cmpd_10q.htm
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
———————
FORM
10-Q
———————
þ |
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 |
|
|
For
the quarterly period ended: December 31,
2009 |
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|
or |
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|
o |
TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 |
For the
transition period from: _____________ to _____________
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COMPUMED,
INC. |
|
|
(Exact
name of registrant as specified in its charter) |
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Delaware
|
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000-14210
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95-2860434
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(State
or Other Jurisdiction
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(Commission
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(I.R.S.
Employer
|
of
Incorporation)
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|
File
Number)
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Identification
No.)
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5777 West Century Blvd. , Suite
360, Los Angeles, CA 90045 |
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|
(Address
of Principal Executive Office) (Zip Code) |
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(310) 258-5000 |
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(Registrant’s telephone
number, including area code) |
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N/A |
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(Former name, former address
and former fiscal year, if changed since last report) |
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Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
|
þ
|
Yes
|
o |
No
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|
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.
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Large
accelerated filer
|
o |
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Accelerated
filer
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Non-accelerated
filer
|
o |
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Smaller
reporting company
|
þ
|
|
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|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act).
|
o |
Yes
|
þ
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No
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|
|
The
number of shares outstanding of the registrant’s common stock as of
January 31, 2010 was 26,093,742.
|
COMPUMED,
INC. AND SUBSIDIARIES
TABLE
OF CONTENTS
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Page |
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PART 1. FINANCIAL
INFORMATION |
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Item 1. |
Financial
Statements. |
1 |
|
Condensed Balance
Sheets December 31, 2009 (Unaudited) and September 30, 2009 |
1 |
|
Condensed
Statements Of
Operations (Unaudited) |
2 |
|
Condensed Statements
Of Cash Flows (Unaudited) |
3 |
|
Notes to Condensed
Financial Statements (Unaudited) |
4 |
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|
Item
2. |
Management's
Discussion And Analysis Of Financial Condition And Results Of
Operations. |
9 |
Item
3. |
Quantitative And
Qualitative Disclosures About Market Risk |
|
Item 4T. |
Controls And
Procedures |
16 |
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PART
II OTHER INFORMATION |
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|
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|
Item
1. |
Legal
Proceedings. |
18 |
Item
2. |
Unregistered Sales
Of Equity Securities And Use of Proceeds. |
18 |
Item
3. |
Defaults Upon Senior
Securities. |
18 |
Item
4. |
Submission Of
Matters To A Vote Of Security Holders. |
18 |
Item
5. |
Other
Information. |
18 |
Item
6. |
Exhibits. |
18 |
Signatures |
|
19 |
The
accompanying notes are an integral part of these condensed financial
statements
PART
I - FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS.
CONDENSED
BALANCE SHEETS
COMPUMED,
INC.
|
|
December
31,
|
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September
30,
|
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|
2009
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|
2009
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(Unaudited)
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|
ASSETS
|
|
|
|
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CURRENT
ASSETS
|
|
|
|
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Cash
and cash equivalents
|
|
|
117,000 |
|
|
|
97,000 |
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Investments,
at fair market value
|
|
|
- |
|
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|
111,000 |
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Accounts
receivable, less allowance of $15,000 (December 2009) and $14,000
(September 2009)
|
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|
288,000 |
|
|
|
293,000 |
|
Inventories
|
|
|
19,000 |
|
|
|
18,000 |
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Prepaid
expenses and other current assets
|
|
|
16,000 |
|
|
|
17,000 |
|
|
|
|
|
|
|
|
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TOTAL
CURRENT ASSETS
|
|
|
440,000 |
|
|
|
536,000 |
|
|
|
|
|
|
|
|
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PROPERTY
AND EQUIPMENT
|
|
|
|
|
|
|
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Machinery
and equipment
|
|
|
1,379,000 |
|
|
|
1,388,000 |
|
Furniture,
fixtures and leasehold improvements
|
|
|
76,000 |
|
|
|
76,000 |
|
Equipment
under capital leases
|
|
|
448,000 |
|
|
|
421,000 |
|
|
|
|
|
|
|
|
|
|
|
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1,903,000 |
|
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|
1,885,000 |
|
|
|
|
|
|
|
|
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|
Accumulated
depreciation and amortization
|
|
|
(1,589,000 |
) |
|
|
(1,556,000 |
) |
|
|
|
|
|
|
|
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|
TOTAL
PROPERTY AND EQUIPMENT
|
|
|
314,000 |
|
|
|
329,000 |
|
|
|
|
|
|
|
|
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OTHER
ASSETS
|
|
|
|
|
|
|
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Patents,
net of accumulated amortization of $33,000 (December 2009) and $30,000
(September 2009)
|
|
|
124,000 |
|
|
|
127,000 |
|
|
|
|
|
|
|
|
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Other
assets
|
|
|
18,000 |
|
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|
15,000 |
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|
|
|
|
|
|
|
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TOTAL
OTHER ASSETS
|
|
|
142,000 |
|
|
|
142,000 |
|
|
|
|
|
|
|
|
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TOTAL
ASSETS
|
|
|
896,000 |
|
|
|
1,007,000 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
155,000 |
|
|
|
153,000 |
|
Accrued
liabilities
|
|
|
136,000 |
|
|
|
118,000 |
|
Unearned
revenue- ECG processing
|
|
|
2,000 |
|
|
|
2,000 |
|
Current
portion of capital lease obligations
|
|
|
72,000 |
|
|
|
70,000 |
|
|
|
|
|
|
|
|
|
|
TOTAL
CURRENT LIABILITIES
|
|
|
365,000 |
|
|
|
343,000 |
|
|
|
|
|
|
|
|
|
|
Capital
lease obligations
|
|
|
114,000 |
|
|
|
108,000 |
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES
|
|
|
479,000 |
|
|
|
451,000 |
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY
|
|
|
|
|
|
|
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|
Preferred
Stock, $0.10 par value - authorized 1,000,000 shares
|
|
|
|
|
|
|
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|
Preferred
Stock- Class A $3.50 cumulative convertible voting -
|
|
|
|
|
|
|
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|
issued
and outstanding - 8,400 shares
|
|
|
1,000 |
|
|
|
1,000 |
|
|
|
|
|
|
|
|
|
|
Preferred
Stock- Class B $3.50 cumulative convertible voting -
|
|
|
|
|
|
|
|
|
issued
and outstanding - 300 shares
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Preferred
Stock- Class D 2% convertible -
|
|
|
|
|
|
|
|
|
issued
and outstanding - 4,167 shares
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Common
Stock, $0.01 par value - authorized 50,000,000 shares,
|
|
|
262,000 |
|
|
|
262,000 |
|
issued
and outstanding - 26,093,742 shares (December 2009 and September
2009)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
paid-in capital
|
|
|
36,513,000 |
|
|
|
36,497,000 |
|
|
|
|
|
|
|
|
|
|
Accumulated
deficit
|
|
|
(36,359,000 |
) |
|
|
(36,204,000 |
) |
|
|
|
|
|
|
|
|
|
TOTAL
STOCKHOLDERS' EQUITY
|
|
|
417,000 |
|
|
|
556,000 |
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
896,000 |
|
|
|
1,007,000 |
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these condensed financial
statements.
