----

----

**SECURITIESAND EXCHANGE COMMISSIONUNITED STATES****WASHINGTON, D.C. 20549**

**FORM 10-QSB**(Mark One)

 

ý   **QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OFTHE SECURITIES EXCHANGE ACT OF 1934**

**For the quarterly period ended June 30, 2001**

**or**

o   **TRANSITION REPORT UNDER SECTION 13 OR 15(D) OFTHE SECURITIES EXCHANGE ACT OF 1934**

**For the transition period from ________ to _________**

**Commission File Number: 0-14210**

**COMPUMED, INC.**(Exact name of registrant as specified inits 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 PrincipalExecutive Officers)

(310) 258-5000

----

(Registrant’s telephonenumber, including area code)

----

(Former name, formeraddress and former fiscal year, if changed since last report)

                Indicate by check mark whetherthe registrant (1) has filed all reports required to be filed by Section 13 or15(d) of the Exchange Act during the preceding 12 months (or for such shorterperiod that the registrant was required to file such reports, and (2) has beensubject to such filing requirements in for the past 90 days.                                                                                                                    Yesý  No o

             The registrant had 17,869,309shares of common stock ($.01 par value) issued and outstanding as of June 30,2001.

----

----

INDEX

COMPUMED, INC. ANDSUBSIDIARIES

 

| PART I.  FINANCIAL INFORMATION |                                                                                                                  |
|-------------------------------------|-----------------------------------------------------------------------------------------------------------------------|
|                                | Item 1.                                                                                                               | Financial Statements (unaudited) |
|                                | Consolidated  balance sheets – June 30, 2001 (unaudited) and September 30, 2000.                                 |
|                                | Consolidated  statements of operations – Three months and nine months ended June 30, 2001  and 2000 (unaudited). |
|                                | Consolidated  statements of cash flows – Nine months ended June 30, 2001 and 2000  (unaudited).                  |
|                                | Notes  to condensed consolidated 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 and Use of Proceeds                                                                            |
| 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                          |                                                                                                                  |

PARTI

FINANCIALINFORMATION

 

CONSOLIDATED CONDENSEDBALANCE SHEETSCOMPUMED, INC.

 
|                                            | June 30, 2001                                                                             |      | September 30, 2000 |      |
|--------------------------------------------|-------------------------------------------------------------------------------------------|-----------|--------------------|-----------|
|                                       |                                                                                           |      |                    |      |
|                                       | (unaudited)                                                                               |      |               |      |
| ASSETS                                     |                                                                                      |      |               |      |
|                                       |                                                                                      |      |               |      |
| CURRENT  ASSETS                            |                                                                                      |      |               |      |
|                                       | Cash  and cash equivalents                                                                | $         | 308,000            |      | $ | 129,000 |   |
|                                       | Marketable  securities                                                                    | 461,000   |               | 1,554,000 |   |
|                                       | Accounts  receivable, less allowance of $36,000 (June 2001) and $49,000 (September  2000) | 254,000   |               | 275,000   |   |
|                                       | Inventories                                                                               | 97,000    |               | 180,000   |   |
|                                       | Prepaid  expenses and other current assets                                                | 20,000    |               | 11,000    |   |
|                                       |                                                                                           |      |                    |      |
| TOTAL CURRENT ASSETS                       | 1,140,000                                                                                 |      | 2,149,000          |      |
|                                       |                                                                                      |      |               |      |
| PROPERTY  AND EQUIPMENT                    |                                                                                      |      |               |      |
|                                       | Machinery  and equipment                                                                  | 855,000   |               | 814,000   |   |
|                                       | Furniture,  fixtures and leasehold improvements                                           | 100,000   |               | 100,000   |   |
|                                       | Equipment  under capital leases                                                           | 953,000   |               | 953,000   |   |
|                                       |                                                                                           |      |                    |      |
|                                       | 1,908,000                                                                                 |      | 1,867,000          |      |
| Accumulated  depreciation and amortization | (1,166,000                                                                                | )         | (924,000           | )         |
|                                       |                                                                                           |      |                    |      |
|                                       | 742,000                                                                                   |      | 943,000            |      |
|                                       |                                                                                      |      |               |      |
| Other  assets                              | 28,000                                                                                    |      | 44,000             |      |
|                                       |                                                                                           |      |                    |      |
| TOTAL  ASSETS                              | $                                                                                         | 1,910,000 |               | $         | 3,136,000 |   |
|                                       |                                                                                           |      |                    |      |

 

Seenotes to condensed consolidated financial statements

 

CONSOLIDATEDCONDENSED BALANCED SHEETSCOMPUMED, INC. 

