         |   |                   |      |                    |   |
| STOCKHOLDERS’  EQUITY                                                                                   |   |                   |      |                    |   |
| 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–17,869,309 shares   |   | 179,000                |      | 179,000                 |   |
|                                                                                                         |   |                   |      |                    |   |
| Additional paid  in capital                                                                                  |   | 32,241,000             |      | 32,241,000              |   |
|                                                                                                         |   |                   |      |                    |   |
| Accumulated  deficit                                                                                         |   | (31,253,000            | )         | (31,109,000             | )      |
|                                                                                                         |   |                   |      |                    |   |
| Accumulated  other comprehensive income                                                                      |   | 99,000                 |      | 55,000                  |   |
|                                                                                                         |   |                   |      |                    |   |
| Deferred stock  compensation                                                                                 |   | (13,000                | )         | (18,000                 | )      |
|                                                                                                         |   |                   |      |                    |   |
|                                                                                                         |   | 1,254,000              |      | 1,349,000               |   |
|                                                                                                         |   |                   |      |                    |   |
| TOTAL  LIABILITIES AND STOCKHOLDERS’ EQUITY                                                             |   | $                      | 1,568,000 |                    | $      | 1,679,000 |   |

 

See notes to condensed financial statements

 

3

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STATEMENTS OF OPERATIONS (UNAUDITED)

COMPUMED, INC.

 
|                                                  |   | **Three  Months Ended December 31,** |     |
|-------------------------------------------------------|--------|--------------------------------------|----------|
|                                                  |   | **2001**                             |     | **2000** |   |
| REVENUES FROM  OPERATIONS                             |   |                                 |     |   |   |
| ECG services                                          |   | $                                    | 415,000  |   | $ | 397,000 |   |
| ECG product and  supplies sales                       |   | 37,000                               |     | 56,000 |   |
| OsteoGram sales  and services                         |   | —                               |     | 8,000 |   |
|                                                  |   | 452,000                              |     | 461,000 |   |
| COSTS AND  EXPENSES                                   |   |                                 |     |   |   |
| Costs of ECG  services                                |   | 136,000                              |     | 170,000 |   |
| Cost of goods  sold-ECG                               |   | 24,000                               |     | 36,000 |   |
| Selling expenses                                      |   | 28,000                               |     | 230,000 |   |
| Research and  development                             |   | 86,000                               |     | 58,000 |   |
| General and  administrative expenses                  |   | 256,000                              |     | 294,000 |   |
| Depreciation                                          |   | 74,000                               |     | 83,000 |   |
|                                                  |   | 604,000                              |     | 871,000 |   |
|                                                  |   |                                 |     |   |   |
| OPERATING LOSS                                        |   | (152,000                             | )        | (410,000 | ) |
|                                                  |   |                                 |     |   |   |
| Interest income  and dividends                        |   | 9,000                                |     | 37,000 |   |
| Realized gain on  marketable securities               |   | —                               |     | 1,000 |   |
| Interest expense                                      |   | (1,000                               | )        | (7,000 | ) |
| NET LOSS                                              |   | $                                    | (144,000 | ) | $ | (379,000 | ) |
|                                                  |   |                                 |     |   |   |
| NET LOSS PER  SHARE(Basic and diluted)                |   | $                                    | (.01     | ) | $ | (.02 | ) |
|                                                  |   |                                 |     |   |   |
| Weighted average  number of common shares outstanding |   | 17,869,309                           |     | 17,869,362 |   |

 

See notes to condensed financial statements

 

4

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STATEMENTS OF CASH FLOWS (UNAUDITED)

COMPUMED, INC.