CONDENSED
STATEMENTS OF OPERATIONS
(UNAUDITED)
COMPUMED,
INC.
|
|
|
|
|
|
|
|
|
Three
Months Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
REVENUE
FROM OPERATIONS
|
|
|
|
|
|
|
|
|
ECG
services
|
|
|
379,000 |
|
|
|
432,000 |
|
ECG
product and supplies sales
|
|
|
19,000 |
|
|
|
40,000 |
|
OsteoGram
and Osteometer sales and services
|
|
|
29,000 |
|
|
|
67,000 |
|
|
|
|
|
|
|
|
|
|
TOTAL
REVENUE
|
|
|
427,000 |
|
|
|
539,000 |
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
Costs
of ECG services
|
|
|
170,000 |
|
|
|
192,000 |
|
Cost
of goods sold-ECG
|
|
|
14,000 |
|
|
|
28,000 |
|
Cost
of goods sold - OsteoGram(R) and OsteoMeter
|
|
|
8,000 |
|
|
|
- |
|
Selling
expenses
|
|
|
79,000 |
|
|
|
102,000 |
|
Research
& development
|
|
|
2,000 |
|
|
|
27,000 |
|
General
and administrative expenses
|
|
|
263,000 |
|
|
|
275,000 |
|
Depreciation
and amortization
|
|
|
37,000 |
|
|
|
38,000 |
|
|
|
|
|
|
|
|
|
|
TOTAL
OPERATING EXPENSES
|
|
|
573,000 |
|
|
|
662,000 |
|
|
|
|
|
|
|
|
|
|
OPERATING
LOSS
|
|
|
(146,000 |
) |
|
|
(123,000 |
) |
|
|
|
|
|
|
|
|
|
Interest
income and dividends
|
|
|
- |
|
|
|
1,000 |
|
Interest
expense
|
|
|
(9,000 |
) |
|
|
(20,000 |
) |
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
|
(155,000 |
) |
|
|
(142,000 |
) |
|
|
|
|
|
|
|
|
|
NET
LOSS PER SHARE (Basic and diluted)
|
|
|
(0.01 |
) |
|
|
(0.01 |
) |
Weighted
average number of common
|
|
|
|
|
|
|
|
|
shares
outstanding
|
|
|
26,093,742 |
|
|
|
25,882,643 |
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these condensed financial
statements.
CONDENSED
STATEMENTS OF CASH FLOWS
(UNAUDITED)
COMPUMED,
INC.
|
|
Three
Months Ending December 31,
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOW FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(155,000 |
) |
|
|
(142,000 |
) |
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
Loss
on disposal of property and equipment
|
|
|
6,000 |
|
|
|
- |
|
Stock-based
compensation
|
|
|
16,000 |
|
|
|
32,000 |
|
Depreciation
and amortization
|
|
|
37,000 |
|
|
|
37,000 |
|
(Increase)/Decrease
in accounts receivable
|
|
|
5,000 |
|
|
|
(28,000 |
) |
(Increase)/Decrease
in inventories, prepaid expenses and other assets
|
|
|
(1,000 |
) |
|
|
2,000 |
|
Increase/(Decrease)
in accounts payable and other liabilities
|
|
|
20,000 |
|
|
|
(49,000 |
) |
|
|
|
|
|
|
|
|
|
NET
CASH USED IN OPERATING ACTIVITIES
|
|
|
(72,000 |
) |
|
|
(148,000 |
) |
|
|
|
|
|
|
|
|
|
CASH
FLOW FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
(Purchase)/Sale
of marketable securities
|
|
|
111,000 |
|
|
|
(1,000 |
) |
(Purchase)/Sale
of property and equipment
|
|
|
- |
|
|
|
(3,000 |
) |
|
|
|
|
|
|
|
|
|
NET
CASH (USED IN)/PROVIDED BY INVESTING ACTIVITIES
|
|
|
111,000 |
|
|
|
(4,000 |
) |
|
|
|
|
|
|
|
|
|
CASH
FLOW FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Payments
on capital lease obligations
|
|
|
(19,000 |
) |
|
|
(25,000 |
) |
|
|
|
|
|
|
|
|
|
NET
CASH USED IN FINANCING ACTIVITIES
|
|
|
(19,000 |
) |
|
|
(25,000 |
) |
|
|
|
|
|
|
|
|
|
NET
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
20,000 |
|
|
|
(177,000 |
) |
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUVALENTS AT BEGINNING OF PERIOD
|
|
|
97,000 |
|
|
|
269,000 |
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS AT END OF PERIOD
|
|
|
117,000 |
|
|
|
92,000 |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES:
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
|
9,000 |
|
|
|
10,000 |
|
Equipment
acquired under capital lease
|
|
|
27,000 |
|
|
|
47,000 |
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these condensed financial
statements.
COMPUMED,
INC.
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
A - BASIS OF PRESENTATION AND ACCOUNTING
POLICIES
|
Description
of Business: CompuMed, Inc. (the Company) is a medical diagnostic product and
services company focusing on the diagnosis, monitoring and management of several
costly, high incidence diseases, particularly cardiovascular disease and
osteoporosis. The Company's primary business is the centralized interpretation
of electrocardiograms ("ECGs") and the development and marketing of its
osteoporosis testing technology OsteoGram (R). The Company applies computing,
medical imaging, telecommunications and networking technologies to provide
medical professionals and patients with affordable, point-of-care solutions for
disease risk assessment and decision support.
The
accompanying interim unaudited condensed 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 adjustments)
considered necessary for a fair presentation have been included. Operating
results for the three-month period ended December 31, 2009 are not necessarily
indicative of the results that may be expected for the year ending September 30,
2010. For further information, refer to the financial statements for the year
ended September 30, 2009 and the notes thereto included in the Company's Annual
Report on Form 10-K.
Liquidity
and Capital Resources
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 reduce its operating losses and negative cash flows, and the
ability to draw from our existing revolving line of credit or other sources of
financing. However, the Company has made significant progress towards reducing
its cash burn starting in the first quarter of fiscal 2009. The Company is
continually assessing the performance of its product lines and business units
and may engage in further cost-cutting measures as well as other possible
strategic transactions involving third parties for any non-performing product
line, with a goal to achieve cash flow positive status as soon as possible. The
Company used existing cash and readily available marketable securities balances
to fund operating losses and capital expenditures. The Company has raised funds
from 1997 through 2008 through stock issuances and proceeds from the exercise of
certain stock options and warrants. Currently, the Company has access to a $4M
revolving line of credit pursuant to the “Amended Credit Agreement” entered in
December 16, 2008. Any advances on this credit line must be
unanimously approved by the Board of Directors. At December 31, 2009,
there have been no draws made against this revolving line of
credit.
The
balance sheet at September 30, 2009 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 had a net loss of $155,000
for the three-month period ended December 31, 2009 and $142,000 for the same
period in 2008. However, the Company has implemented a significant campaign of
cost reductions and we anticipate that it will result in improved cash flows
from operations.
Management
believes the Company will be able to generate sufficient revenue, reduce
operating expenses or obtain financing in order to fund ongoing operations for
at least the next twelve months. Accordingly, the financial statements do not
include any adjustments to reflect the possible future effects on the
recoverability or classifications of assets and liabilities that may result from
the outcome of this uncertainty.
In
December 2009, the Company entered into an agreement to effect the private
placement of up to 1,500,000 shares of the Company's common stock at a price of
$0.12 per share. The Company plans to close the private placement by March 31,
2010.
