1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
/x/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For The Quarterly Period Ended
SEPTEMBER 30, 1996
Commission File Number 000-21157
C O M P U R A D, I N C.
(Exact name of small business issuer as specified in its charter)
Delaware 86-0710268
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1350 North Kolb
Tucson, Arizona 85715
(Address of principal executive offices)
(520) 298-1000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes / / No /X*/
*This is registrant's first filing.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
At November 11, 1996, there were 3,874,600 shares, $.01 par value, outstanding.
2
COMPURAD, INC.
FORM 10-QSB
TABLE OF CONTENTS
Part I. - FINANCIAL INFORMATION
Page
Item 1. FINANCIAL STATEMENTS
Condensed Balance Sheets - September 30, 1996 and December 31, 1995 3
Condensed Statements of Operations - Three Months and Nine Months
Ended September 30, 1996 and September 30, 1995 4
Condensed Statements of Cash Flows - Nine Months
Ended September 30, 1996 and September 30, 1995 5
Notes to Condensed Financial Statements 6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8
Part II. - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS 12
Item 2. CHANGES IN SECURITIES 12
Item 3. DEFAULTS UPON SENIOR SECURITIES 12
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 12
Item 5. OTHER INFORMATION 12
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES 13
2
3
COMPURAD, INC.
CONDENSED BALANCE SHEETS
September 30, December 31,
1996 1995
-------------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 4,508,514 $ 36,024
Accounts receivable, net of $80,000 allowance at September 30, 1996 1,039,690 143,873
Inventories 345,223 328,425
Prepaid expenses and other 40,002 4,689
----------- -----------
Total current assets 5,933,429 513,011
Property and equipment, net 248,331 100,637
----------- -----------
Total assets $ 6,181,760 $ 613,648
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 819,924 $ 578,978
Accrued expenses 495,344 95,864
Customer deposits and unearned revenue 212,804 528,967
----------- -----------
Total current liabilities 1,528,072 1,203,809
Note payable to related party 113,469 99,969
Other liabilities to related party 541,676 541,676
Stockholders' equity (deficit):
Preferred stock, $.01 par value; 5,000,000 shares authorized; no shares
issued or outstanding at September 30, 1996 and December 31, 1995,
respectively -- --
Common stock, $.01 par value; 20,000,000 shares authorized,
3,724,600 and 2,186,100 shares issued and outstanding at September
30, 1996 and December 31, 1995, respectively 5,173,200 25,966
Stock subscriptions receivable -- (6,250)
Paid in capital--stock-based compensation and expenses 464,500 100,000
Accumulated deficit (1,639,157) (1,351,522)
----------- -----------
Total stockholders' equity (deficit) 3,998,543 (1,231,806)
----------- -----------
Total liabilities and stockholders' equity (deficit) $ 6,181,760 $ 613,648
=========== ===========
See accompanying notes.
3
4
COMPURAD, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
---------------------------------------------------------------
1996 1995 1996 1995
---------------------------------------------------------------
Net revenues $2,039,170 $ 630,466 $5,219,515 $2,808,780
Cost of revenues 1,024,451 418,851 2,903,632 1,962,136
---------------------------------------------------------------
Gross profit 1,014,719 211,615 2,315,883 846,644
Operating expenses:
Selling and marketing 294,979 139,982 735,807 445,616
Research and development 399,190 153,141 898,165 371,970
General and administrative 255,756 93,885 609,312 253,735
Amortization of intangible asset -- 50,833 -- 152,499
Stock-based compensation and expenses 3,000 -- 364,500 --
---------------------------------------------------------------
Income (loss) from operations 61,794 (226,226) (291,901) (377,176)
Other income (expense) 11,477 (2,889) 4,266 (6,877)
---------------------------------------------------------------
Net income (loss) $ 73,271 $ (229,115) $ (287,635) $ (384,053)
===============================================================
Net income (loss) per common share $ 0.02 $ (0.10) $ (0.11) $ (0.19)
===============================================================
Shares used in computing net income (loss)
per common share 3,256,826 2,314,129 2,725,464 1,996,587
===============================================================
See accompanying notes.
