UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
√ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2007
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to_________
Commission file number 0-12968
INMEDICA DEVELOPMENT CORPORATION
(Name of small business issuer in its charter)
| Utah | 87-0397815 |
| (State of Incorporation) | (I.R.S. Employer Identification No.) |
825 North 300 West, Suite N132
Salt Lake City, Utah 84103
(801) 521-9300
| Securities Registered Pursuant to Section 12(g) of the Act: |
| Title of Each Class | Name of Each Exchange on which Registered |
| | |
| Common Stock, $.001 par value | None |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. [ ] Yes [√] No
Indicate by check mark if the registrant is required to file reports pursuant to Section 13 or Section 15(d) of the Act [ ] Yes [√] No
Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [√]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitioins of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer [ ] | Accelerated filer [ ] |
| | |
| Non-accelerated filer [ ] | Smaller reporting company [√] |
| (do not check if a smaller reporting company) | |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No √ 1
State the aggregate market value of the voting and non-voting common equity held by non-affiliates: $1,043,208 based on 8,693,402 non affiliate shares outstanding at $.12 per share, which is the average bid and asked price of the common shares as of the last business day of the registrant’s most recently completed second fiscal quarter.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 18,629,493 shares of common stock, $.001 par value as of March 5, 2008
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the Part of the form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) any annual report to security holders; (2) any proxy or information statement; and (3) any prospectus filed pursuant to Rule 424(b) or (c) of the Securities Act of 1933 (“Securities Act”). The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1980). None
1 - - See discussion under “Government Regulation”
PART I
Item 1. Business.
General. InMedica Development Corporation ("InMedica" or the “Company”) was incorporated as a Utah corporation on June 16, 1983. In 1985 the Company acquired MicroCor, Inc., a Utah corporation (“MicroCor”) engaged in the development of certain medical technology products. During the last fiscal year, MicroCor, a 57% owned subsidiary of the Company, continued to engage in research and development on MicroCor’s hematocrit technology (see “Product Development”) pursuant to the Joint Development Agreement (the “Agreement”) with Wescor, Inc. (“Wescor”). Wescor assumed day to day management of MicroCor as of September 7, 2004, however InMedica has the right to appoint three of five directors of MicroCor. InMedica and MircoCor received no revenues from operations during the last fiscal year. (See "Results of Operations").
Principal Products. During the years 1986 and 1987, MicroCor developed, manufactured and marketed a portable electrocardiograph ("ECG") monitor. About 450 units were manufactured and sold. In July 1989, MicroCor signed a research and development contract with Critikon (a predecessor to Johnson & Johnson Medical, Inc.) to develop a medical instrument which would incorporate and enhance the technologies already developed in the MicroCor portable ECG monitor and combine them with technologies developed by Critikon. The research and development portion of the contract was completed in July 1990, and resulted in the design of a new product line. The product line was successfully marketed by Johnson & Johnson Medical, Inc. during the 1990's, providing royalty income to InMedica. The product line has now been phased out and the royalty income has ceased.
Product Development. For the past 18 years, the Company has conducted research or engaged in fund raising to support research and development of a method for measuring hematocrit non-invasively (without drawing blood) and has applied for patents covering this technology. Hematocrit is the percentage of blood volume made up by red blood cells and is a common laboratory test performed invasively by drawing a blood sample from the patient. During May 1997, the Company employed Dr. Gail Billings, a bio-medical researcher and, effective August 29, 1997, the Company engaged Medical Physics, Inc., a biomedical research company located in Salt Lake City, Utah to conduct further research and development on the project. The researchers engaged in additional research through 1998. During 1999, the researchers completed production of a transportable prototype device for use in demonstrating the technology. During 2001, the Company entered into a Development, Licensing and Manufacturing Agreement with Chi Lin Technologies Co. Ltd. for further development of the technology, which has now been superseded by the Agreement with Wescor. To date the research and development of MicroCor, its various engineers, affiliates and contractors has not completed a prototype suitable for commercialization. The Company believes the Wescor prototype has been designed and constructed to meet the regulatory requirements for clinical trials which may be required to obtain regulatory approval for marketing, however, the
Company’s view is that while the design and construction may meet regulatory requirements, there is no certainty that the device would perform with the accuracy needed for approval. As a result, Wescor continues development work to improve the performance of MicroCor’s device to within parameters likely to result in regulatory approval for marketing.
Government Regulation. Medical products may be subject to regulation by the Food and Drug Administration (the "FDA") pursuant to the Federal Food, Drug and Cosmetic Act and other federal and state laws regarding the regulation, manufacture and marketing of products in which InMedica may be involved. The laws of foreign nations may also apply to any international marketing of such products. To the extent InMedica has acquired or developed an interest in medical products or the companies manufacturing such products, InMedica's business may be indirectly affected by such regulation. Testing of MicroCor’s non-invasive hematocrit technology is subject to prior approval and supervision of an Internal Review Board of a medical facility overseeing the testing. Marketing of any new product line that might be developed based on the Company's non-invasive hematocrit device would be subject to prior approval by the FDA.
The disclosure on the facing sheet of this Form 10-K that the Company is not a “shell company” as defined in Rule 12b-2 of the Rules of the Securities Exchange Act of 1934, is based on the Company’s conclusion that it has more than “nominal operations” as described in Rule 12b-2. The Company’s operations consist of ongoing operating expenses reported in its statement of operations, paid employees, a stated business purpose of development of the hematocrit technology, a history of pursuing this purpose, a past history of revenues from operations and ongoing research and development conducted by its majority-owned subsidiary, MicroCor, Inc. In the event the Company were determined to be a “shell company,” it would be precluded from using Form S-8 to register securities issued to employees and would be required to make certain disclosures on Form 8-K regarding any transaction that causes it to cease being a shell company. Such disclosures consist of filings with the Securities and Exchange Commission of the same type of information that would be required to be filed in registering a class of securities under the Exchange Act. Examples of transactions that could cause a company to cease to be a shell company include a “reverse acquisition” or “back door registration” of a “shell company” with an operating company. The effect of such disclosure requirement is to increase the disclosure requirements for the non-reporting or non-registered company in a “reverse acquisition” or “back door registration” as more fully described in SEC Release Nos. 33–8587 and 34–52038. The Company has no present plans or commitments to engage in a “reverse acquisition,” “back door registration” or similar transaction or to register stock on Form S-8.
Patents. As of December 12, 1995, the Company's application for a patent entitled "Method and Apparatus for Non-Invasively Determining Hematocrit," was allowed by the U.S. Patent Office and the Patent issued on June 18, 1996 with a term of 17 years. The Company was also issued an additional patent that claims priority from October 4, 1990, the date of filing of the Company's "Method and Apparatus for Non-Invasively Determining Hematocrit". The patent term runs from October 4, 1990 for a period of 17 years and expired on October 4, 2007. As of
October 3, 2000, the Company was issued a third patent called “System and Method for In-Vivo Hematocrit Measurement Using Impedance and Pressure Plethysmography." In December, 2003, the Company received a Notice of Allowance of Claim from the U.S. Patent and Trademark office. On July 20, 2004 MicroCor was issued a fourth patent: Patent 6,766,191 "System And Method For In-Vivo Hematocrit Measurement Using Impedance And Pressure Plethysmography." All of the Company’s patents are now owned by MicroCor, pursuant to the Agreement with Wescor.