 
|                                                                             |   | **Three  Months Ended** |     |
|----------------------------------------------------------------------------------|--------|-------------------------|----------|
|                                                                             |   | **December  31, 2001**  |     | **December  31, 2000** |   |
|                                                                             |   |                    |     |   |   |
| OPERATING  ACTIVITIES:                                                           |   |                    |     |   |   |
| Net loss                                                                         |   | $                       | (144,000 | ) | $ | (379,000 | ) |
| Net adjustments  to reconcile net loss to net cash used in operating activities: |   |                    |     |   |   |
| Realized gain on  marketable securities                                          |   | —                  |     | (1,000 | ) |
| Amortization of  deferred stock compensation                                     |   | 5,000                   |     | 11,000 |   |
| Depreciation and  amortization                                                   |   | 74,000                  |     | 83,000 |   |
| Changes in  operating assets and liabilities:                                    |   |                    |     |   |   |
| Accounts  receivable                                                             |   | 12,000                  |     | 46,000 |   |
| Inventory,  prepaid expenses and other assets                                    |   | (11,000                 | )        | 14,000 |   |
| Accounts payable  and other liabilities                                          |   | 5,000                   |     | (243,000 | ) |
| Other assets                                                                     |   | —                  |     | 19,000 |   |
| NET CASH USED IN  OPERATING ACTIVITIES                                           |   | (59,000                 | )        | (450,000 | ) |
|                                                                             |   |                    |     |   |   |
| INVESTING  ACTIVITIES:                                                           |   |                    |     |   |   |
| Sales of  marketable securities                                                  |   | —                  |     | 650,000 |   |
| Purchases of  property, plant and equipment                                      |   | (6,000                  | )        | (6,000 | ) |
| NET CASH  PROVIDED BY (USED IN) INVESTING ACTIVITIES                             |   | (6,000                  | )        | 644,000 |   |
|                                                                             |   |                    |     |   |   |
| FINANCING  ACTIVITIES:                                                           |   |                    |     |   |   |
| Principal  payments on capital lease obligations                                 |   | (21,000                 | )        | (33,000 | ) |
|                                                                             |   |                    |     |   |   |
| NET CASH  PROVIDED BY (USED IN) FINANCING ACTIVITIES                             |   | (21,000                 | )        | (33,000 | ) |
|                                                                             |   |                    |     |   |   |
| INCREASE  (DECREASE) IN CASH AND CASH EQUIVALENTS                                |   | (86,000                 | )        | 161,000 |   |
|                                                                             |   |                    |     |   |   |
| Cash and cash  equivalents at beginning period                                   |   | 239,000                 |     | 129,000 |   |
|                                                                             |   |                    |     |   |   |
| CASH AND CASH EQUIVALENTS AT END OF PERIOD                                       |   | $                       | 153,000  |   | $ | 290,000 |   |
|                                                                             |   |                    |     |   |   |
| Cash paid for interest                                                           |   | $                       | 1,000    |   | $ | 7,000 |   |

 

See notes to condensed financial statements

 

5

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NOTES TO FINANCIAL STATEMENTS(UNAUDITED)

COMPUMED, INC.

 

NOTE A–BASIS OF PREPARATION

 

The balance sheet at September 30, 2001 has beenderived from the Company’s year end audited financial statements.

 

The accompanying interim unaudited financialstatements have been prepared in accordance with generally accepted accountingprinciples for interim financial information and pursuant to the rules andregulations of the Securities and Exchange Commission.  Accordingly, they do not include all of theinformation and footnotes required by generally accepted accounting principlesfor complete financial statements.  Inthe opinion of management, all adjustments (consisting of normal recurringaccruals) considered necessary for a fair presentation have been included.  Operating results for the three month periodended December 31, 2001 are not necessarily indicative of the results that maybe expected for the year ending September 30, 2002.  For further information, refer to the financial statements forthe year ended September 30, 2001 and the notes thereto included in theCompany’s Annual Report on Form 10–KSB.

 

NOTE B–PER SHARE DATA

 

Basic loss per share is calculated using the netloss, less preferred stock dividends, divided by the weighted average commonshares outstanding.  Shares from theassumed exercise of outstanding warrants, options and effect of the conversionof the Class A Preferred Stock and Class B Preferred Stock are omitted from thecomputations of diluted loss per share because the effect would beantidilutive.