STOCK-BASED
COMPENSATION
The
Company accounts for stock options in accordance with guidance issued by the
FASB using the modified prospective method. Under this method, compensation cost
recognized includes: (a) compensation cost for all share-based payments granted
prior to, but not yet vested as of October 1, 2006, based on the grant-date
fair value estimated in accordance with guidance issued by the FASB amortized
over the options' vesting period, and (b) compensation cost for all share-based
payments granted subsequent to October 1, 2006, based on the grant-date
fair value estimated in accordance with guidance issued by the FASB amortized on
a straight-line basis over the options' vesting period. Stock-based compensation
was $16,000 and $32,000 for the three months ended December 31, 2009 and 2008,
respectively.
A summary
of the stock options activity and related information for the three months ended
December 31, 2009 is as followed:
|
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|
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|
Weighted-
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
Shares
|
|
|
Price
|
|
Options
outstanding, beginning of period
|
|
|
8,226,748 |
|
|
$ |
0.29 |
|
Options
granted
|
|
|
300,000 |
|
|
$ |
0.10 |
|
Options
outstanding, end of period
|
|
|
8,526,748 |
|
|
$ |
0.29 |
|
Options
exercisable, end of period
|
|
|
7,746,746 |
|
|
$ |
0.29 |
|
On
November 6, 2009, the Company granted an aggregate of 600,000 warrants and
options to purchase shares of common stock, of which 300,000 warrants were
issued to the Chief Executive Officer, 100,000 options to the Principal
Financial Officer, and the remaining to certain key employees and a
consultant.
The fair
value of the options and warrants granted during the three months ended December
31, 2009 is estimated at $22,000. The fair value is estimated at the date of
grant using the Black-Scholes option-pricing model with the following
assumptions:
Dividend
yield: 0%
Volatility:
21.05%
Risk-free
interest rate: 3.39%
Expected
Life: 6 to 10 years
PER SHARE
DATA
The
Company reports its earnings (loss) per share in accordance with guidance issued
by the Financial Accounting Standards Board (“FASB”). 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 anti-dilutive.
Net
loss
|
|
|
(155,000
|
)
|
Less:
preferred stock dividends
|
|
|
(57,000
|
)
|
Net
loss available to common stockholders
|
|
|
(212,000
|
)
|
|
|
|
|
|
Net
loss per common share (basic and diluted)
|
|
$
|
(0.01
|
)
|
Weighted
average number of common shares outstanding
|
|
|
26,093,742
|
|
FAIR
VALUE
The
Company measures its financial assets and liabilities at fair value. Fair value
is defined as the price that would be received to sell an asset or paid to
transfer a liability (i.e., exit price) in an orderly transaction between market
participants at the measurement date. Additionally, the Company is required to
provide disclosure and categorize assets and liabilities measured at fair value
into one of three different levels depending on the assumptions (i.e., inputs)
used in the valuation. Level I provides the most reliable measure of fair
value while Level III generally requires significant management judgment.
Financial assets and liabilities are classified in their entirety based on the
lowest level of input significant to the fair value measurement. The fair value
hierarchy is defined as follows:
Level Input:
|
|
Input
Definition:
|
|
|
|
Level
I
|
|
Inputs
are unadjusted, quoted prices for identical assets or liabilities in
active markets at the measurement date.
|
|
|
|
Level
II
|
|
Inputs,
other than quoted prices included in Level I, that are observable for the
asset or liability through corroboration with market data at the
measurement date.
|
|
|
|
Level
III
|
|
Unobservable
inputs that reflect management’s best estimate of what market participants
would use in pricing the asset or liability at the measurement
date.
|
For
certain of the Company's financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable, accrued payroll and other
expenses, the carrying amounts approximate fair value due to their short
maturities.
The
following table summarizes fair value measurements by level at December 31, 2009
for assets and liabilities measured at fair value on a recurring
basis:
|
|
Level
I
|
|
|
Level
II
|
|
|
Level
III
|
|
|
Total
|
|
Cash
and cash equivalents
|
|
$
|
117,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
117,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
117,000
|
|
|
$
|
-
|
|
|
$
|
|
|
|
$
|
117,000
|
|
NEW ACCOUNTING
PRONOUNCEMENTS
In
December 2007, the FASB issued new guidance regarding business
combinations. The revised guidance requires that the acquisition method of
accounting be applied to a broader set of business combinations, amends the
definition of a business combination, provides a definition of a business,
requires an acquirer to recognize an acquired business at its fair value at the
acquisition date and requires the assets and liabilities assumed in a business
combination to be measured and recognized at their fair values as of the
acquisition date (with limited exceptions). This guidance applies prospectively
to business combinations where the acquisition date is on or after the beginning
of the first annual reporting period beginning on or after December 15,
2008. An entity may not apply it before that date. The new standard also
converges financial reporting under U.S. GAAP with international accounting
rules. The Company adopted this guidance on October 1, 2009. There was no
impact upon adoption of this guidance.
In
April 2009, the FASB issued an amendment to the revised business
combination guidance regarding the accounting for assets acquired and
liabilities assumed in a business combination that arise from contingencies. The
requirements of this amended guidance carry forward without significant revision
to the guidance on contingencies which existed previously. Assets acquired and
liabilities assumed in a business combination that arise from contingencies are
recognized at fair value if fair value can be reasonably estimated. If fair
value cannot be reasonably estimated, the asset or liability would generally be
recognized in accordance with the Accounting Standards Codification (ASC) Topic
450 on contingencies. The Company adopted this guidance on October 1, 2009.
There was no impact upon adoption of this guidance.
In
December 2007, the FASB issued new guidance on non-controlling interests in
consolidated financial statements. This guidance requires that the
non-controlling interest in the equity of a subsidiary be accounted for and
reported as equity, provides revised guidance on the treatment of net income and
losses attributable to the non-controlling interest and changes in ownership
interests in a subsidiary and requires additional disclosures that identify and
distinguish between the interests of the controlling and non-controlling owners.
The new guidance is effective for fiscal years, and interim periods within those
fiscal years, beginning after December 15, 2008. The Company has
adopted the new requirements for the fiscal year beginning on October 1, 2009.
There was no impact on the financial statements.
In
June 2009, the FASB issued amendments to the accounting rules for
variable interest entities (VIEs) and for transfers of financial assets. The new
guidance for VIEs eliminates the quantitative approach previously required for
determining the primary beneficiary of a variable interest entity and requires
ongoing qualitative reassessments of whether an enterprise is the primary
beneficiary. In addition, qualifying special purpose entities (“QSPEs”) are no
longer exempt from consolidation under the amended guidance. The amendments also
limit the circumstances in which a financial asset, or a portion of a financial
asset, should be derecognized when the transferor has not transferred the entire
original financial asset to an entity that is not consolidated with the
transferor in the financial statements being presented, and/or when the
transferor has continuing involvement with the transferred financial asset. This
guidance is effective as of the beginning of a reporting entity’s first annual
reporting period that begins after November 15, 2009 and for interim
periods within the first annual reporting period. The Company does not expect
the adoption of these amendments to have a material impact on the financial
statements.
In
June 2009, the FASB issued revised guidance to improve the relevance,
representational faithfulness, and comparability of the information that a
reporting entity provides in its financial reports about a transfer of financial
assets; the effects of a transfer on its financial position, financial
performance, and cash flows; and a transferor’s continuing involvement in
transferred financial assets. This guidance will be effective for fiscal years
beginning after November 15, 2009. The Company is currently evaluating the
impact the adoption of these standards will have on its financial statements and
related disclosures.