 

|                                                                                                                                                                                                                                        | June 30, 2001                                                                                  |      | September 30, 2000 |    |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------|-----------|--------------------|---------|
|                                                                                                                                                                                                                                        |                                                                                                |      |                    |    |
|                                                                                                                                                                                                                                        |  (unaudited)                                                                              |      |               |    |
| LIABILITIES  AND STOCKHOLDERS' EQUITY                                                                                                                                                                                                       |                                                                                           |      |               |    |
|                                                                                                                                                                                                                                        |                                                                                           |      |               |    |
| CURRENT  LIABILITIES                                                                                                                                                                                                                        |                                                                                           |      |               |    |
|                                                                                                                                                                                                                                        | Accounts  payable                                                                              | $         | 140,000            |    | $ | 441,000 |   |
|                                                                                                                                                                                                                                        | Accrued  liabilities                                                                           | 105,000   |               | 180,000 |   |
|                                                                                                                                                                                                                                        | Unearned  revenue                                                                              | 31,000    |               | 76,000  |   |
|                                                                                                                                                                                                                                        | Current  portion of capital lease obligations                                                  | 75,000    |               | 127,000 |   |
|                                                                                                                                                                                                                                        |                                                                                           |           |               |         |   |
| TOTAL CURRENT  LIABILITIES                                                                                                                                                                                                                  | 351,000                                                                                        |      | 824,000            |    |
|                                                                                                                                                                                                                                        |                                                                                           |      |               |    |
| CAPITAL  LEASE OBLIGATIONS, less current portion                                                                                                                                                                                            | 17,000                                                                                         |      | 63,000             |    |
|                                                                                                                                                                                                                                        |                                                                                           |      |               |    |
| COMMITMENTS  AND CONTINGENCIES                                                                                                                                                                                                              |                                                                                           |      |               |    |
|                                                                                                                                                                                                                                        |                                                                                           |      |               |    |
| STOCKHOLDERS'  EQUITY                                                                                                                                                                                                                       |                                                                                           |      |               |    |
| Preferred  Stock, $.10 par value – authorized 1,000,000 shares                                                                                                                                                                         |                                                                                           |      |               |    |
|                                                                                                                                                                                                                                        | Class  A $3.50 cumulative convertible voting – issued and outstanding – 8,400 shares | 1,000     |               | 1,000   |   |
|                                                                                                                                                                                                                                        | Class  B $3.50 convertible voting  - issued  and outstanding – 300 shares            | -         |               | -       |   |
|                                                                                                                                                                                                                                        | Class  C 7% convertible voting  - issued and  outstanding – 0 shares                 | -         |               | -       |   |
| Common  Stock, $.01 par value—authorized      50,000,000 shares, issued and outstanding—     17,869,309 shares (June 2001) and     17,869,362 shares (September 2000) | 179,000                                                                                        |      | 179,000            |    |
| Additional  paid in capital                                                                                                                                                                                                                 | 32,243,000                                                                                     |      | 32,234,000         |    |
| Accumulated  deficit                                                                                                                                                                                                                        | (30,958,000                                                                                    | )         | (30,212,000        | )       |
| Accumulated  other comprehensive income                                                                                                                                                                                                     | 101,000                                                                                        |      | 97,000             |    |
| Deferred  stock compensation                                                                                                                                                                                                                | (24,000                                                                                        | )         | (50,000            | )       |
|                                                                                                                                                                                                                                        |                                                                                                |      |                    |    |
| STOCKHOLDERS'  EQUITY                                                                                                                                                                                                                       | 1,542,000                                                                                      |      | 2,249,000          |    |
|                                                                                                                                                                                                                                        |                                                                                                |      |                    |    |
| TOTAL  LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                                                                                            | $                                                                                              | 1,910,000 |               | $       | 3,136,000 |   |
|                                                                                                                                                                                                                                        |                                                                                                |      |                    |    |

 

Seenotes to condensed consolidated financial statements

 

CONSOLIDATEDSTATEMENTS OF OPERATIONS (UNAUDITED)COMPUMED, INC.