Raw Materials. Materials and electronic components used in the production and development of a hematocrit measuring device and like products are components readily available through various suppliers.
Competition. InMedica is not presently a significant competitive factor in the medical products industry. The medical products industry is dominated by large and well established corporations with vastly greater financial and personnel resources than those of InMedica. There can be no assurance that the product in which InMedica has an interest will be successfully developed and able to compete profitably in the marketplace. Further, there is no assurance that MicroCor and Wescor will be able to complete research, development and marketing of MicroCor’s hematocrit technology in advance of any competitors that may be developing competing technologies.
Research and Development Costs. Research and development costs for the two years ended December 31, 2007 and 2006 and , were $ 0 and $0 respectively. The absence of research and development costs of the Company in 2007 and 2006 was the result of the assumption of research and development by Wescor pursuant to the Joint Development Agreement. None of the expenses were incurred on customer-sponsored research activities relating to the development of new products.
Employees. InMedica had two part time employees as of December 31, 2007.
RISK FACTORS
Ownership of stock in the Company involves very high risk, as a result of the following
risk factors:
1. Substantial Operating Losses. Since InMedica commenced operations in 1983, it has incurred substantial operating losses and it has an accumulated deficit of $(8,768,227) as of December 31, 2007. There is no assurance that profitable operations will be achieved in the future.
2. Financing Necessary. To date the Company's cash flow from operations has not been sufficient to provide required working capital and the Company has relied upon borrowing and contractual arrangements (including the sale of an increasing percentage of MicroCor
which holds the rights to the hematocrit technology) to develop the hematocrit device. The Company's limited revenues have been used to finance operations and research and development. The future success of the Company may depend entirely upon the additional fund raising from third party sources (as to which there is no commitment).
3. Competition and Technological Change. The medical technology markets in which the Company competes or proposes to compete are extremely competitive and characterized by major companies which are dominant in the various markets. The Company is not a competitive factor in those markets. Further, the Company's proposed product areas are characterized by rapid technological change. There can be no assurance that research and development of products by others will not render the Company's products or processes obsolete or at a serious competitive disadvantage.
4. Dependence on Key Personnel. The Company's prospects to develop products and successfully compete in the marketing of such products will be substantially dependent upon the experience, abilities and services of the present officers, employees and directors of the Company, MicroCor and Wescor. The loss of the services of one or more of these persons could have an adverse effect on the business of the Company. There is no assurance that the Company, MicroCor and Wescor will be successful in retaining existing officers, directors and employees or attracting additional qualified personnel as needs arise.
5. Contractual Limitations. Wescor has the contractual right to discontinue the hematocrit project, in its sole discretion, at any time.
6. Government Regulation. The Company's products are subject to regulation by the Food and Drug Administration (the "FDA") both with respect to marketing and the manner in which products are manufactured. There is no assurance of future success in meeting regulatory requirements for FDA approval of the hematocrit device.
7. Possible Additional Development. Clinical trials or further evaluation may result in the need to do additional development work with respect to the hematocrit device. Such development may be expensive and time consuming and there is no assurance of success.
8. No Dividends. The Company has paid no dividends on its common stock and does not intend to pay any dividends in the foreseeable future.
9. Risks Inherent in Common Stock Ownership. The common stock of the Company is subject to fluctuations in market price due to market conditions, 144 sales and results of operations; in the event of liquidation of the Company, the common shareholders would have last priority for distribution of any assets, after creditors and preferred shareholders; the market for the Company's common stock is thinly traded and there is no assurance that a market for the common stock will exist at a time when a shareholder wishes to liquidate stock ownership.
Item 2. Properties
The Company presently leases office space on a month to month basis located at 825 North 300 West, Suite N132, in Salt Lake City, Utah.
Item 3. Legal Proceedings
There are no pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
None
PART II
Item 5. Market for the Registrant's Common Stock and Related Security Holder Matters.
(a) Price Range of Common Stock.
The Common Stock of InMedica is traded in the over-the-counter market and is quoted on the "FINRA OTC Bulletin Board". The table below sets forth, for the calendar quarters indicated, the high and low closing bid prices for the InMedica Common Stock as reported by the FINRA OTC Bulletin Board. These quotations represent prices between dealers without adjustment for retail markups, markdowns or commissions and may not represent actual transactions.
| | | Bid Price | |
| Quarter Ended | | High | | | Low | |
| | | | | | | |
| March 31, 2007 | | $ | .23 | | | $ | .15 | |
| June 30, 2007 | | | .17 | | | | .10 | |
| September 30, 2007 | | | .17 | | | | .10 | |
| December 31, 2007 | | | .13 | | | | .06 | |
| | | | | | | | | |
| March 31, 2006 | | | .26 | | | | .25 | |
| June 30, 2006 | | | .25 | | | | .22 | |
| September 30, 2006 | | | .25 | | | | .15 | |
| December 31, 2006 | | | .21 | | | | .15 | |
On March 5, 2008 there were approximately 519 record holders of the InMedica Common Stock. Such record holders do not include individual participants in securities position listings. InMedica has not paid cash dividends on its Common Stock since organization. For the foreseeable future, InMedica expects that earnings, if any, will be retained for use in the business or be used to retire obligations of the Company.
Four stockholders own an aggregate of 21,016 shares of the Company’s Series A Preferred Stock, which is 8% convertible preferred. There is no public market for the Series A Preferred Stock. Aggregate accumulated annual dividends payable on the preferred stock as of December 31, 2007 were $49,177.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Plan of Operation. During the 12 months beginning January, 2008, the Company’s plan of operation is to continue to work cooperatively with MicroCor and Wescor in the development of the Company’s portable hematocrit device. However, Wescor recently advised the Company and Chi Lin that its parent corporation is interested in shifting Wescor’s resources presently dedicated to the research and development of the Hematocrit Technology to other projects. As a result, Wescor may be interested in bringing on a new partner to conduct research and development or perhaps in selling its interest in the Technology, although Wescor continues to fund research and development at this time under the terms of the Joint Development Agreement. The Company is presently discussing the matter with Wescor. No present plans or commitments for other alternatives have been made. During 2007, the Company funded administrative operations with the proceeds of minimum royalty payments from MicroCor. Wescor has loaned MicroCor sufficient funds to enable MicroCor to pay one half of the minimum royalty. Payment of the balance of the minimum royalty was deferred by the Company. The Company has in the past borrowed from affiliates, however, such borrowing is not expected to be available in the future to meet obligations or to fund research and development. In past years, salaries of employees and consulting fees have been accrued and later settled by the issuance of restricted stock. If necessary, InMedica will also look for other funding sources.