In
June 2009, the FASB issued new guidance regarding accounting for own-share
lending arrangements in contemplation of convertible debt issuance which changes
the accounting for equity share lending arrangements on an entity’s own shares
when executed in contemplation of a convertible debt offering. This guidance
requires the share lending arrangement to be measured at fair value and
recognized as an issuance cost. These issuance costs should then be amortized as
interest expense over the life of the financing arrangement. Shares loaned under
these arrangements should be excluded from computation of earnings per share.
This guidance is effective for fiscal years beginning after December 15,
2009 and requires retrospective application for all arrangements outstanding as
of the beginning of the fiscal year. The Company does not expect the adoption of
this guidance to have a material impact on its financial
statements.
In
October 2009, the FASB issued authoritative guidance on
multiple-deliverable revenue arrangements. This new guidance amends the existing
criteria for separating consideration received in multiple-deliverable
arrangements and requires that arrangement consideration be allocated at the
inception of the arrangement to all deliverables based on their relative selling
price. The guidance establishes a hierarchy for determining the selling price of
a deliverable which is based on vendor-specific objective evidence, third-party
evidence, or management estimates. Expanded disclosures related to
multiple-deliverable revenue arrangements are also required. This guidance is
effective for the Company beginning fiscal year 2011, with early adoption
permitted. Upon adoption, the guidance may be applied either prospectively from
the beginning of the fiscal year for new or materially modified arrangements, or
it may be applied retrospectively. The Company does not expect the
adoption of this guidance to have a material impact on its financial
statements.
NOTE
B - OTHER AGREEMENTS
|
The Company retained Vici Capital, a company
owned by our Director Mark Crockett, for a period of nine months beginning
November 24, 2009, to provide certain investment banking and financial advisory
services in connection with potential strategic transactions described in
Exhibit 99.1 of the 8-K filed November 25, 2009.
In
December 2009, the Company entered into an agreement to effect the private
placement of up to 1,500,000 shares of the Company's common stock at a price of
$0.12 per share. The Company plans to close the private placement by March 31,
2010.
NOTE
C- COMMITMENTS AND CONTINGENCIES
During
the three months ended December 31, 2009, the Company entered into a capital
lease obligation for equipment at the cost of $27,500. This obligation bears an
interest rate of 19.65%, is payable at $800 per month, and matures on August
2013. The range of interest rates on capital leases outstanding as of December
31, 2009 was 14.72% to 19.65%.
The
following is a summary, as of December 31, 2009, of future minimum lease
payments together with the present value of the net minimum lease payments on
capital leases:
Fiscal
Year
|
|
Capital
Lease
|
|
|
Operating
Leases
|
|
2010
|
|
|
76,000 |
|
|
|
140,000 |
|
2011
|
|
|
76,000 |
|
|
|
176,000 |
|
2012
|
|
|
55,000 |
|
|
|
174,000 |
|
2013
|
|
|
27,000 |
|
|
|
71,000 |
|
|
|
|
234,000 |
|
|
|
561,000 |
|
Less
amount representing interest
|
|
|
48,000 |
|
|
|
|
|
Net
minimum lease payment
|
|
|
186,000 |
|
|
|
|
|
Less
current portion
|
|
|
72,000 |
|
|
|
|
|
Present
value of net minimum payment, less current portion
|
|
|
114,000 |
|
|
|
|
|
Rental
expenses under operating leases for the three months ended December 31, 2009 and
2008 were the same at $44,000.
The
holders of Class A Preferred Stock are entitled to receive, when and as declared
by the Board of Directors, dividends at an annual rate of $.35 per share,
payable quarterly. Dividends are cumulative from the date of issuance. The total
dividends accumulated in the quarter ended December 31, 2009 was $1,000 and the
total cumulated dividends not declared at December 31, 2009 was
$27,000.
NOTE
D- SUBSEQUENT EVENTS
CompuMed
has evaluated subsequent events for potential recognition or disclosure in the
consolidated financial statements through the date that the statements were
issued, which was February 16, 2010.
ITEM
2.
|
MANAGMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
|
SAFE HARBOR FOR
FORWARD-LOOKING STATEMENTS
This
report on Form 10-Q contains forward-looking statements, including, without
limitation, statements concerning our possible or assumed future results of
operations. These statements are preceded by, followed by or include the words
"believes," "could," "expects," "intends," "anticipates," or similar
expressions. Our actual results could differ materially from those anticipated
in the forward-looking statements for many reasons including, but not limited
to, product and service demand and acceptance, changes in technology, ability to
raise capital, the availability of appropriate acquisition candidates and/or
business partnerships, economic conditions, the impact of competition and
pricing, capacity and supply constraints or difficulties, government regulation
and other risks described in our annual report on Form 10-K and other reports as
may be filed from time to time with the Securities and Exchange Commission.
Although we believe the expectations reflected in the forward-looking statements
are reasonable, they relate only to events as of the date on which the
statements are made, and our future results, levels of activity, performance or
achievements may not meet these expectations. We do not intend to update any of
the forward-looking statements after the date of this document to conform these
statements to actual results or to changes in our expectations, except as
required by law.
Statements
contained in this 10-Q, such as statements about revenue, operations, and
earnings growth and other financial results are forward-looking statements
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. All such forward-looking statements including statements
concerning the Company's plans, objectives, expectations and intentions are
based largely on management’s expectations and are subject to and qualified by
risks and uncertainties that could cause actual results to differ materially
from those expressed or implied by such statements. These statements are subject
to uncertainties and risks including, without limitation, product and service
demand and acceptance, changes in technology, ability to raise capital, the
availability of appropriate acquisition candidates and/or business partnerships,
economic conditions, the impact of competition and pricing, capacity and supply
constraints or difficulties, government regulation and other risks identified in
the Company's filings with the Securities and Exchange Commission. All such
forward-looking statements are expressly qualified by these cautionary
statements. The Company expressly disclaims any obligation or undertaking to
release publicly any updates or revisions to any forward-looking statements to
reflect events, conditions or circumstances on which any such statement is based
after the date hereof, except as required by law.
OVERVIEW
ECG and
cardiac monitoring services are among the most powerful tools physicians have in
diagnosing heart ailments. According to the Centers for Disease Control
(CDC)/National Center for Health Statistics (NCHS), Centers for Disease Control
and Prevention, National Center for Health Statistics, “Health, United States,
2008”, for persons born in the United States, the probability at birth that they
will die of some form of cardiovascular disease (CVD) is 47 percent. As of
2007 in the United States, forms of CVD remain the number one cause of death for
men and women alike, and the number three cause of death for children under the
age of 15. Additionally, 3 to 4 people on average die every few minutes in the
US from varying forms of CVD, equal approximately 2,600 US lives
daily.
The term
CVD includes several different types of cardiovascular disorders, including high
blood pressure, stroke, and coronary heart disease, which include heart attacks
(myocardial infarction). Congestive heart failure and congenital heart defects
are also forms of CVD. Recent statistics published by the American Heart
Association show that CVD affects approximately 64.4 million Americans. The
financial burden for CVD was estimated at $368.4 billion in 2007, up from
$351 billion in 2006, an increase of 5 percent in one year alone. Of
this, $226.7 billion consisted of healthcare expenditures, with the
remaining $141.7 billion attributed to indirect costs, such as lost
productivity. With risk factors such as obesity, high cholesterol, and sedentary
lifestyles steadily increasing, the prevalence of CVD, demand for ECG, and
cardiac monitoring services is poised to increase.