 

|                                                         | Three Months Ended  June 30,             |     | Nine Months Ended  June 30, |    |
|--------------------------------------------------------------|------------------------------------------|----------|-----------------------------|---------|
|                                                         | 2001                                     |     | 2000                        |    | 2001 |   | 2000 |   |
|                                                         |                                          |     |                             |    |  |   |  |   |
| REVENUES  FROM OPERATIONS                                    |                                     |     |                        |    |   |   |   |   |
|                                                         | ECG  services                            | $        | 420,000                     |    | $ | 342,000 |   | $ | 1,238,000 |   | $ | 1,045,000 |   |
|                                                         | ECG  product and supplies sales          | 32,000   |                        | 82,000  |   | 138,000 |   | 417,000 |   |
|                                                         | OsteoGram  sales, services and royalties | 27,000   |                        | -0-     |   | 62,000 |   | 13,000 |   |
|                                                         |                                          |     |                             |    |  |   |  |   |
|                                                         | 479,000                                  |     | 424,000                     |    | 1,438,000 |   | 1,475,000 |   |
| COSTS  AND EXPENSES                                          |                                     |     |                        |    |   |   |   |   |
|                                                         | Costs  of ECG services                   | 132,000  |                        | 226,000 |   | 449,000 |   | 654,000 |   |
|                                                         | Cost  of goods sold                      | 18,000   |                        | 36,000  |   | 83,000 |   | 197,000 |   |
|                                                         | Selling  expenses                        | 69,000   |                        | 238,000 |   | 454,000 |   | 470,000 |   |
|                                                         | Research  and development                | 65,000   |                        | 69,000  |   | 185,000 |   | 243,000 |   |
|                                                         | General  and administrative expenses     | 240,000  |                        | 249,000 |   | 814,000 |   | 663,000 |   |
|                                                         | Depreciation                             | 81,000   |                        | 74,000  |   | 244,000 |   | 203,000 |   |
|                                                         |                                          |     |                             |    |  |   |  |   |
|                                                         | 605,000                                  |     | 892,000                     |    | 2,229,000 |   | 2,430,000 |   |
|                                                         |                                          |     |                             |    |  |   |  |   |
| LOSS  FROM OPERATIONS                                        | (126,000                                 | )        | (468,000                    | )       | (791,000 | ) | (955,000 | ) |
|                                                         | Interest  income and dividends           | 12,000   |                        | 61,000  |   | 68,000 |   | 141,000 |   |
|                                                         | Realized  loss on marketable securities  | (9,000   | )                           | -0-     |   | (7,000 | ) | -0- |   |
|                                                         | Interest  expense                        | (3,000   | )                           | (7,000  | ) | (14,000 | ) | (34,000 | ) |
|                                                         |                                          |     |                             |    |  |   |  |   |
| NET  LOSS                                                    | $                                        | (126,000 | )                           | $       | (414,000 | ) | $ | (744,000 | ) | $ | (848,000 | ) |
|                                                         |                                          |     |                             |    |  |   |  |   |
| NET  LOSS PER SHARE  (Basic and diluted)                | $                                        | (.01     | )                           | $       | (.02 | ) | $ | (.04 | ) | $ | (.05 | ) |
|                                                         |                                          |     |                             |    |  |   |  |   |
| Weighted  average number of  Common shares  outstanding | 17,869,309                               |     | 17,568,191                  |    | 17,869,326 |   | 17,301,745 |   |
|                                                         |                                          |     |                             |    |  |   |  |   |

 

Seenotes to condensed consolidated financial statements

 

CONSOLIDATEDSTATEMENTS OF CASH FLOWS (UNAUDITED)COMPUMED, INC.

 