Liquidity and Capital Resources. The minimum royalty payments in 2006 and 2007 provided, minimum operating capital to the Company. However, the Company is currently in discussions with Wescor regarding Wescor’s continued participation in the Joint Development Agrement. Effective January, 2008, the Company’s CEO and CFO are each deferring payment of $2,000 per month in salary .
During the years 2007 and 2006, liquidity was generated by borrowings from Wescor and from the payment of minimum royalties to InMedica by MicroCor. The Company may need to engage in fund raising during 2008 in order to meet future cash needs.
Results of Operations. The Company had an accumulated deficit of $8,768,227 as of December 31, 2007. No revenues from operations were received in 2007 and 2006. No revenues from operations are expected during 2008. The Company had a net loss from operations of $194,699 for the year ended December 31, 2007 which remained relatively constant compared to a net loss from operations of $199,955 for the year ended December 31, 2006.
(Intentionally blank)
Item 8. Financial Statements
| | Page |
| | |
| Independent Registered Public Accountants’ Report (Robison, Hill & Company) | F-1 |
| | |
| Consolidated Balance Sheet as of December 31, 2007 and 2006 | F-3 |
| | |
| Consolidated Statements of Operations for the | |
| Years Ended December 31, 2007 and 2006 | F-4 |
| | |
| Consolidated Statements of Stockholders’ Equity for the | |
| Years Ended December 31, 2007 and 2006 | F-5 |
| | |
| Consolidated Statements of Cash Flows for the | |
| Years Ended December 31, 2007 and 2006 | F-6 |
| | |
| Notes to Consolidated Financial Statements | F-7 |
| | |
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures.
During the registrant’s two most recent fiscal years and any subsequent interim period, there were no disagreements with accountants on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreement(s) if not resolved to the satisfaction of the former accountants would have caused them to make reference to the subject matter of the disagreement(s) in connection with their reports. The former accountants’ reports for the period of their engagement did not contain an adverse opinion or disclaimer of opinion. However the former accountants’ reports were each modified for uncertainty whether the registrant would continue as a going concern. There was no qualification or modification as to audit scope or accounting principles.
Item 9A. Controls and Procedures.
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the small business issuer. The Company's Chief Executive Officer and Chief Financial Officer have concluded, based on an evaluation required by paragraph (b) of Section 240.13a-15 or 240.15d-15 of the Rules of the Securities Exchange Act of 1934, conducted as of the end of the period covered by this Annual Report on Form 10-K, that the Company's disclosure controls and procedures (as defined in Exchange Act Rules 13a – 15(e) or 240.15d-15(e)) have functioned effectively. For purposes of this Item, the term disclosure controls and procedures means controls and other procedures of the Company that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. This annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this annual report.
There have been no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Section 240.13a-15 or 240.15d-15 of the Rules of the Securities Exchange Act of 1934, that occurred during the Company’s last fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual report) that have materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B. Other Information. None
PART III
Item 10. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act.
Directors and Executive Officers of InMedica. The following table furnishes information concerning the executive officers and directors of InMedica and their business backgrounds for at least the last five years.
| Name | Age | Director Since |
| | | |
| Larry E. Clark, Chairman | 86 | 1995 |
| Ralph Henson, Director and CEO | 63 | 1999 |
| Richard Bruggeman, Director and CFO | 53 | 1995 |
| Sheng Jung Chiang, Director | 62 | 2001 |
| Mao-Song Lee, Director | 60 | 2002 |
Certain additional information follows regarding the executive officers and directors of InMedica and their business backgrounds for at least the last five years.
LARRY E. CLARK - Chairman of the Board since April 1995. Mr. Clark was president of Clark-Knoll & Associates, Inc., a Denver, Colorado management consulting firm specializing in mergers and acquisitions from 1963 to 1969. He served as president of Petro-Silver, Inc., a small public company based in Salt Lake City, Utah, which engaged in the oil and gas business from 1970 to 1975. Beginning in 1975 and continuing to December, 2003, Mr. Clark was president of Larry Clark & Associates, a private company which engaged in a corporate mergers and acquisitions business or business consulting. In 1981, Mr. Clark formed Hingeline-Overthrust Oil & Gas, Inc., a Utah public company, which merged with Whiting Petroleum Corporation of Denver, Colorado in December 1983. Mr. Clark served as a director of Whiting Petroleum from 1983 until 1992 when Whiting Petroleum merged with IES Industries and Mr. Clark returned to full time employment as president of Larry Clark & Associates. Mr. Clark was President of InMedica from April 1995 until December, 1999. Mr. Clark graduated from the U.S. Merchant Marine Academy with a BS degree in Naval Science in 1943 and received a degree in Business Administration from the University of Wyoming in 1948.
RALPH HENSON - Director, President and Chief Executive Officer of the Company since December 1999. Prior to his employment with InMedica, Mr. Henson worked from 1996 until 1999 as Director of Sales and acting Director of Clinical Programs of In-line Diagnostics of Farmington, Utah. He was also employed from 1987 to 1994 with Mallinckrodt Medical, in sales and marketing, including service as Export Sales and Marketing Manager for Mallinckrodt Sensor Systems of Hannef, Germany. From 1994 to 1995 he was national sales manager with HemoCue, Inc. of Mission Viejo, California.
RICHARD BRUGGEMAN - Director and Secretary/Treasurer and Chief Financial Officer of the Company since April, 1995 and full time employee of the Company during 2002. Since 2003, Mr. Bruggeman has been employed with Kitchen Resource, Inc., a Utah based firm distributing kitchen appliances. He was employed part time or full time as Controller of Kitchen Specialties, Inc. from 1993 to December, 2001, a Salt Lake City firm distributing kitchen appliances in the United States and Canada. From 1986 until 1993 he was employed by the Company's subsidiary, MicroCor, Inc. as financial manager. During the period 1983-1985, he was a sole practitioner in accounting and from 1981-1983 he was employed by the Salt Lake City public accounting firm of Robison Hill & Co. He has since had no affiliation with that accounting firm. He graduated from the University of Utah in 1981 with a B.S. degree in accounting.
SHENG JUNG (ROBERT S.) CHIANG B Director of the Company since May, 2001. Mr. Chiang was vice president and secretary general of Onking Chain Store Co. Ltd., a company organized in the Republic of China (hereinafter ATaiwan@) from November, 1988 through June, 2000 when he became the Vice President of Chi Lin Technology Co. Ltd, a Taiwanese company. He has been employed with Chi Lin Technology since June, 2000. Mr. Chiang has a BA from the National Chen Chi University and an MBA from the National Taiwan University.