4
5
COMPURAD, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30
-----------------------------
1996 1995
-----------------------------
OPERATING ACTIVITIES:
Net loss $ (287,635) $(384,053)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization 50,637 184,305
Stock-based compensation and expenses 364,500 --
Changes in operating assets and liabilities:
Accounts receivable (895,817) (247,902)
Inventories (16,798) (60,479)
Prepaid expenses and other (35,313) (4,689)
Accounts payable and accrued expenses 640,426 167,784
Customer deposits and unearned revenue (316,163) 356,089
----------------------------
Net cash (used in) provided by operating activities (496,163) 11,055
----------------------------
INVESTING ACTIVITIES:
Purchases of property and equipment (184,831) (24,908)
----------------------------
Net cash used in investing activities (184,831) (24,908)
----------------------------
FINANCING ACTIVITIES:
Proceeds from note payable 250,000 --
Principal payments on note payable (250,000) --
Proceeds from issuance of common stock 5,153,484 7,780
----------------------------
Net cash provided by financing activities 5,153,484 7,780
----------------------------
Net increase (decrease) in cash and cash equivalents 4,472,490 (6,073)
Cash and cash equivalents, beginning of period 36,024 7,507
----------------------------
Cash and cash equivalents, end of period $ 4,508,514 $ 1,434
============================
See accompanying notes.
5
6
COMPURAD, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The condensed financial statements of CompuRAD, Inc. ("the Company") presented
herein have been prepared in accordance with generally accepted accounting
principles for interim financial information, 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 generally accepted
accounting principles for complete financial statements. In the opinion of
management, such unaudited interim information reflect all adjustments,
consisting of normal recurring adjustments, necessary to present the Company's
financial position and results of operations for the periods presented. The
results of operations for interim periods are not necessarily indicative of the
results to be expected for a full fiscal year. The Condensed Balance Sheet as of
December 31, 1995 was derived from audited financial statements as of that date
but does not include all of the information and footnotes required by generally
accepted accounting principles. It is suggested that these financial statements
be read in conjunction with the Company's financial statements for the year
ended December 31, 1995, included in the Company's prospectus, dated August 28,
1996, filed with the Securities and Exchange Commission pursuant to Rule 424(b)
of the Securities Act of 1933, as amended.
2. SIGNIFICANT ACCOUNTING POLICIES
Description of Business: The Company develops, manufactures, and markets
computer software which captures, stores, distributes, and displays electronic
medical images and other types of clinical information and distributes this
information i) between hospitals and physicians' offices and homes; ii) between
clinicians and healthcare delivery systems; and iii) between various departments
within hospitals and clinics. The Company currently operates primarily in North
America and in only one business segment, the medical software industry.
Inventories: The Company values its inventories at the lower of cost or market.
Cost is computed on a first-in, first-out basis. Substantially all inventories
are comprised of finished computer hardware goods purchased from computer
manufacturers. The Company does not modify any such computer hardware, but
integrates its software into the customer's ordered system.
Software Development Costs: Under Statement of Financial Accounting Standards
No. 86, Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed, once technological feasibility is established related to
software development costs for new products or for enhancements to existing
products which extend the product's useful life, such costs are capitalized up
until the time the product or enhancement is available for release to customers,
after which the capitalized costs are amortized over the estimated life of the
products.
Income Taxes: The Company was an S-corporation for state and federal income tax
purposes until August 28, 1996 ( the date of the Company's initial public
offering). For 1995, all items of income, expense, and available tax credits
were passed through to CompuRAD's stockholders.
6
7
Accordingly, there is no provision for income taxes reflected in the
accompanying Condensed Statements of Operations for the three months and nine
months ended September 30, 1995.
Upon termination of the S-corporation status, the Company became a
C-corporation, subject to federal and state income taxes. Income tax expense is
$0 for the three months and nine months ended September 30, 1996. The tax basis
of the Company's assets exceeds the basis presented by approximately $750,000 at
September 30, 1996, primarily due to the tax treatment of certain assets. At the
time the Company's S-corporation status terminated, a deferred tax asset of
approximately $300,000 existed; however, a corresponding valuation allowance was
established to reduce the carrying value of the deferred tax asset to zero.
Revenue Recognition: Revenue from the sale and installation of hardware and
software is recognized when the product has been shipped, and related costs of
installation are accrued upon shipment. Revenue from maintenance, service, and
support agreements is recognized over the term of the agreement, which in most
instances is one year. Revenue from post-contract customer support is recognized
in the period the customer support services are provided. At the request of
certain customers, the Company acquires computer hardware for purposes of
configuration with its software products. The Company expects that this service
of acquiring hardware for resale will be phased out in the next several years.