|                                                                             | Nine Months Ended                              |     |
|----------------------------------------------------------------------------------|------------------------------------------------|----------|
|                                                                             | June 30, 2001                                  |     | June 30, 2000 |   |
|                                                                             |                                                |     |  |   |
| OPERATING ACTIVITIES:                                                            |                                           |     |   |   |
| Net loss                                                                         | $                                              | (744,000 | ) | $ | (848,000 | ) |
| Adjustment to reconcile net loss to net  cash used in operating activities: |                                           |     |   |   |
|                                                                             | Realized losses on marketable securities       | 7,000    |   |   |   |
|                                                                             | Amortization of deferred compensation          | 33,000   |   |   |   |
|                                                                             | Depreciation and amortization                  | 242,000  |   | 203,000 |   |
| Changes in operating assets and liabilities:                                     |                                           |     |   |   |
|                                                                             | Accounts receivable                            | 21,000   |   | 254,000 |   |
|                                                                             | Inventories, prepaid expenses and other assets | 74,000   |   | (71,000 | ) |
|                                                                             | Accounts payable and other liabilities         | (421,000 | ) | 155,000 |   |
|                                                                             | Other assets                                   | 16,000   |   | (34,000 | ) |
|                                                                             |                                                |     |  |   |
| NET CASH USED IN OPERATING ACTIVITIES                                            | (772,000                                       | )        | (341,000 | ) |
|                                                                             |                                           |     |   |   |
| INVESTING ACTIVITIES:                                                            |                                           |     |   |   |
| Purchases of marketable securities                                               | -                                              |     | (1,812,000 | ) |
| Sales of marketable securities                                                   | 1,090,000                                      |     | - |   |
| Purchases of property, plant and equipment                                       | (41,000                                        | )        | (528,000 | ) |
|                                                                             |                                                |     |  |   |
| NET CASH PROVIDED BY (USED IN) INVESTING  ACTIVITIES                             | 1,049,000                                      |     | (2,340,000 | ) |
|                                                                             |                                           |     |   |   |
| FINANCING ACTIVITIES:                                                            |                                           |     |   |   |
| Principal payments on capital lease  obligations                                 | (98,000                                        | )        | (115,000 | ) |
| Exercise of stock options and warrants                                           |                                           |     | 688,000 |   |
|                                                                             |                                                |     |  |   |
| NET CASH AND CASH EQUIVALENTS PROVIDED BY  (USED IN) FINANCING ACTIVITIES        | (98,000                                        | )        | 573,000 |   |
|                                                                             |                                                |     |  |   |
| INCREASE (DECREASE) IN CASH AND CASH  EQUIVALENTS                                | 179,000                                        |     | (2,108,000 | ) |
| Cash at beginning period                                                         | 129,000                                        |     | 2,598,000 |   |
|                                                                             |                                                |     |  |   |
| CASH AND CASH EQUIVALENTS AT END OF PERIOD                                       | $                                              | 308,000  |   | $ | 490,000 |   |
|                                                                             |                                                |     |  |   |
| Cash paid for interest                                                           | $                                              | 12,000   |   | $ | 34,000 |   |
|                                                                             |                                                |     |  |   |

 

Seenotes to condensed consolidated financial statements

NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS (UNAUDITED)

COMPUMED,INC.

NOTE A––BASIS OF PREPARATION

The accompanying balance sheet at September 30, 2000 hasbeen derived from the Company's year end audited financial statements. Certainbalances from the June 30, 2000 have been reclassified to conform to the June30, 2001 presentation.

The accompanying unaudited condensed consolidatedfinancial statements have been prepared in accordance with generally acceptedaccounting principles for interim financial information and pursuant to therules and regulations 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, these financial statements included all adjustments(consisting of normal recurring accruals) considered necessary for a fairpresentation of the Company’s financial position, results of operations andcash flows for the interim periods presented. Operating results for the periodended June 30, 2001 are not necessarily indicative of the results that may beexpected for the year ending September 30, 2001.  These financial statements should be read in conjunction with theaudited consolidated financial statements for the year ended September 30, 2000and the notes thereto, which are included in the Company's Annual Report on Form 10–KSB. Thepreparation of the consolidated financial statements,  in conformity with generally accepted accounting principles,  requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements, and the reported amounts of revenues and expenses during thereporting period. Actual results could differ from those estimates.

NOTE B—PER SHARE DATA

Basic loss per share is calculated using the net loss,less preferred stock dividends, divided by the weighted average number ofcommon shares outstanding during the period. Shares from the assumed exercise of outstanding warrants and options andthe effect of the conversion of the Class A Preferred Stock, Class B PreferredStock and Class C Preferred Stock are omitted from the computations of dilutedloss per share because the effect would be antidilutive.

NOTE C—COMMITMENTS AND CONTINGENCIES

On January 26, 1998, the United States District Courtfor the Central District of California approved the settlement of a classaction and derivative lawsuits on the terms agreed to by the parties in theMemorandum of Understanding entered into on August 5, 1996.  The final settlement is anticipated to becompleted in late 2001 and expected to involve the issuance of 770,000 sharesof Common Stock and the issuance of warrants for the purchase of 1,870,000shares of Common Stock at a price of $3.00. The effect of these issuances on the Company’s statement of operationswas recorded during the fiscal year ended September 30, 1997.

NOTE D—CONVERSION OF WARRANTS

The warrants were issued during fiscalyears ended September 30, 1999 and 1998 for the purchase of 5,619,525 shares ofCommon Stock at a total exercise price of $3,500,000 when the Class C PreferredStock was converted to Common Stock.