MAO-SONG LEE – Director of the Company since December, 2002. Since February, 2001 he has been employed full time by Chi Lin Technology Co. Ltd. as Technical Vice President. From August, 1998 until January, 2001 he was General Manager, Pilot Plants for Union Chemical Laboratories, Industrial Technology Research Institute of the Republic of China (Taiwan). During the period 1994-1997 he was Director of the Engineering Plastics Division for Union Chemical Laboratories, Industrial Technology Research Institute. From 1983 until 1991 he was Director of the Polymer Division, Union Chemical Laboratories, Industrial Technology Research Institute. He received a B.S. and M.S. from the National Cheng Kung University of Taiwan in 1970 and 1972, respectively. He also received a Ph.D. and an M.B.A. from the National Tsing Hua University of Taiwan in 1987 and from the National Cheng Chi University in 1994, respectively.
Each director serves until the next annual meeting of shareholders or until a successor is elected and qualified. Officers serve at the pleasure of the board of directors. No arrangement or understanding exists between any officer or director and any other person pursuant to which he was nominated or elected as director or selected as an officer, except the Stock Purchase Agreement with Chi Lin Technologies Co. Ltd. which allowed Chi Lin to fill two vacancies on the board of directors.
Section 16(a) Beneficial Ownership Reporting Compliance. Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors and executive officers, and persons who own more than ten percent of a registered class of the Company's equity securities to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of equity securities of the Company. Officers, directors and shareholders holding greater than ten percent are required to furnish the Company with copies of all Section 16(a) forms they file. To the Company's knowledge, based solely on review of the copies of any such
reports furnished to the Company, during the fiscal year ended December 31, 2007, and thereafter, all Section 16(a) filing requirements applicable to officers, directors and shareholders holding greater than ten percent were timely met.
Code of Ethics. The Company has adopted a code of ethics for its principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions. A copy of the Code of Ethics will be furnished upon request without charge.
BOARD OF DIRECTORS MEETINGS
AND ATTENDANCE AT SHAREHOLDER MEETINGS
The Company does not have nominating or audit committees of the Board. The full board conducts the function of an audit committee. There were no formal meetings of the Board of Directors held during the fiscal year ended December 31, 2007. All directors, except Messrs. Chiang and Lee attended the last annual shareholder meeting of the Company, held January 25, 2005. The Company expects all directors to be in attendance at shareholder meetings and attempts to schedule meetings at a time when all directors will be able to attend, however conflicting schedules, particularly with the two directors from Taiwan may preclude their attendance at shareholder meetings which are held in the United States.
AUDIT COMMITTEE FINANCIAL EXPERT
The Company's board of directors does not have an "audit committee financial expert,"
within the meaning of such phrase under applicable regulations of the Securities and Exchange Commission, serving on its audit committee. The board of directors believes that all members of its board are financially literate and experienced in business matters, and that one or more members of the board are capable of (i) understanding generally accepted accounting principles ("GAAP") and financial statements, (ii) assessing the general application of GAAP principles in connection with our accounting for estimates, accruals and reserves, (iii) analyzing and evaluating our financial statements, (iv) understanding the Company’s internal controls and procedures for financial reporting; and (v) understanding audit committee functions, all of which are attributes of an audit committee financial expert. However, the board of directors believes that there is not any audit committee member who has obtained these attributes through the experience specified in the SEC's definition of "audit committee financial expert." Further, like many small companies, it is difficult for the Company to attract and retain board members who qualify as "audit committee financial experts," and competition for these individuals is significant. The board believes that its current board is able to fulfill its role under SEC regulations despite not having a designated "audit committee financial expert."
NOMINATING COMMITTEE
The full board of directors of the Company functions as a nominating committee to select potential additional directors of the Company. The board has not specifically designated a separate nominating committee because all five members of the board of directors desire to be involved in the selection of any new director. The board does not have a specific charter to govern its actions as a nominating committee, nor are any members of the board “independent”. Due to the relatively small size of the Company, the risks associated with service on the board of a public company and the limited or negligible compensation available to such directors, the Company considers it unlikely that a qualified person would serve on the board that was truly independent. However, the board’s unwritten policy for consideration of potential members of the board nominated by shareholders is to seriously consider any potential board member that has personal relationships and/or expertise that might be beneficial to the Company’s business. The Company has in the past and expects to continue in the future to be interested in discussions with persons interested in the Company’s business and able to make a significant contribution to the success of the Company’s technology. Shareholders that desire to introduce persons to the Company’s board of directors should contact Larry E. Clark, Chairman of the Board or Ralph Henson, Chief Executive Officer of the Company with any suggestions or recommendations for director. These persons may be reached through the Company’s office telephone 801-521-9300 during regular business hours. A copy of the resume of any candidates should be submitted with the inquiry.
At the present time, the Company is not actively searching for additional members of the board, however members of the board are interested in meeting qualified persons. Qualified persons normally would be persons that have at least a college education and professional or technical experience in the medical products industry. The Company is especially interested in persons with fund raising contacts or technology development contacts. Generally, shareholder nominees would be evaluated in the same manner as any other nominee. The current directors were each originally nominated by the Company’s chief executive officer or by Chi Lin Technologies, Co. Ltd, which had the contractual right to nominate two directors. Specifically, Larry E. Clark became a director upon the nomination of Alan Kaminsky who was then CEO and a 5% plus shareholder. Messrs Henson and Bruggeman were each nominated by Mr. Clark while Mr. Clark was serving as CEO and while Mr. Clark was a 10% plus shareholder. Messrs. Chiang and Lee were nominated by Chi Lin, a principal shareholder and control person of the Company, owning approximately 33 1/3% of the stock of the Company.
Item 11. Executive Compensation.
The table below discloses the compensation of the chief executive officer of the Company during the three fiscal years ended December 31, 2007:
| Name | Year | | Salary | | | Bonus | | | | |
| Ralph Henson (CEO) | 2007 | | $ | 84,000 | 3 | | $ | - | | | $ | - | |
| Ralph Henson (CEO) | 2006 | | $ | 33,000 | | | $ | - | | | $ | 65,000 | |
| Ralph Henson (CEO) | 2005 | | $ | 24,000 | | | $ | - | | | $ | 60,000 | |
Since the beginning of the last fiscal year, there have been no stock options or stock appreciation rights granted to or exercised by officers named in the executive compensation table. The Company presently has no plan for the payment of any annuity or pension retirement benefits to any of its officers or directors, and no other remuneration payments, contingent or otherwise, are proposed to be paid in the future to any officer or director, directly or indirectly. Directors have not been compensated for services and there are no plans for any director compensation.
The Company entered into a consulting contract with Larry E. Clark, its Chairman, effective April 1, 2001, pursuant to which the Company compensates the Chairman $2,000 per month in consulting fees. Fees under the contract have historically been accrued until the Company was able to pay the Chairman or issued restricted stock in satisfaction of its obligations to the Chairman.