 

NOTE C–COMMITMENTS

 

On January 26, 1998, the United States DistrictCourt for the Central District of California approved the settlement of theclass action and derivative lawsuits on the terms agreed to by the parties inthe Memorandum of Understanding entered into on August 5, 1996.  The final settlement is anticipated to becompleted in 2002 and will involve the issuance of 770,000 shares of CommonStock and the issuance of 1,870,000 warrants for the purchase of Common Stockat a price of $3.00.  The effect ofthese issuances on the Company’s statement of operations was recorded duringthe fiscal year ended September 30, 1997.

 

6

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NOTE D – MARKETABLE SECURITIES

 

Marketable securities consist of investments in equity and bonds invarious publicly traded domestic companies and are stated at market value basedon the most recently traded prices of these securities at December 31, 2001.These short-term investments are defined as assets available for sale under theprovisions of FASB Statement No. 115, “Accounting for Certain Investments inDebt and Equity Securities.”

 

During the quarter ended December 31, 2001, the Company recognized$44,000 of unrealized gains which was recorded as a component of AccumulatedOther Comprehensive Income in Stockholders’ Equity. At December 31, 2001 andSeptember 30, 2001 the Company’s investments in marketable securities are asfollows:

 
| **Investments Types**         |   | **December  31, 2001** |    | **September  30, 2001** |   |
|-------------------------------|--------|------------------------|---------|-------------------------|--------|
|                          |   |                   |    |                    |   |
| Corporate Bonds               |   | $                      | 9,000   |                    | $      | 9,000 |   |
| Convertible  Preferred Stocks |   | 76,000                 |    | 61,000                  |   |
| Common Stock                  |   | 383,000                |    | 354,000                 |   |
|                          |   |                   |    |                    |   |
| Total                         |   | $                      | 468,000 |                    | $      | 424,000 |   |

 

 

7

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Item 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

This Form 10-QSB contains forward-lookingstatements made based on current management expectations pursuant to the safeharbor provisions of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements includestatements concerning plans, objectives, goals, strategies, future events orperformance and underlying assumptions and other statements that are other thanstatements of historical facts.  Therecan be no assurance that management’s expectations, beliefs or projections willresult or be achieved or accomplished.

 

In evaluating these statements, you shouldconsider various factors including the risks set forth under the caption“Factors That May Affect Future Results” at the end of this item 2, and thoseincluded in our other filings with the SEC. The Company disclaims anyobligation to update any forward-looking statements to reflect events orcircumstance after the date thereof.

 

**Overview**

 

During the threemonths ended December 31, 2001, in addition to the Company’s transtelephonicECG business, the Company pursued opportunities for the OsteoGramÒ in international markets.  TheCompany concentrated on countries where medical facilities and physicians havestandard x-ray equipment already in place and are seeking a cost effective andaccurate method for determining bone mineral density as an indicator offracture risk. During this period the Company focused significant efforts onChina.  In preparation for marketing theOsteogram® in the country, CompuMed sponsored a clinical trial in conjunctionwith the China Osteoporosis Foundation which was presented at The FirstInternational Conference on Bone Mineral Research in Beijing in September.

 

**Results of Operations**

 

Revenues from ECG operations were slightly lower for the First Quarter2002 at $452,000, as compared to $453,000 for the same period in 2001. Therewere no revenues from the OsteoGram ® sales and services for the First Quarter2002 as compared to $8,000 for same period in fiscal 2001.

 

Cost of services and goods sold consists of the costs of ECG servicesprovided, supplies, electrocardiograph equipment sold and certain overheadexpenses. During the First Quarter 2002, costs of services and goods solddecreased by 22% to $160,000 from $206,000 during the same period in fiscal2001. The decrease in cost of services is due to the automation of the overreadprocess and lower sales.

 

General and administrative expenses decreased by 13% during FirstQuarter 2002 to $256,000, as compared to $294,000 for the same period in fiscal2001, due to a reduction in professional and consulting fees.

 

8

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Research and development costs increased by 48% during the FirstQuarter 2002 to $86,000  as compared to$58,000 for the same period in fiscal 2001, due to the  Company’s clinical trials conducted inChina.