CompuMed
has created an electronic telemedicine infrastructure to link clinical
cardio-vascular data collected at the patient’s point of care, such as 12-lead
ECGs, provide computerized interpretation of the data and to transmit that data
to cardiologists for over-read interpretations. Our key innovation in this area
is the workflow technology being used to manage the inflow of data to its
servers, and the routing of that data to a network of cardiologists who provide
interpretations under contracts. Our services are available 7x24 and are
designed to support general clinical workflows. We have specialized
expertise and intellectual properties in electronic workflow, telemonitoring,
imaging and analysis. Our services and products are designed to improve
healthcare provider workflow and patient care, while reducing costs. We also
develop imaging based diagnostic systems for the detection of certain
musculoskeletal diseases such as Osteoporosis.
We are
registered with the Food & Drug Administration, (FDA) and our medical
devices including those used in our core products CardioGram™, OsteoGram® and
OsteoCare™, are cleared by the FDA. Our products and services are reimbursable
by Medicare and many private insurers.
The
CardioGram is an electronic workflow and telemedicine application focused on
tele-cardiology. We have been a supplier of telemedicine services for more than
twenty years and have established one of the nation's largest telecommunications
networks for electronic processing of electrocardiograms on a real time basis,
providing ECG equipment and services to hundreds of healthcare providers
throughout the U.S and performing tens of thousands of ECG interpretations
annually. Using our customized electrocardiogram terminals, an electrocardiogram
is acquired from a patient, digitized, transmitted in electronic form to our
central computers for digital workflow processing, analyzed and received back on
the electrocardiogram terminal where the electrocardiogram trace and computer
interpretation are printed,- all within a few minutes. If necessary, we can
provide an "overread" by a cardiologist and return the results within a short
time frame, often in under an hour. We bill for this service on a per-use basis,
and we sell or rent a full range of electrocardiogram machines and supplies
including electrodes, recording paper, gel, and patient cables. CardioGram can
also be used to manage electronic records in connection of electronic medical
records and digital workflow applications.
The
OsteoGram is a non-invasive diagnostic software system that has been shown in
clinical studies to provide an effective and accurate bone density measurement
in connection with screening for osteoporosis and assessing hip fracture risk
from digital X-Rays of the hand and wrist. We believe that the OsteoGram may
have significant cost advantages over other non-invasive
diagnostic technologies in the
marketplace. We license the OsteoGram software for license fees. Our target
markets for these products are OEMs and settings where digital X-Ray
infrastructure is used such as hospitals, radiology practices, imaging centers,
and orthopedic office practices.
OsteoCare
is a similar product to our OsteoGram but based on a self-contained peripheral
unit with a dual-energy absorption X-ray technology. OsteoCare is useful to
provide a self-contained BMD testing device in clinical point-of-care settings
where a larger digital X-Ray system might not be cost-effective. We sell, lease
or rent the OsteoCare system. The Company targets the OsteoCare product at
point-of-care markets such as general practices and obstetric-gynecology
practices.
We were
incorporated in the State of Delaware on July 21, 1986.
Telecardiology & Telemedicine
Services
CompuMed’s
historical customer base for its telecardiology services has been the
correctional healthcare segment. During the quarter, we were able to leverage
the significant investments to expand our telecardiology and telemedicine
platform supporting our CardioGram into new market segments. While much of the
revenue impact from some of these new markets remains ahead of us, we
established key new initial customer relationships in significant new markets.
These include, (i) a new Fortune 50 customer in the occupational healthcare
segment of our market, which we are now using to build a case study for the use
and clinical effectiveness of our telecardiology product in the occupational
healthcare marketplace, (ii) the continued expansion into the rural health
market and (iii) the launch of a new point-of-care initiative aimed at pediatric
cardiovascular disease screening in Florida with the University of Miami. These
activities have allowed the Company to develop its capabilities to deliver
services in primary care settings in addition to the institutional settings that
have formed our core business to date.
Frost and
Sullivan, US ECG and Cardiac Monitoring Products and Services Markets, 2006,
estimates the overall market size for ECG services in clinical care settings
will exceed $1billion in 2010. Additionally trends towards telemedicine use in
support of diagnosis and treatment of disease, including cardiovascular disease,
appear to be accelerating due to recent push from the federal government,
healthcare reform and cost reductions. We believe that we might be at a key
strategic inflection point in the marketplace acceptance of our telemedicine
services in the broader point of care clinical market, and believe we might have
the opportunity to move the Company into a position of leadership in providing
telecardiology services to primary care patients, including to patients directly
at home. Currently our products have been used principally in institutional
settings within certain niches, but some of our activities during the year in
pediatrics, rural and occupational healthcare have allowed us to test both
technology and reimbursements for this primary care targets.
Telemedicine
and health information technology adoption are expected to be among the top 10
healthcare trends of the coming year, according to a report by
PricewaterhouseCoopers, a top 10 Health Industry Issues in 2010: Squeezing The
Juice Out Of Healthcare: December 2009.They forecast that the healthcare
industry might rely on improved broadband connectivity and greater integration
of healthcare technologies to further growth of the telemedicine market.
Meanwhile, alternative care models could gain greater precedence over
traditional in-office patient care. And, to qualify for federal incentives, more
hospitals and healthcare providers will also embrace electronic health record
systems. The No. 1 trend of 2010 is likely to be providers’ efforts to
reduce healthcare costs, according to the report. Pricewaterhouse Coopers also
predicts there will be greater adaptation to new healthcare regulations, and
fraud and abuse recovery.
eHealth
Initiatives
Telemedicine
technologies are also gaining in acceptance because they help reduce cost of
healthcare. According to market research firm Parks Associates, the total
digital home health market in the US could grow at an average annual rate of 36%
and turn into a $2.1 billion industry in 2012. According to Parks, the
rapid expansion of wellness monitoring programs and online patient-physician
messaging services might partly drive this growth. In another study conducted by
Penn, State University (C. Cruise, M Lee, Physical Medicine and Rehabilitation
Clinics of North America, Volume 16, Issue 1, pages 267-284), remote home health
monitoring for a single group of diabetes patients cut costs for hospital care
by 69%. A Veterans Administration study (Dibya Sarkar, “Broadband Could Be
Health Boom For Seniors, Government Health IT, December 9, 2005) of remote
monitoring of patients showed a 40% cut in emergency room visits and another
study by the Kaufman Foundation (Better Health Care Together – Robert Litan,
Vital Signs via Broadband: Remote health Monitoring transmits savings, enhances
lives, October 2008) forecasted that 30% of all hospital, out-patient and
drug expenses could be saved from remote monitoring for the chronically
ill.
The
Company is responding to these trends by planning an aggressive move into
primary care markets for eHealth. During the quarter, we have been engaged in
detailed business planning towards the market launch of consumer facing
initiatives in calendar 2010 (eHealth initiative), which could include patient
home monitoring and screening. We have also engaged into strategic discussion
with possible joint venture partners that would accelerate and capitalize this
market entry. We have not yet entered into any material joint ventures in this
area, but the process of negotiation is on-going and we remain committed to
including such strategic relationships as part of our market entry in the
primary care markets. Partially to provide capitalization for the activities in
support of its eHealth initiatives, and related joint ventures, the Company
entered into an agreement to effect the private placement of up to 1,500,000
shares of the Company common stock at a price of $0.12 per share. The Company
plans to close the private placement by March 31, 2010.