COMPENSATION COMMITTEE,
INTERLOCKS AND INSIDER PARTICIPATION
The full board of directors of the Company functions as a compensation committee. The board has not specifically designated a separate compensation committee due to the relatively small size of the Company. The board does not have a specific charter to govern its actions as a compensation committee, nor are any members of the board “independent”. Consultant Larry E. Clark, and officers, Ralph Henson and Richard Bruggeman are members of the board of directors. Due to the size of the Company, the risks associated with service on the board of a public company and the limited or negligible compensation available to such directors, the Company considers it unlikely that a qualified person would serve on the board that was truly independent.
2 - paid or reimbursed by Wescor
3 - includes $60,000 reimbursed by Wescor
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The following table furnishes information concerning the common stock ownership of directors, officers, and principal shareholders as of March 5, 2008:
| | Nature of | Number of | |
| Name and Position | Ownership | Shares Owned | Percent |
| | | | |
| Chi Lin Technologies | Direct | 6,043,704 | 32.6% |
| 717 No. 71, Te Lun RD | | | |
| Jen Te Hsian, Taiwan | | | |
| Principal Shareholder | | | |
| | | | |
| Larry E. Clark | Direct | 78,000 | .4% |
| Chairman | Indirect | | 16.0% |
| | Total | 3,037,025 | 16.4% |
| | | | |
| Ralph Henson | Direct | 315,000 | 1.7% |
President, Director, Chief Executive Officer | | | |
| | | | |
| Richard Bruggeman | Direct | | 0.0% |
Director, Chief Financial Officer | Indirect | | 2.9% |
| | Total | 540,362 | 2.9% |
| | | | |
| Sheng Jung Chiang | Indirect | | |
| Director | | | |
| | | | |
| Mao-Song Lee | Indirect | | |
| Director | | | |
| | | | |
| All Executive Officers | Direct | 6,441,324 | 34.8% |
and Directors as a group (5 persons) | Indirect | 3,494,767 | 18.9% |
| | Total | 9,936,091 | 53.6% |
Shares shown in the forgoing table as directly owned are owned beneficially and of record, and such record shareholder has sole voting, investment, and dispositive power. Calculations of the percentage of ownership of shares outstanding in the foregoing table are based on 18,629,493 shares outstanding and assume the exercise of options, to which the percentage relates. Rounding causes differences in totals from percentage ownership shown.
4 Shares held by Larry Clark and Jacquelyn Clark as Trustees of the Larry and Jacquelyn Clark Family Trust.
5 Represents 4,620 shares held in a family trust of which Mr. Bruggeman is Trustee.
6 Shares held by Mr. Bruggeman’s wife.
7 Mr. Chiang is vice president of Chi Lin Technologies Co. Ltd. which holds 6,043,704 shares.
8 Dr. Lee is director of biomedical research of Chi Lin Technologies Co. Ltd. which holds 6,043,704 shares.
Item 13. Certain Relationships and Related Transactions and Director Independence.
No officer, director, nominee for director, or associate of any such officer, director or nominee has been, since the beginning of the last fiscal year, or is presently indebted to the Company. There have been no transactions since the beginning of the Company's last fiscal year, nor are there any proposed transactions, in which any officer, director, nominee or principal security holder has a direct or indirect material interest. None of the directors of the Company are independent.
Item 14. Principal Accountant Fees and Services
The following is a summary of the fees billed to us by Robison, Hill & Company for professional services rendered for the years ended December 31, 2007 and 2006:
| Service | | 2007 | | | 2006 | |
| Audit Fees | | $ | 17,500 | | | $ | 14,350 | |
| Audit-Related Fees | | | - | | | | | |
| Tax Fees | | | 725 | | | | 596 | |
| All Other Fees | | | - | | | | | |
| Total | | $ | 18,225 | | | $ | 14,946 | |
Audit Fees. Consists of fees billed for professional services rendered for the audits of our consolidated financial statements, reviews of our interim consolidated financial statements included in quarterly reports, services performed in connection with filings with the Securities & Exchange Commission and related comfort letters and other services that are normally provided by Robison, Hill & Company in connection with statutory and regulatory filings or engagements.
Tax Fees. Consists of fees billed for professional services for tax compliance, tax advice and tax planning. These services include assistance regarding federal, state and local tax compliance and consultation in connection with various transactions.
Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors. The board is to pre-approve all audit and non-audit services provided by the independent auditors. These services may include audit services, audit-related services, tax services and other services as allowed by law or regulation. Pre-approval is generally provided for up to one year and any pre-approval is as to the particular service or category of services and is generally subject to a specific amount. The independent auditors and management are required to periodically report to the board regarding the extent of services of the independent auditors in accordance with this pre-approval and the fees incurred to date. The board may also pre-approve particular services on a case-by-case basis. The board pre-approved 100% of the Company’s 2006 and 2007 audit fees, audit-related fees, tax fees, and all other fees.
PART IV
Item 15. Exhibits
(1) Financial Statements
| | Page |
| | |
| Independent Registered Public Accountants’ Report (Robison, Hill & Company) | F-1 |
| | |
| Consolidated Balance Sheet as of December 31, 2007 and 2006 | F-3 |
| | |
| Consolidated Statements of Operations for the | |
| Years Ended December 31, 2007 and 2006 | F-4 |
| | |
| Consolidated Statements of Stockholders’ Equity for the | |
| Years Ended December 31, 2007 and 2006 | F-5 |
| | |
| Consolidated Statements of Cash Flows for the | |
| Years Ended December 31, 2007 and 2006 | F-6 |
| | |
| Notes to Consolidated Financial Statements | F-7 |
| | |
(3) Exhibits required by Item 601:
| S-K No. | Description |
| | |
| (31.1) | Sarbanes-Oxley Section 302 Certification – Ralph Henson |
| (31.1) | Sarbanes- Oxley Section 302 Certification- Richard Bruggeman |
| (32.1) | Sarbanes-Oxley Section 906 Certification |
INMEDICA DEVELOPMENT CORPORATION
-:-
INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS’ REPORT
DECEMBER 31, 2007AND 2006
CONTENTS
| | Page |
| | |
| Independent Registered Public Accountants’ Report | F-1 |
| | |
| Consolidated Balance Sheet as of December 31, 2007 and 2006 | F-3 |
| | |
| Consolidated Statements of Operations for the | |
| Years Ended December 31, 2007 and 2006 | F-4 |
| | |
| Consolidated Statements of Stockholders’ Equity for the | |
| Years Ended December 31, 2007 and 2006 | F-5 |
| | |
| Consolidated Statements of Cash Flows for the | |
| Years Ended December 31, 2007 and 2006 | F-6 |
| | |
| Notes to Consolidated Financial Statements | F-7 |
| | |
| | | | |  |
| | | | | |
| Robison, Hill & Co. | | | | Certified Public Accountants |
| A PROFESSIONAL CORPORATION | | | | |
| | | | | Brent M. Davies, CPA |
| | | | | David O. Seal, CPA |
| | | | | W. Dale Westenskow, CPA |
| | | | | Barry D. Loveless, CPA |
| | | | | Stephen M. Halley, CPA |
INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS’ REPORT
To the Board of Directors and Stockholders of
InMedica Development Corporation
We have audited the accompanying consolidated balance sheet of InMedica Development Corporation and subsidiary (the “Company”) as of December 31, 2007 and 2006, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the two years then ended (all expressed in U.S. dollars). These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2007 and 2006, and the results of its operations and its cash flows for the two years then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements for the years ended December 31, 2007 and 2006 have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company’s recurring losses from operations raise substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Robison, Hill & Co.