 

Selling expenses decreased by 88% during the First Quarter 2002 to$28,000  as compared to $230,000 for thesame period in fiscal 2001, primarily due to a decrease in marketing of theOsteoGram® in the US.

 

The Company recorded interest and dividend incomeduring the First Quarter 2002 of $9,000 as compared to $37,000 for the sameperiod in fiscal 2001. The decrease was generally due to the decrease in themarketable securities balance.

 

Net loss for the First Quarter 2002 was $144,000compared to a loss of $379,000 for the same period in fiscal 2001.  The decreased loss is due to the factorsdescribed above.

 

**Financial Condition and Liquidity**

 

As of December 31, 2001 the Company had $649,000of working capital, a decrease of $29,000 from September 30, 2001.  This decrease in working capital isprimarily a result of losses from operating activities.

 

Management anticipates the Company’s currentworking capital amounts will be sufficient to meet its anticipated financialneeds for the next 12 months.

 

The Company intendsto pursue additional research and/or sub-contractor agreements relating to itsdevelopment projects.  Additionally, theCompany is actively seeking partners and acquisition candidates of businessesthat are complementary to its own. Such investments would be financed either bythe Company’s working capital, through issuance of Company securities or acombination thereof.  No assurance canbe given that any acquisition would not be dilutive to stockholders or thatsuch financing would be available at satisfactory terms.

 

**Factors That May Affect Future Results**

 

The Company isincluding the following cautionary statement in this form 10-QSB to makeapplicable and take advantage of the safe harbor provisions of the PrivateSecurities Litigation Reform Act of 1995 for any forward-looking statementsmade by, or on behalf of, the Company. Forward-looking statements include statements concerning plans,objectives, goals, strategies, future events or performance and underlyingassumptions and other statements that are other than statements of historicalfacts.  From time to time, the Companymay publish or otherwise make available forward-looking statements of thisnature.  All such subsequentforward-looking statements, whether written or oral, and whether made by or onbehalf of the Company, are also expressly qualified by these cautionarystatements.

 

9

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Certain statementscontained herein are forward-looking statements and accordingly involve risksand uncertainties that could cause actual results or outcomes to differmaterially from those expressed in the forward-looking statements.

 

The forward-lookingstatements contained herein are based on various assumptions, many of which arebased, in turn, upon further assumptions. The Company’s expectations, beliefs and forward-looking statements are expressedin 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 otherfactors and matters discussed elsewhere herein, the following are importantfactors that, in the view of the Company, could cause actual results to differmaterially 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 risksof patent claims or other third party liability, and the risks of launching anew product or service, such as the Company’s OsteoGram®test, changes in health care regulation, including reimbursement programs,capital needs to fund any delays or extensions of research programs and theavailability of capital on terms satisfactory to the Company.  The Company disclaims any obligation toupdate any forward-looking statements to reflect events or circumstances afterthe date hereof.

 

On December 1, 1999, Nasdaq notified the Company that it had not met the minimum bid pricerequirement for a sufficient duration and the Company’s Common stock wasdelisted from the SmallCap Market on that date and has since traded on the OTCBulletin Board. The delisting may impede or increase the cost of raisingcapital.

 

10

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**PART II**

**OTHERINFORMATION**

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)   No Exhibits

 

(b)   Form 8-K – During the fiscal quarter endedDecember 31, 2001, the Company did not file any reports on Form 8-K.

 

11

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SIGNATURES

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 
|                          | COMPUMED, INC. |                                   |
|-------------------------------|---------------------|----------------------------------------|
|                          | (Registrant)        |
|                          |                |
|                          | By:                 | /s/ Phuong Dang                        |
|                          |                | Phuong Dang                            |
|                          |                | Principal Financial Officer            |
|                          |                |                                   |
|                          | By:                 | /s/ Herbert S Lightstone               |
|                          |                | Herbert S Lightstone                   |
|                          |                | President and Chief Executive  Officer |
|                          |                |                                   |
| Date:  February 14, 2002 |                |                                   |
|                               |                     |                                        |  |

 

 

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