Our
pediatric project in Florida has successfully validated our technology in
primary care. We have also been able to experiment with our partners on the
delivery of reimbursable procedures. Based on the experience in Florida, we are
making plans to expand our pediatric effort to California and eventually
nationwide. The American Academy of Pediatrics, (AAP) and the American Heart
Association (AHA), based on findings from the Congenital Cardiac Defects
Committee, issued a recommendation that children with certain risk factors
should have selective screening through ECGs before being prescribed ADHD drugs
due to potential adverse cardiac effects of psychotropic medications in
children. The Company believes that, as a result of the recommendation, demand
may grow for specialized pediatric cardiology over-reads of ECGs by
pediatricians and mental health professionals. According to the AHA, there are
more than 2.5 million children and teens in the US taking stimulants to
control their ADHD.
Additionally, demand for
this type of screening is growing from school settings engaged in athletics.
According to Science Daily (2008 --
http://www.sciencedaily.com/releases/2008/07/080703203243.htm), one young
competitive athlete dies every three days from an unrecognized cardiovascular
disorder in the US. In the majority of cases, the athletes appear healthy
and there is no previous clinical sign of heart problems. The clinical
usefulness of pre-screening programs to identify people at high risk has been
hotly debated but consensus appears to be emerging that there should be some
kind of pre-screening program involving electrocardiogram (ECG). We are
currently negotiating with educational healthcare providers to begin running
this type of screening as a natural extension of our pediatric
program.
We cannot, however, offer
assurance that any
of these strategies, joint venture, market expansions or capitalizations will be
successful in growing the business or that our products will ultimately prove to
be effective in these new markets.
During
the quarter, some of our significant State correctional contracts came due for
renewal. The Company succeeded to renew 100% of its contracts and in most cases
was able to increase the number of facilities or patients under
contract.
Our
correctional customers responded to the fiscal pressures on their budget by
eliminating wide screening of patients, and limiting use of our services to
at-risk patients. This trend depressed revenue throughout the quarter, but was
partially offset by the increase in overall customers under
contracts.
We are
currently providing ECG over-read services to 975 institutions, nationwide and
have performed tests on over 75,000 patients totaling over 100,000
tests.
Skeletal
Health Business
Market
acceptance of this product has been limited by the fact that the OsteoGram
software is a bolt-on to other Digital Radiology (DR) or equivalent systems.
While such systems are normally present in large facilities, many of the smaller
physician’s practices that appear most interested in providing bone density
screening to their patients typically do not own such systems, or in many cases
do not even own x-ray equipment. As a result, we have not been able to deploy
OsteoGram for the point-of-care opportunity and OsteoGram is principally focused
in OEM markets where DR technologies are present such as hospitals, surgery
centers, larger orthopedic practices and imaging centers. Recognizing this, the
Company has altered its marketing effort of the OsteoGram to focus on larger
facilities with existing DR/CT systems, and is looking at its alternate product
OsteoCare to address the point-of-care needs of the larger number of smaller
physician practices.
OsteoGram
continues to have limited acceptance at this time. In the US there is a tendency
by the physician community to look at RA, the technology on which OsteoGram is
based, as a lesser technology than DXA, the prevalent approach to bone
densitometry. While this appears to be a “perception”, it has made sales,
especially in the US, difficult. In overseas markets, the bias towards DXA is
less pronounced and the Company has invested effort towards developing credible
international channels and clearing the path towards a greater presence
internationally. In order to overcome this perception, and to expand its ability
to operate in international markets, the Company has been investigating
strategic alliances with one or more large third parties that could add large
company resources to our OsteoGram marketing efforts. It is too early to
indicate the form and structure of such a relationship and there can be no
guarantees that such a relationship can be found or executed. Additionally, the
Company with its OEMs has worked aggressively to clear the product for sale in
China. This effort resulted in the Chinese State Food & Drug Administration
clearing the OsteoGram for sale in China on June 6, 2008.
The
Company continues to address a worldwide market for its skeletal health
products, we focused marketing effort in China where demand has been increasing.
The Company believes that Osteoporosis affects more than 200 million people
worldwide and is especially prevalent in China, where the traditional diet lacks
calcium. According to China's most recent national census, about
100 million Chinese citizens suffer from the disease in various stages.
During the fiscal year, a large scale study led and presented by renowned
osteoporosis researcher Dr. Jianhua Wang at the recent 6th International
Conference on Bone and Mineral Research in Hohhot, China specifically affirmed
the precision and accuracy of CompuMed’s OsteoGram system for low cost
osteoporosis screening. Dr. Wang's presentation titled "Study on Measurement of
Phalangeal Bone Density by Radiographic Absorptiometry" presented extremely
precise results when performing short-term repeated tests with CompuMed's
OsteoGram system. In addition, the study outcome was highly correlated to
China's popular osteoporosis normal database, confirming the high accuracy of
OsteoGram. Radiographic absorptiometry (RA) is a technique for bone mass
measurement from radiographs of peripheral sites, most commonly the hand or
heel. This was one of the largest and most thorough studies ever performed to
study the value of RA in measuring bone mineral density. We believe that the
results further confirmed that the OsteoGram is an effective and efficient
alternative to costly DXA systems.
In
July 2008, CompuMed announced that the Company had received approval from
China's State Food and Drug Administration (SFDA) to sell the OsteoGram system
and therefore work with Chinese OEMs to penetrate the Chinese market for
osteoporosis screening.
The
Company has continued to grow the number of units placed in China, principally
through its distribution partners in China. While encouraging as a trend, the
volume of units is small in comparison to the total market potentials.
Recognizing the potential importance of certain overseas markets such as China,
and the fact that the Company might need to expand its marketing and R&D
effort in those markets beyond what it has the resources to accomplish alone,
the Company is exploring entering into a joint venture or other strategic
relationship with potential strategic partners to expand its international
market reach. Currently the products are marketed in China through its master
distributor, Rayco, a unit of Carestream Health.
The
marketplace for OsteoCare in the US was negatively impacted by the refusal by
some private insurance providers to reimburse physicians for peripheral testing.
We are currently working with those physicians and those private reimbursers to
reconsider those policies. However, there can be no assurances that those
decisions will be reconsidered or that we will not have negative impact.
Furthermore, the uncertainty associated with healthcare reform and continued
cutting of reimbursements associated with imaging devices in general has
affected the entire medical imaging business.
RESULTS
OF OPERATIONS FOR THE QUARTER ENDED DECEMBER 31, 2009 COMPARED TO THE QUARTER
ENDED DECEMBER 31, 2008.
Total
revenues for the first quarter ended December 31, 2009 decreased by 20.8% to
$427,000 from $539,000 for the same quarter in 2008 due to a decrease
in equipment sales and services for both ECG and OsteoCare product
lines.
ECG
services revenue, which consists of ECG processing, equipment rental, over-reads
and maintenance, during the first quarter of fiscal 2010, decreased by 12.3% to
$379,000 from $432,000 for the same period in fiscal 2009. The decrease was due
to continued expense cutting by certain State Department of Corrections, which
resulted in more restrictive usage of our systems, partially offset by continued
growth of total number of sites under contract. It is unclear how long this
pattern of budget driven diminished utilization might endure, but the Company is
adapting by adjusting its cost basis to this new reality.
ECG
product and supplies sales revenue for the first quarter of fiscal 2010
decreased by 52.52% to $19,000 from $40,000 for the same period in fiscal 2009
due to the cyclical nature of equipment purchases and capital budget associated
with new contracts from State Department of Corrections that occurred last year
but did not occur this year.