Certified Public Accountants
Salt Lake City, Utah
March 25, 2008
| INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY | |
| CONSOLIDATED BALANCE SHEET | |
| | | | | | | |
| | | December 31, | | | December 31, | |
| | | 2007 | | | 2006 | |
| ASSETS | | | | | | |
| Current Assets | | | | | | |
| Cash & Cash Equivalents | | $ | 2,706 | | | $ | 34,079 | |
| Prepaid Expenses & Other | | | 200 | | | | 200 | |
| Notes Receivable Current, net of unamortized discount of $0 and $335 | | | - | | | | - | |
| Total Current Assets | | | 2,906 | | | | 34,279 | |
| | | | | | | | | |
| Equipment & Furniture, at Cost, | | | | | | | | |
| Less Accumulated Depreciation of $254,856 | | | | | | | | |
| and $254,363, respectively | | | 365 | | | | 858 | |
| | | | | | | | | |
| TOTAL ASSETS | | $ | 3,271 | | | $ | 35,137 | |
| | | | | | | | | |
| LIABILITIES & STOCKHOLDER'S EQUITY | | | | | | | | |
| Current Liabilities | | | | | | | | |
| Related Party Consulting Fees Payable | | $ | 78,000 | | | $ | 54,000 | |
| Accounts Payable | | | 5,503 | | | | - | |
| Accrued Interest | | | 16,495 | | | | 2,910 | |
| Related Party Royalty Payable | | | 73,333 | | | | 33,333 | |
| Preferred Stock Dividends Payable | | | 49,177 | | | | 41,612 | |
| Short-Term Notes Payable | | | - | | | | - | |
| Current Portion of Long-Term Debt | | | 60,617 | | | | - | |
| Total Current Liabilities | | | 283,125 | | | | 131,855 | |
| | | | | | | | | |
| Long- Term Convertible Promissory Note | | | 140,000 | | | | 107,286 | |
| | | | | | | | | |
| Total Liabilities | | | 423,125 | | | | 239,141 | |
| | | | | | | | | |
| Minority Interest | | | (191,668 | ) | | | (93,362 | ) |
| | | | | | | | | |
| Stockholders' Equity | | | | | | | | |
| Preferred Stock, 10,000,000 shares authorized; Series A cumulative | | | | | | | | |
| convertible preferred stock, 8% cumulative, $4.50 par value, | | | | | | | | |
| 1,000,000 shares designated, 21,016 shares outstanding (aggregate | | | | | | | | |
| liquidation preference of $143,750) | | | 94,573 | | | | 94,573 | |
| Common Stock, $.001 par value: 40,000,000 shares authorized, | | | | | | | | |
| 18,629,493 and 18,629,493.share outstanding | | | 18,629 | | | | 18,629 | |
| Additional Paid-in Capital | | | 8,426,839 | | | | 8,426,839 | |
| Accumulated Deficit | | | (8,768,227 | ) | | | (8,650,683 | ) |
| Total Stockholders' Equity | | | (228,186 | ) | | | (110,642 | ) |
| | | | | | | | | |
| TOTAL LIABILITIES & STOCKHOLDERS' EQUITY | | $ | 3,271 | | | $ | 35,137 | |
| | | | | | | | | |
| | | | | | | | | |
| The accompanying notes are an integral part of these financial statements. | |
| INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY | |
| CONSOLIDATED STATEMENTS OF OPERATIONS | |
| | | | | | | |
| | | | | | | |
| | | For the Years Ended | |
| | | December 31, | |
| | | 2007 | | | 2006 | |
| | | | | | | |
| ROYALTY REVENUES | | $ | - | | | $ | - | |
| | | | | | | | | |
| OPERATING EXPENSES | | | | | | | | |
| General & Administrative | | | 194,699 | | | | 199,955 | |
| Research & Development | | | - | | | | - | |
| Total Operating Expense | | | 194,699 | | | | 199,955 | |
| | | | | | | | | |
| LOSS FROM OPERATIONS | | | (194,699 | ) | | | (199,955 | ) |
| | | | | | | | | |
| OTHER INCOME (EXPENSE) | | | | | | | | |
| Interest Income | | | - | | | | 335 | |
| Interest Expense | | | (13,586 | ) | | | (2,478 | ) |
| Other Income | | | - | | | | - | |
| Total Other Income (Expenses), Net | | | (13,586 | ) | | | (2,143 | ) |
| | | | | | | | | |
| INCOME (LOSS) BEFORE MINORITY INTEREST | | | (208,285 | ) | | | (202,098 | ) |
| | | | | | | | | |
| MINORITY INTEREST | | | 98,307 | | | | 85,694 | |
| | | | | | | | | |
| NET INCOME (LOSS) | | | (109,978 | ) | | | (116,404 | ) |
| | | | | | | | | |
| PREFERRED STOCK DIVIDENDS | | | (7,566 | ) | | | (7,566 | ) |
| | | | | | | | | |
| NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS | | $ | (117,544 | ) | | $ | (123,970 | ) |
| | | | | | | | | |
| NET INCOME (LOSS) PER COMMON SHARE (BASIC & DILUTED) | | $ | (0.01 | ) | | $ | (0.01 | ) |
| | | | | | | | | |
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | | | | | | | | |
| BASIC | | | 18,629,493 | | | | 18,278,808 | |
| DILUTED | | | 18,661,017 | | | | 18,310,332 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| The accompanying notes are an integral part of these financial statements. | |
| INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY | |
| CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY | |
| FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | Additional | | | | |
| | | Preferred Stock | | | | | | Common Stock | | | | | | Paid-in | | | Accumulated | |
| | | Shares | | | Amount | | | Shares | | | Amount | | | Capital | | | Deficit | |
| | | | | | | | | | | | | | | | | | | |
| Balance, January 1, 2006 | | | 21,016 | | | $ | 94,573 | | | | 18,129,493 | | | $ | 18,129 | | | $ | 8,377,339 | | | $ | (8,526,713 | ) |
| Common stock issued for | | | | | | | | | | | | | | | | | | | | | | | - | |
| Convertible promissory notes | | | - | | | | - | | | | 500,000 | | | | 500 | | | | 49,500 | | | | - | |
| Preferred stock dividends | | | - | | | | - | | | | - | | | | - | | | | - | | | | (7,566 | ) |
| Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | (116,404 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2006 | | | 21,016 | | | | 94,573 | | | | 18,629,493 | | | | 18,629 | | | | 8,426,839 | | | | (8,650,683 | ) |
| Preferred stock dividends | | | - | | | | - | | | | - | | | | - | | | | - | | | | (7,566 | ) |
| Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | (109,978 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2007 | | | 21,016 | | | $ | 94,573 | | | | 18,629,493 | | | $ | 18,629 | | | $ | 8,426,839 | | | $ | (8,768,227 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these financial statements.
| INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY | |
| CONSOLIDATED STATEMENTS OF CASH FLOWS | |
| | | | | | | |
| | | For the Years Ended | |
| | | December 31, | |
| | | 2007 | | | 2006 | |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | |
| Net Income (Loss) | | $ | (109,978 | ) | | $ | (116,404 | ) |
| Adjustments to reconcile net loss to net cash used in | | | | | | | | |
| operating activities: | | | | | | | | |
| Depreciation and amortization | | | 493 | | | | 635 | |
| Subsidiary Shares issued in exchange for Research & Development Costs | | | - | | | | - | |
| Interest income from amortization or discount on notes receivable | | | - | | | | (335 | ) |
| Minority interest in losses | | | (98,307 | ) | | | (85,694 | ) |
| Changes in assets and liabilities: | | | | | | | | |
| Related party consulting fees payable | | | 24,000 | | | | 24,000 | |
| Accounts payable | | | 5,503 | | | | (477 | ) |
| Accrued Interest | | | 13,585 | | | | 2,313 | |
| Related Party Royalty Payable | | | 40,000 | | | | 33,333 | |
| Accrued payroll and related taxes | | | - | | | | (5,553 | ) |
| Net cash used in operating activities | | | (124,704 | ) | | | (148,182 | ) |
| | | | | | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | |
| Purchase of Equipment | | | - | | | | - | |
| Proceeds from note receivable | | | - | | | | 45,000 | |
| Net cash provided by (used in) investing activities | | | - | | | | 45,000 | |
| | | | | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | |
| Proceeds from notes payable | | | 93,331 | | | | 94,286 | |
| Payments on notes payable | | | - | | | | (8,910 | ) |
| Proceeds from sale of common stock | | | - | | | | - | |
| Net cash provided by (used in) financing activities | | | 93,331 | | | | 85,376 | |
| | | | | | | | | |
| NET INCREASE IN CASH | | | (31,373 | ) | | | (17,806 | ) |
| CASH AT BEGINNING OF THE YEAR | | | 34,079 | | | | 51,885 | |
| CASH AT END OF THE YEAR | | $ | 2,706 | | | $ | 34,079 | |
| | | | | | | | | |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW | | | | | | | | |
| Cash paid during the year for interest | | $ | - | | | $ | 1,720 | |
| Cash paid during the year for income taxes | | $ | 200 | | | $ | 200 | |
| | | | | | | | | |
| SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING & FINANCING ACTIVITIES | | | | | | | | |
| Convertible promissory notes exchanged for 500,000 shares of common stock | | $ | - | | | $ | 50,000 | |
| Sale of Subsidiary stock for notes receivable | | $ | - | | | $ | - | |
| | | | | | | | | |
| The accompanying notes are an integral part of these financial statements. | |
| | |
INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDING DECEMBER 31, 2007 AND 2006
NOTE 1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
InMedica Development Corporation ("InMedica") and its majority-owned subsidiary, MicroCor, Inc. ("MicroCor") (collectively referred to as the "Company"), historically have engaged in the research, development and sale of medical technology and fund raising to support such activities. During the years 1986 and 1987, MicroCor developed and marketed a portable electrocardiograph ("ECG") monitor and manufactured and sold about 450 units. In July 1989, MicroCor signed a research and development contract with Johnson and Johnson Medical, Inc. ("Johnson and Johnson") for further development of the ECG technology. As a result of the agreement, Johnson and Johnson manufactured and marketed a product line under the name of Dinamap PlusTM which incorporated the Company's ECG technology. Royalties received from Johnson and Johnson were the Company's sole source of revenue through the year 2000. In 2001, Johnson and Johnson stopped manufacturing and marketing the Dinamap PlusTM product line; therefore, MicroCor no longer receives royalties from Johnson and Johnson.
Since 1989, the Company has engaged in research and development of a device to measure hematocrit non-invasively (the "Non-Invasive Hematocrit Technology" and/or the “Technology”). Hematocrit is the percentage of red blood cells in a given volume of blood. At the present time, the test for hematocrit is performed invasively by drawing blood from the patient and testing the blood sample in the laboratory. The Hematocrit Technology is owned by MicroCor, Inc., which is a 57% owned subsidiary of the Company. Other owners of the subsidiary are Wescor, Inc. (29%) and Chi Lin Technologies Company, Ltd. (14%). The Company has the right to appoint three of five directors of MicorCor and each of the other owners has the right to appoint one director of MicroCor. To date the research and development of MicroCor, its various engineers, affiliates and contractors, including Wescor, has not completed a prototype suitable for commercialization. Commercialization of the Non-Invasive Hematocrit Technology is dependent upon favorable testing, Food and Drug Administration (“FDA”) approval, financing of further research and development and, if warranted, financing of manufacturing and marketing activities.
Basis of Presentation
The Company’s consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The consolidated financial statements do not include any adjustment relating to recoverability and classification of recorded amounts of assets and liabilities that might be necessary should the Company be unable to continue as a going concern. The Company generated negative cash flows from operations of $124,704 and $148,182 in 2007 and 2006,
INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDING DECEMBER 31, 2007 AND 2006
NOTE 1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation (Continued)
respectively, and net losses from operations of $109,978 and $116,404 in 2007 and 2006, respectively. As of December 31, 2007 the Company had an accumulated deficit of $8,768,227 and a stockholders’ deficit of $228,186. These conditions raise substantial doubt as to the Company's ability to continue as a going concern. The Company's continued existence is dependent upon its ability to execute its operating plan and to obtain additional debt or equity financing. There can be no assurance the necessary debt or equity financing will be available, or will be available on terms acceptable to the Company. Management's operating plan includes pursuing additional fund raising as well as research and development.
Patents
The Company has four patents covering various aspects of its Technology which expire from 2007 to 2013.
Principles of Consolidation
The consolidated financial statements include the accounts of InMedica and MicroCor. All material inter-company accounts and transactions have been eliminated.
Revenue Recognition
The Company accounts for income taxes using the asset and liability method. Deferred income taxes are determined based on the estimated future tax effects of differences between the financial reporting and tax reporting bases of assets and liabilities given the provisions of currently enacted tax laws. A valuation allowance is provided when it is more likely than not that all or some portion of the deferred income tax assets will not be realized.