Income (Loss) per Common Share: Income (loss) per common share is computed using
the weighted average number of shares of common stock outstanding, except as
noted below. Common equivalent shares from stock options are excluded from the
computation when their effect is antidilutive, except that, pursuant to the
Securities and Exchange Commission Staff Accounting Bulletins and Staff Policy,
common shares, warrants, and options issued during the period commencing 12
months prior to the initial filing of the initial public offering at prices
below the anticipated public offering price are presumed to have been in
contemplation of the public offering and have been included in the calculation
as if they were outstanding for all periods presented prior to the initial
public offering determined using the treasury stock method.
3. COMMON STOCK
On August 28, 1996, the Company completed an initial public offering, selling
1,000,000 shares of common stock at $6.00 per share. The net proceeds to the
Company were $5,130,000. In connection with the initial public offering, there
was a 150-for-1 sock split. All share and per share amounts have been
retroactively adjusted to reflect the stock split.
4. RELATED PARTY TRANSACTIONS
The Company's president, was, and certain of the Company's stockholders are,
stockholders of Arizona State Radiology, P.C. ("ASR"). On January 1, 1993, the
Company acquired certain technology from ASR in exchange for common stock, a
note payable ($113,469 and $99,969 at September 30, 1996 and December 31, 1995,
respectively), and deferred payment due either in cash or stock. The technology
was valued at $610,000, based on the value of consideration given, and was
amortized over a three year period beginning January 1, 1993.
The deferred payment due totals $541,676 at September 30, 1996 and December 31,
1995 and is payable in cash, common stock or a combination, at the Company's
option. The payment is due within 90 days of August 28, 1996, the Company's
initial public offering of common stock.
7
8
COMPURAD, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-QSB contains forward looking statements. The
words "believe," "expect," "anticipate," "intends," "forecast," "project," and
similar expressions identify forward looking statements. Additional written or
oral forward looking statements may be made by the Company from time to time in
filings with the Securities and Exchange Commission or otherwise. Such forward
looking statements are within the meaning of that term in Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Such statements may include, but not be limited to,
projections of revenues, income, or loss, capital expenditures, plans for future
operations, financing needs or plans, and plans relating to products or services
of the Company, as well as assumptions relating to the foregoing. Forward
looking statements are inherently subject to risks and uncertainties, some of
which cannot be predicted or quantified. Future events and actual results could
differ materially from those set forth in, contemplated by, or underlying the
forward looking statements. See Exhibit 99, Cautionary Statement Regarding
Forward Looking Statements to this Quarterly Report on Form 10-QSB.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH
THREE MONTHS ENDED SEPTEMBER 30, 1995
Net Revenues
Net revenues for the three months ended September 30, 1996 were $2
million, compared with $630,000 for the three months ended September 30, 1995,
reflecting an increase of 223.4%. Of these amounts, hardware sales, software
licenses and maintenance and support services accounted for 46.7%, 45.4%, 7.9%,
respectively, for the 1996 period and 56.1%, 35.5%, 8.4%, respectively, for the
1995 period. The overall increase in revenues was attributable to a substantial
increase in revenues from sales of iNET software, offset in part by a decrease
in revenues from sales of the Company's PC Teleradiology products. One customer
represented 22.2% and 35.6% of net revenues for the three months ended
September 30, 1996 and 1995, respectively.
Gross Margin
Gross margin increased to 49.8% for the three months ended September
30, 1996 from 33.6% for the three months ended September 30, 1995. This
substantial increase in gross margin was attributable principally to a
substantial change in the relative mix of higher margin software sales and lower
margin hardware sales, reflecting the Company's decision to focus on software
rather than hardware sales. The increase in gross margin was also attributable
to a slightly higher average selling price, reflecting the availability during
the 1996 period of the entire iNET product line. Cost of hardware sales for the
three months ended September 30, 1996 was $824,000 and for
the three months ended September 30, 1995 was $327,000. Cost of software
licenses for the three months ended September 30, 1996 was $136,000 and for the
three months ended September 30, 1995 was $47,000. Cost of maintenance and
support services for the three months ended September 30, 1996 was $64,000 and
for the three months ended September 30, 1995 was $45,000.