NOTE E—MARKETABLE SECURITIES

Marketable securities consist ofinvestments in equity and bonds in various publicly traded domestic companiesand are stated at market value based on the most recently traded prices ofthese securities at June 30, 2001. These short-term investments are defined asassets available for sale under the provisions of FASB Statement No. 115,“Accounting for Certain Investments in Debt and Equity Securities.” The Companyrecognized $36,000 of unrealized gains during the three months ended June 30,2001, and $4,000 of unrealized gains during the nine months ended June 30,2001, which was recorded as a component of Accumulated Other ComprehensiveIncome in Stockholders’ Equity. At June 30, 2001 and September 30, 2000 the Company’sinvestments in marketable securities are as follows:

| Investment Types              | June 30, 2001 |    | September 30, 2000 |   |
|-------------------------------|---------------|---------|--------------------|--------|
|                               |               |    |                    |   |
| Corporate  Bonds              | $             | 0       |               | $      | 766,000 |   |
| Convertible  Preferred Stocks | 75,000        |    | 170,000            |   |
| Common  Stock                 | 386,000       |    | 618,000            |   |
|                          |               |    |                    |   |
| Total                         | $             | 461,000 |               | $      | 1,554,000 |   |
|                          |               |    |                    |   |

 

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOF OPERATIONS

 This Form10-QSB contains forward-looking statements made based on current managementexpectations pursuant to the safe harbor provisions of  the Private Securities Litigation Reform Actof 1995.  Forward-looking statementsinclude statements concerning plans, objectives, goals, strategies, future eventsor performance and underlying assumptions and other statements that are otherthan statements of historical facts. There can be no assurance that management’s expectations, beliefs orprojections will result or be achieved or accomplished. 

In addition to other factors, the following, in the viewof the Company, could cause actual results to differ materially from theforward-looking statements expressed herein: technological advances from theCompany’s competitors, the impact of competition generally, dependence on keyemployees and the need to attract new management, the risks of patent claims orother third party liability, the risks of launching a new production service,such as the Company’s OsteoGram® test, changes in healthcare regulation,including reimbursement programs, capital needs to fund any delays orextensions of research programs, the absence of adequate liquidity and theavailability of capital for working capital on terms satisfactory to theCompany. The Company disclaims any obligation to update any forward-lookingstatements to reflect events or circumstances after the date hereof.  

**Overview**  

Duringthe nine months ended June 30, 2001, in addition to the continued operation ofthe Company’s transtelephonic electrocardiagram (“ECG”) business, the Companycommenced sales of its completed osteoporosis testing system, the OsteoGram®.On June 12, 2001 the Company was awarded its first U.S. Patent covering Methodand Apparatus for Determining Bone Mineral Density.  

**Results of Operations**  

Revenuesfrom ECG operations for the Third Quarter 2001 increased to $452,000 from$424,000 during the same period in fiscal 2000 due to a pricing increaseeffective March 2001, and during the nine months ended June 30, 2001 revenuesfrom ECG operations decreased to $1,376,000 from $1,462,000 due to a relativedecrease in unit sales compared to rental revenues. Revenues from the Company’sOsteoGram® sales and services were $27,000 for the Third Quarter 2001 comparedwith no revenues in the prior year period. Revenues from the Company’sOsteoGram® sales and services increased to $62,000 during the nine months endedJune 30, 2001, from $13,000 for the same period in fiscal 2000. 

Costof services and goods sold consists of the costs of ECG services provided,supplies, electrocardiograph equipment sold, and certain overhead expenses.During the Third Quarter 2001, costs of services and goods sold decreased to33% from 62% during the same period in fiscal 2000, and during the nine monthsended June 30, 2001 decreased  to 39%from 58% during the same period in 2000. The decrease in costs of services andgoods sold is due to the automation of the overread process and lower sales.The Company is continuing to market its ECG equipment and services. 

Overall operating costs decreased by 32% during theThird Quarter 2001 to $605,000, as compared to $892,000 for the same period infiscal 2000. Overall operating costs decreased by 8% during the nine monthsended June 30, 2001 to $2,229,000 as compared to $2,430,000 for the same periodin fiscal 2000.

General and administrative expenses decreased by 4%during the Third Quarter 2001 from $249,000 to $240,000 for the same period infiscal 2000 due to a reduction in professional and consulting fees, and duringthe nine months ended June 30, 2001 increased by 23% to $814,000 from $663,000for the same period in fiscal 2000, due to additional executive personnel.