Skelettal
Health products and services (OsteoGram and OsteoMeter) revenue for the first
quarter of fiscal 2010 decreased by 56.7% to $29,000 from $67,000 for the same
period in fiscal 2009 due to continued negative pressures on imaging equipment
purchasing in the US as well as the timing of certain budget cycles connected
with China purchase. Historically sales of these products have tended to be
lumpy and quarter to quarter comparisons have not necessarily indicated trends
for the remaining fiscal year.
Lower ECG
processing and equipment sales during the first quarter of fiscal 2010 resulted
in lower cost of services by 11.5% to $170,000 and costs of goods sold by 50.0%
to $14,000 compared to $192,000 and $28,000 in fiscal 2009,
respectively.
Cost of
goods sold of OsteoGram and Osteometer for the first quarter of fiscal 2010 was
$8,000 compared to none in fiscal 2009. This cost was related to the Osteometer,
and did not result from OsteoGram.
Selling
expenses for the first quarter of fiscal 2010 decreased by 22.5% to $79,000 from
$102,000 for the same period in fiscal 2009 due to continued cost reduction
campaigns implemented by the Company.
General
and administrative expenses for the first quarter of fiscal 2010 decreased by
4.4% to $263,000 from $275,000 for the same period in fiscal 2009 due to overall
cost cutting measures implemented by the Company.
Research
and development costs for the first quarter of fiscal 2010 decreased by 92.6% to
$2,000 from $27,000 for the same period in fiscal 2009. The reduction was a
result of the re-alignment of priorities relating to product development as well
as the completion of many projects now in the marketplace.
During
the three months ended December 31, 2010 and 2009, the non-cash stock-based
compensation charge included in the expenses above was $16,000 and $32,000,
respectively.
Interest
and dividend income for the first quarter of fiscal 2010 decreased by 100% to $0
from $1,000 for the same period in fiscal 2009 due to selling of all marketable
securities to provide readily accessible funds for operations.
Interest
expense for the first quarter of fiscal 2010 decreased by 55.0% to $9,000 from
$20,000 for the same period in fiscal 2009. The decrease was due to the
elimination of the 1% interest related to the $4 million Credit Line pursuant
the Amended Credit Agreement entered on December 16, 2008 between the
Company, as Borrower, and Boston Avenue Capital, LLC.
Net loss
for the first quarter of fiscal 2010 increased by 9.2% to $155,000 compared to
$142,000 in fiscal 2009 due to lower revenue in both ECG and OsteoCare business
lines.
FINANCIAL CONDITION,
LIQUIDITY AND CAPITAL RESOURCES
OPERATIONS
At
December 31, 2009, we had $117,000 in cash and investments compared to a balance
of $208,000 at September 30, 2009, a net decrease of $91,000. Commencing with
the second quarter of fiscal 2008, the Company implemented a significant
campaign of cost reductions and was able to reduce the cash burn rate by the
first fiscal quarter of 2009. The Company will continue to assess the
performance of its product lines and business units and may engage in further
cost-cutting measures as well as other possible strategic transactions involving
third parties for any non-performing product line, with a goal to achieve cash
flow positive status as soon as possible.
Our net
cash used in operating activities was $72,000 in the three months ended December
31, 2009 compared to $148,000 for the same period in 2009, a decrease of
$76,000. Significant components of net cash used in operating activities for the
three months ended December 31, 2009 included a $5,000 decrease in accounts
receivable due to recovery of some customers’ delinquent accounts and $20,000
increase in accounts payable mostly related to equipment financing.
There
were no cash purchases of property and equipment for the three months ended
December 31, 2009 compared to $3,000 paid during the same period in fiscal
2009.
The
Company anticipates that its cash flow from operations and available cash will
be sufficient to meet its anticipated financial needs for at least the next 12
months assuming that no significant downturn in its business occurs. There can
be no guarantee that the Company will achieve this result, however, resulting in
the Company needing to raise additional capital in the future or draw down on
its available credit line. Such sources of financing might not be available on
reasonable terms or at all. Failure to raise capital when needed could adversely
impact the Company’s business, operating results and liquidity. Additionally,
the Company may find it desirable to raise additional equity capital to
accelerate its strategic objectives. However there can be no guarantees that the
Company will be able to do so or that such capital will be available. If
additional funds were raised through the issuance of equity securities, the
percentage of ownership of existing stockholders would be reduced. Furthermore,
these equity securities might have rights, preferences or privileges senior to
the Company’s common stock. The Company’s Common stock is currently quoted on
the over-the-counter bulletin board, which may make it more difficult to raise
funds through the issuance of equity securities. These additional sources of
financing may not be available on acceptable terms, if at all. Additionally we
are exploring joint ventures, acquisitions and other forms of strategic
transactions, which might cause us to require additional capital. The Company
plans to make use of its existing credit facility for such transactions. However
there is no guarantee that the Company will be able to enter in such a
transaction or that it would be at terms consistent with the available credit
facility.
In
December 2009, the Company entered into an agreement to effect the private
placement of up to 1,500,000 shares of the Company's common stock at a price of
$0.12 per share. The Company plans to close the private placement by March 31,
2010.
CAPITAL
COMMITMENTS
Our
primary capital resource commitments at December 31, 2009 consist of capital and
operating lease commitments, primarily for computer equipment, electrocardiogram
terminals, OsteoMeter machines and for our corporate office
facility. During the three months ended December 31, 2009, the
Company entered into a capital lease obligation for equipment at the cost of
$27,500. This obligation bears an interest rate of 19.65%, is payable at $800
per month, and matures on August 2013.
FINANCING
ACTIVITIES
In
December 2009, the Company entered into an agreement to effect the private
placement of up to 1,500,000 shares of the Company's common stock at a price of
$0.12 per share. The Company plans to close the private placement by March 31,
2010.
MATERIAL
TRENDS AND UNCERTAINTIES
The
marketplace acceptance of peripheral densitometry equipment is still limited,
and subject to complex scientific, clinical, reimbursement and policy-making
factors which are constantly evolving. It is difficult to predict if any of
these factors will create material barriers to our ability to expand the
OsteoGram or OsteoCare business. Additionally, these factors are different in
various foreign markets. The overall business is also competitive and a number
of competitive technologies are emerging that may hinder the acceptance of our
product in the marketplace. We are investing heavily to help our channel
partners develop the expertise to position and sell our products effectively,
however, we have not yet seen material results from that effort and there are no
guarantees that we will.
Our ECG
business is very competitive and we rely significantly on certain contracts with
individual state governments. While we successfully renewed all contracts in
2009 that came due for expiration, many customers reserve the rights to cancel
such contract under a broad base of options. A loss of some of these contracts
could be material for the Company. Additionally, it is possible that competitive
pressures may force us to lower our prices, which could adversely effect our
overall revenues as well as our gross profits. Additionally many of our
customers have responded to the current financial and economic crisis by
reducing their volume of use to high-risk patients. If this trend should
continue we might experience a downturn of our volume of business, which might
not be offset by an increase of revenue from other sources.
We are
also potentially vulnerable by fiscal and budget crisis on the part of the
States that are our principal customers. The Company receives significant
revenues from the States of California, Illinois, New York and Florida and any
significant budget problems in those states could adversely affect
us.
Our
services are regulated by both Federal and State regulators. Many policies
relating to telemedicine regulatory and licensing oversight are evolving often
on a state- by- state basis. We might be forced to change or cease offering
certain services if some of the regulatory or licensing landscape changes. This
could have a material effect on our business.