8
9
Selling and Marketing Expense
Selling and marketing expense for the three months ended September 30,
1996 was $295,000, or 14.5% of net revenues, compared with $140,000 or 22.2% of
net revenues, for the three months ended September 30, 1995, an increase of
110.7%. This increase, in absolute dollars, was attributable primarily to
increases in compensation associated with a larger sales force and greater
advertising and marketing expenses.
Research and Development Expense
Research and development expense for the three months ended September
30, 1996 was $399,000, compared with $153,000 for the three months ended
September 30, 1995, an increase of 160.7%. As a percentage of net revenues,
these expenses decreased to 19.6% for the 1996 period from 24.3% for the 1995
period. This increase, in absolute dollars, reflected the Company's hiring of
additional research and development staff, and, to a lesser extent, an increase
in fees paid to independent contractors. In addition, the quarter ended
September 30, 1996 is the first period that included any expense associated with
the development of ClinicalWare. The Company expects that research and
development expense will continue to increase due in part to expenses associated
with the development of additional ClinicalWare products.
General and Administrative Expense
General and administrative expense for the three months ended September
30, 1996 was $256,000, or 12.5% of net revenues, compared with $94,000, or 14.9%
of net revenues, for the three months ended September 30, 1995, reflecting an
increase of 172.4%. This increase, in absolute dollars, reflected the hiring of
additional administrative staff as well as the establishment of a bad debt
reserve .
Amortization of Intangible Asset
Amortization of intangible asset represents amortization of the
technology purchased by the Company from Arizona State Radiology, P.C. ("ASR")
in 1993. This amortization was completed in 1995.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH
NINE MONTHS ENDED SEPTEMBER 30, 1995
Net Revenues
Net revenues for the nine months ended September 30, 1996 were $5.2
million, compared with $2.8 million for the nine months ended September 30,
1995, reflecting an increase of 85.8%. Of these amounts, hardware sales,
software licenses and maintenance and support services accounted for 45.6%,
47.0%, 7.4%, respectively, for the 1996 period and 59.0%, 36.5%, 4.5%,
respectively, for the 1995 period. The overall increase in revenues was
attributable to a substantial increase in revenues from sales of iNET software,
offset in part by a decrease in revenues from sales of the Company's PC
Teleradiology products. One
9
10
customer represented 22.3% and 34.0% of net revenues for the nine months ended
September 30, 1996 and 1995, respectively.
Gross Margin
Gross margin increased to 44.4% for the nine months ended September 30,
1996 from 30.1% for the nine months ended September 30, 1995. This substantial
increase in gross margin was attributable principally to a substantial change in
the relative mix of higher margin software sales and lower margin hardware
sales, reflecting the Company's decision to focus on software rather than
hardware sales. The increase in gross margin was also attributable to a slightly
higher average selling price, reflecting the availability during the 1996 period
of the entire iNET product line. Cost of hardware sales for the nine months
ended September 30, 1996 was $2.2 million, compared with $1.6 million for the
nine months ended September 30, 1995. Cost of software licenses for the nine
months ended September 30, 1996 was $510,000 compared with $238,000 for the nine
months ended September 30, 1995. Cost of maintenance and support services for
the nine months ended September 30, 1996 was $233,000, compared with $114,000
for the nine months ended September 30, 1995.
Selling and Marketing Expense
Selling and marketing expense for the nine months ended September 30,
1996 was $736,000, or 14.1% of net revenues, compared with $446,000, or 15.9% of
net revenues, for the nine months ended September 30, 1995, an increase of
65.1%. This increase, in absolute dollars, was attributable primarily to
increases in compensation associated with a larger sales force and greater
advertising and marketing expenses.
Research and Development Expense
Research and development expense for the nine months ended September
30, 1996 was $898,000, compared with $372,000 for the nine months ended
September 30, 1995, an increase of 141.5%. As a percentage of net revenues,
these expenses increased to 17.2% for the 1996 period from 13.2% for the 1995
period. This increase reflected the Company's hiring of additional research and
development staff, and, to a lesser extent, an increase in fees paid to
independent contractors. In addition, the period ended September 30, 1996 is the
first period that included any expense associated with the development of
ClinicalWare. The Company expects that research and development expense will
continue to increase due in part to expenses associated with the development of
additional ClinicalWare products.