Research and development costs decreased by 6% duringthe Third Quarter 2001 to $65,000 as compared to $69,000 for the same period infiscal 2000, and decreased by 24% to $185,000 during the nine months ended June30, 2001, as compared to $243,000 for the same period in fiscal 2000 due tocompletion of clinical trials and field studies. The Company does not expectthe research and development costs to increase significantly in the nearfuture.

Selling expenses decreased by 71% to $69,000 from$238,000 during the Third Quarter 2001, as compared to the same period infiscal 2000, and decreased by 3% during the nine months ended June 30, 2001, to$454,000 as compared to $470,000 for the same period in fiscal 2000, primarilydue to a decrease in marketing of the OsteoGram®. The major expenses fordeveloping selling tools such as videos, CDs, and the product packaging wereincurred in previous periods. Selling expenses for the remainder of the yearare expected to continue at a reduced level.

The Company recorded interest and dividend income duringthe Third Quarter 2001 of $12,000 compared to $61,000 for the same period infiscal 2000. During the nine months ended June 30, 2001, the Company recordedinterest and dividend income of $68,000 as compared to $141,000 for the sameperiod in fiscal 2000. The decrease was generally due to the decrease in themarketable securities balance.

Net loss for the Third Quarter 2001 was $126,000compared to a loss of $414,000 for the same period in fiscal 2000.  Net loss for the nine months ended June 30,2001 was $744,000 compared to $848,000 for the same period in fiscal 2000. Thedecreased loss is due to the factors described above.

**Financial Condition and Liquidity**

As of June 30, 2001 the Company had $789,000 of workingcapital, a decrease of $536,000 from September 30, 2000.  This decrease in working capital isprimarily a result of losses from operations which were funded by the sales ofmarketable securities held by the Company during the nine months ended June 30,2001.

Managementanticipates that the Company’s current working capital amounts will besufficient to meet its anticipated financial needs for the next 12 months.  

The Company's capitalresource commitments at June 30, 2001 consisted primarily of costs associatedwith the development and commercialization of its OsteoGram® product. Theseexpenditures are anticipated to be incurred at a substantially lower rate thanin the previous year. It is anticipated that any additional expenses will beoffset, at least partially, by additional sales of the Company’s OsteoGram®software product.

The Company intends topursue 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 a combinationthereof.  No assurance can be given thatany acquisition would not be dilutive to stockholders or that such financingwould be available at satisfactory terms.

The Company is includingthe following cautionary statement in this form 10-QSB to make applicable andtake advantage of the safe harbor provisions of the Private SecuritiesLitigation Reform Act of 1995 for any forward-looking statements made by, or onbehalf of, the Company.  Forward-lookingstatements include statements concerning plans, objectives, goals, strategies,future events or performance and underlying assumptions and other statementsthat are other than statements of historical facts.  From time to time, the Company may publish or otherwise makeavailable forward-looking statements of this nature.  All such subsequent forward-looking statements, whether writtenor oral, and whether made by or on behalf of the Company, are also expresslyqualified by these cautionary statements. Certain statements contained herein are forward-looking statements andaccordingly involve risks and uncertainties that could cause actual results oroutcomes to differ materially from those expressed in the forward-lookingstatements.

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 areexpressed 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 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, changesin health care regulation, including reimbursement programs, capital needs tofund any delays or extensions of research programs and the availability ofcapital on terms satisfactory to the Company. The Company disclaims any obligation to update any forward-lookingstatements to reflect events or circumstances after the date hereof.

OnDecember 1, 1999, the Nasdaq notified the Company that it had not met theminimum bid price requirement for a sufficient duration and the Company’scommon stock was delisted from the SmallCap Market on that date and has sincetraded on the OTC Bulletin Board. The delisting may impede or increase the costof raising capital. 

**PART II**

**OTHERINFORMATION**

| Item 1.       | LEGAL PROCEEDINGS                                                                                                   |
|---------------|---------------------------------------------------------------------------------------------------------------------|
|          | None                                                                                                                |
|          |                                                                                                                |
| Item 2.       | CHANGES IN SECURITIES AND USE OF PROCEEDS                                                                           |
|          | 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 ended  June 30, 2001, the Company did not file any reports on Form 8-K. |

 

SIGNATURES  

Pursuant to the requirements of the Securities ExchangeAct of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned thereunto duly authorized.

|  Date:   August 10, 2001 | 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 |