If our
revenues should be impacted materially by some of these negative trends, we
might have to draw on our credit line or seek equity capital to meet short-term
liquidity needs. Both of those events might be dilutive to our shareholders.
Additionally we might not meet all the conditions and criteria to effect a
drawdown on the credit facility or to be able to secure suitable equity funding
from an investor. In such an event, the Company might be forced to significantly
reduce its operations or abandon some or all of its activities.
OFF-BALANCE
SHEET ARRANGEMENTS
None.
CRITICAL ACCOUNTING
POLICIES
Our
discussion and analysis of our financial condition and results of operations,
including the discussion on liquidity and capital resources, are based upon our
financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States. The preparation of these
financial statements requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. On an ongoing basis, we
re-evaluate our estimates and judgments, particularly those related to the
determination of the estimated recoverable amounts of trade accounts receivable,
impairment of long-lived assets and deferred tax valuation allowance. We believe
the following critical accounting policies require our more significant judgment
and estimates used in the preparation of the financial statements.
We
maintain an allowance for doubtful accounts for estimated losses that may arise
if any of our customers are unable to make required payments. Management
specifically analyzes the age of customer balances, historical bad debt
experience, customer credit-worthiness, and changes in customer payment terms
when making estimates of the uncollectibility of our trade accounts receivable
balances. If we determine that the financial conditions of any of our customers
deteriorated, whether due to customer specific or general economic issues,
increases in the allowance may be made. Accounts receivable are written off when
all collection attempts have failed.
We have a
significant amount of property, equipment and intangible assets, including
patents. In accordance with guidance issued by the Financial Accounting
Standards Board (“FASB”), “Accounting for the Impairment or Disposal of Long
Lived Assets,” we review our long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset or asset group may not be recoverable.
Recoverability of long-lived and amortizable intangible assets to be held and
used is measured by a comparison of the carrying amount of an asset to the
future operating cash flows expected to be generated by the asset. If these
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying value of the assets exceeds their
fair value.
ECG sales
and services revenue is recognized in accordance with guidance issued
by “FASB” as the following criteria have been met: (1) persuasive
evidence of an arrangement exists, (2) the product has been delivered or the
services have been rendered, (3) the fee is fixed or determinable, and (4)
collectability of the fee is reasonably assured.
ECG
services are comprised of ECG processing, overread, rental and maintenance. ECG
processing and over-read revenue is recognized monthly on a per-usage basis
after the services are performed. Equipment rental and maintenance revenue is
recognized monthly over the terms of the customer's agreement.
ECG
product and supplies sales revenue is recognized upon shipment of the products
and passage of title to the customer.
OsteoGram
software revenue is recognized in accordance with guidance issued
by “FASB”as the following criteria have been met: (1) persuasive
evidence of an arrangement exits, (2) the software has been delivered, (3) the
fee is fixed or determinable, and (4) collectability of the fee is probable.
OsteoGram PCS revenue is recognized in accordance with guidance issued
by “FASB” as the following criteria have been met: (1) the PCS is
part of the initial license (software) fee, (2) the PCS period is for one year,
(3) the estimated cost of providing the PCS is immaterial, (4) we do not offer
upgrades and enhancements during the PCS arrangement. Our policy is to accrue
all estimated costs of providing the PCS services.
OsteoMeter
rental is recognized monthly over the terms of the customer rental agreement.
This is in accordance with guidance issued by “FASB” as the following
criteria has been met: (1) persuasive evidence of an arrangement exists, (2) the
product has been delivered or the services have been rendered, (3) the fee is
fixed or determinable, and (4) collectability of the fee is reasonably
assured.
Income
taxes are accounted for under the asset and liability method. Under this method,
to the extent that we believe that the deferred tax asset is not likely to be
recovered, a valuation allowance is provided. In making this determination, we
consider estimated future taxable income and taxable timing differences expected
to reverse in the future. Actual results may differ from those
estimates.
ITEM
4T.
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CONTROLS
AND PROCEDURES
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EVALUATION OF DISCLOSURE
CONTROLS AND PROCEDURES
Our
management evaluated, with the participation of our Chief Executive Officer and
our Principal Financial Officer, the effectiveness of design and operation of
our disclosure controls and procedures, as defined by Rule 13a-15 (e) under the
Securities Exchange Act of 1934 (the “Exchange Act”), as of the end of the
period covered by this Quarterly Report on Form 10-Q. Based on this evaluation,
our Chief Executive Officer and our Principal Financial Officer have concluded
that the design and operation of our disclosure controls and procedures are
effective to ensure that information we are required to disclose in reports that
we file or submit under the Securities Exchange Act (i) is recorded, processed,
summarized and reported within the time periods specified in Securities and
Exchange Commission rules and forms, and (ii) is accumulated and communicated to
our management, including our Chief Executive Officer and our Principal
Financial Officer, as appropriate to allow timely decisions regarding required
disclosure. Our disclosure controls and procedures are designed to provide
reasonable assurance that such information is accumulated and communicated to
our management. Our disclosure controls and procedures include components of our
internal control over financial reporting. Management's assessment of the
effectiveness of our internal control over financial reporting is expressed at
the level of reasonable assurance that the control system, no matter how well
designed and operated, can provide only reasonable, but not absolute, assurance
that the control system's objectives will be met.
CHANGES IN INTERNAL CONTROL
OVER FINANCIAL REPORTING
There was
no change in our internal control over financial reporting during the fiscal
quarter ended December 31, 2009 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.
LIMITATION ON THE
EFFECTIVENESS OF CONTROLS
Our
management, including our Chief Executive Officer and Principal Financial
Officer, does not expect that our disclosure controls and internal controls 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 control 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 in part upon 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
None.
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS.
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None.
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DEFAULTS
UPON SENIOR SECURITIES.
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None.
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SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS.
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None.
ITEM 6.
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EXHIBITS
AND REPORTS ON FORM 8-K.
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NUMBER
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DESCRIPTION
OF EXHIBITS
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3.7
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Amendment
to Bylaws dated February 15, 2008 (filed as Exhibit 3.7 to the Company’s
Current Report on Form 8-K, filed on February 19, 2008 and incorporated
herein by reference).
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4.7
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Amendment
No. 2 to Rights Agreement, dated as of February 15, 2008, between the
Company and Computershare as successor Rights Agent to U.S. Stock Transfer
Corporation (filed as Exhibit 4.7 to the Company’s Current Report on Form
8-K, filed on February 19, 2008 and incorporated herein by
reference).
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10.1
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Amended
Revolving Line of Credit Agreement dated December 16, 2008 (filed as
Exhibit 10.26 on Form 8-K filed December 17, 2008 and incorporated herein
by reference).
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10.2
|
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Consulting
Agreement between the Company and Mark Crockett, dated November 24,
2009 (filed as Exhibit 99.1 on Form 8-K filed November 25,
2009).
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Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
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Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
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Certification
of Officers pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002.
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SIGNATURES
In
accordance with the requirements of the Exchange Act, the registrant has caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
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COMPUMED,
INC.
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|
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Date: February
16, 2010
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By:
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/s/ Maurizio Vecchione
|
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Maurizio
Vecchione
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Interim
Chief Executive Officer
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Date: February
16, 2010
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By:
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/s/ Phuong Dang
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Phuong Dang
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Secretary,
Controller and
Principal Financial Officer
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