General and Administrative Expense
General and administrative expense for the nine months ended September
30, 1996 was $609,000, or 11.7% of net revenues, compared with $254,000, or 9.0%
of net revenues, for the nine months ended September 30, 1995, reflecting an
increase of 140.1%. This increase reflected the hiring of additional
administrative staff, as well as the establishment of a bad debt reserve.
Amortization of Intangible Assets
Amortization of intangible assets represents amortization of the
technology purchased by the Company from ASR in 1993. This amortization was
completed in 1995.
10
11
Stock-Based Compensation and Expenses
Stock-based compensation and expenses are comprised of non-cash charges
associated with the Company's grant of options to purchase 75,000 shares of the
Company's Common Stock at an exercise price of $0.007 per share to the co-signer
of the Company's borrowing from BankOne Arizona, N.A. in May 1996 and the
Company's issuance of 150,000 shares of the Company's Common Stock to an
executive officer of the Company in March 1996. The difference between the
exercise price of such options (or in the case of the March 1996 issuance, the
price paid for such shares) and the deemed fair market value of the Company's
Common Stock on the dates of grant was recognized immediately as a non-cash
charge. The fair market value of the Company's Common Stock was deemed to be
$1.00 per share in March 1996 and $2.50 per share in April 1996, resulting in
total charges for the nine months ended September 30, 1996 of $364,500.
LIQUIDITY AND CAPITAL RESOURCES
The Company expects its capital needs and operating expenditures to increase in
the next few years. The Company believes that its existing capital resources and
anticipated cash flow from planned operations, together with the net proceeds
from its initial public offering should be adequate to satisfy its working
capital and capital expenditure requirements through 1997. There can be no
assurance, however, that the Company will not need additional capital before
such time. The Company's need for additional financing will depend upon numerous
factors, including, but not limited to, the level of future revenues and
expenditures, market acceptance of new products, the results and scope of
ongoing research and development projects, competing technologies, market and
regulatory developments and increased working capital requirements. There can be
no assurance that additional financing will be available when needed or, if
available, that it will be available on acceptable terms. If additional funds
are raised by issuing equity securities, further dilution to then existing
stockholders may result and debt financing, if available, may involve
restrictive covenants. If adequate funds are not available, the Company's
business, financial condition and results of operations could be materially
affected.
Effective October 1, 1996, the Company entered into a five year lease agreement
for approximately 13,200 square feet at an approximate monthly cost of $17,000.
The Company has relocated its staff as of this date. No significant costs were
incurred in the move.
SEASONALITY
The Company has historically experienced some seasonality. The Company believes
a number of its customers and potential customers defer making purchase
commitments in the fourth quarter because of budget constraints and the timing
of the Radiological Society of North America trade show and convention in the
fourth quarter. This has had the effect of increasing the level of orders
received by the Company in the first quarter, although the revenues associated
with such orders are generally not recognized until the second quarter.
Typically, net revenues are higher during the second and third quarters and
weaker in the first and fourth quarters. Although the Company believes the
effect of this seasonality will diminish for a number of reasons, including the
introduction of its ClinicalWare software, there can be no assurance that the
Company will not experience seasonality in the future.
11
12
COMPURAD, INC.
PART II. - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The registrant is not the subject of legal proceedings which,
in the opinion of management, will have a material effect on
the financial position of the registrant or its results of
operations.
Item 2. CHANGES IN SECURITIES
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit 11 - Schedule Regarding Computation of Net Income
(Loss) per Share
Exhibit 27 - Financial Data Schedule
Exhibit 99 - Cautionary Statement Regarding Forward-looking
Statements
Exhibit 99.1 - Office Lease
(b) REPORTS ON FORM 8-K
No reports on Form 8-K have been filed during the quarter for
which this report is filed.
12
13
COMPURAD, INC.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CompuRAD, Inc.
Date: November 11, 1996 /s/ Phillip Berman, M.D.
-----------------------------------
Phillip Berman, M.D.
Chairman, Chief Executive Officer
and President
Date: November 11, 1996 /s/ Kevin Donovan
-----------------------------------
Kevin Donovan
Vice President, Finance and Chief
Financial Officer
13