Equipment and Furniture
Equipment and furniture are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets which range from three to five years.
| Equipment and Furniture consist of the following: | | December 31, | |
| | | 2007 | | | 2006 | |
Equipment | | $ | 244,033 | | | $ | 244,033 | |
Furniture | | | 11,188 | | | | 11,188 | |
| | | | 255,221 | | | | 255,221 | |
Less accumulated depreciation | | | (254,856 | ) | | | (254,363 | ) |
Total | | $ | 365 | | | $ | 858 | |
INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDING DECEMBER 31, 2007 AND 2006
NOTE 1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Equipment and Furniture (Continued)
Depreciation expense for the years ended December 31, 2007 and 2006 was $493 and $635, respectively.
Research and Development
Research and development costs are expensed as incurred.
Net Loss Per Common Share
Basic net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the year. Diluted net loss per common share ("Diluted EPS") reflects the potential dilution that could occur if stock options or other common stock equivalents were exercised or converted into common stock. At December 31, 2007and 2006, respectively, there were 31,524 and 31,524 potentially dilutive common stock equivalents. The computation of Diluted EPS does not assume exercise or conversion of securities that would have an anti-dilutive effect on net loss per common share.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Comprehensive Income
There are no components of comprehensive income other than the net loss.
Cash Equivalents
For the purpose of reporting cash flows, the Company considers all highly liquid debt instruments purchased with maturity of three months or less to be cash equivalents to the extent the funds are not being held for investment purposes.
INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDING DECEMBER 31, 2007 AND 2006
NOTE 1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Concentration of Credit Risk
The Company has no significant off-balance-sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements. The Company maintains the majority of its cash balances with one financial institution, in the form of demand deposits.
Fair Value of Financial Instruments
The carrying value of the Company's financial instruments, including receivables, accounts payable, accrued liabilities, and notes payable at December 31, 2007 and 2006 approximates their fair values due to the short-term nature of these financial instruments.
Recent Accounting Standards
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" ("SFAS 159"). SFAS 159 provides companies with an option to report selected financial assets and liabilities at fair value. The objective of SFAS 159 is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. Generally accepted accounting principles have required different measurement attributes for different assets and liabilities that can create artificial volatility in earnings. The FASB has indicated it believes that SFAS 159 helps to mitigate this type of accounting-induced volatility by enabling companies to report related assets and liabilities at fair value, which would likely reduce the need for companies to comply with detailed rules for hedge accounting. SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 does not eliminate disclosure requirements included in other accounting standards, including requirements for disclosures about fair value measurements included in SFAS 157 and SFAS No. 107, "Disclosures about Fair Value of Financial Instruments." SFAS 159 is effective for the Company as of the beginning of fiscal year 2008. The adoption of this pronouncement is not expected to have an impact on the Company's financial position, results of operations or cash flows.
INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDING DECEMBER 31, 2007 AND 2006
NOTE 1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Standards (Continued)
In December 2007, the FASB issued No. 160, “Noncontrolling Interests in Financial Statements, an amendment of ARB No. 51" (“SFAS 160"). SFAS 160 amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. This Statement is effective for fiscal years beginning on or after December 15, 2008. Early adoption is not permitted. Management is currently evaluating the effects of this statement, but it is not expected to have any impact on the Company’s financial statements.
In December 2007, the FASB issued No. 141(R), “Business Combinations” (“SFAS 141(R)”. SFAS 141(R) provides companies with principles and requirements on how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree as well as the recognition and measurement of goodwill acquired in a business combination. SFAS 141(R) also requires certain disclosures to enable users of the financial statements to evaluate the nature and financial effects of the business combination. Acquisition costs associated with the business combination will generally be expensed as incurred. SFAS 141(R) is effective for business combinations occurring in fiscal years beginning after December 15, 2008, which will require the Company to adopt these provisions for business combinations occurring in fiscal 2009 and thereafter. Early adoption of SFAS 141(R) is not permitted. Management is currently evaluating the effects of this statement, but it is not expected to have any impact on the Company’s financial statements.
In March 2008, the FASB issued No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133. (“SFAS 161"). SFAS 161 requires enhanced disclosures about an entity's derivative and hedging activities and thereby improves the transparency of financial reporting. This Statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. This Statement encourages, but does not require, comparative disclosures for earlier periods at initial adoption. Management is currently evaluating the effects of this statement, but it is not expected to have any impact on the Company’s financial statements.
INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDING DECEMBER 31, 2007 AND 2006
NOTE 2 - NOTES PAYABLE
Notes payable consisted of the following:
| | | December 31, | | | December 31, | |
| | | 2007 | | | 2006 | |
| WesCor, Inc. Overhead Note, | | | | | | |
| Due December 12, 2010 including interest | | | | | | |
| at prime (7.50% at December 31, 2007) | | | | | | |
| Unsecured convertible at $.10 per share | | $ | 140,000 | | | $ | 47,284 | |
| | | | | | | | | |
| WesCor, Inc. Secured Convertible Promissory Note, | | | | | | | | |
| Due March 6, 2008 including interest | | | | | | | | |
| at prime plus 2 9.50% at December 31, 2007) | | | | | | | | |
| Unsecured convertible at $.10 per share | | | 60,617 | | | | 60,002 | |
| | | | | | | | | |
| Less Current Portion | | | (60,617 | ) | | | - | |
| | | | | | | | | |
| Total Long-Term Convertible Promissory Notes | | $ | 140,000 | | | $ | 107,286 | |
| | | | | | | | | |
NOTE 3 - INCOME TAXES
Deferred income tax assets consisted of the following:
| | | December 31, | | | December 31, | |
| | | 2007 | | | 2006 | |
| | | | | | | |
| Net operating loss carryforwards | | $ | 760,884 | | | $ | 999,438 | |
| Future deductions temporary differences related | | | | | | | | |
| to compensation, reserves, and accruals | | | 6,995 | | | | 8,169 | |
| Less valuation allowance | | | (767,879 | ) | | | (1,007,607 | ) |
| Deferred income tax assets | | $ | - | | | $ | - | |
| | | | | | | | | |
The valuation allowance decreased $239,728 in 2007. At December 31, 2007, the Company has consolidated net operating loss carryforwards for federal income tax purposes of $2,355,678. These net operating loss carryforwards expire at various dates beginning in 2008 through 2027. Due to the uncertainty with respect to ultimate realization, the Company has established a valuation allowance for all deferred income tax assets.
INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDING DECEMBER 31, 2007AND 2006
NOTE 4 - COMMON STOCK TRANSACTIONS
During the last three years the Company made the following sales of unregistered common stock in reliance upon Section 4(2) of the Securities Act of 1933:
| Date | Shares | Shareholder | Price |
| October 6, 2006 | 150,000 | Dean A. Clark, Trustee | $ | 15,000 |
| October 6, 2006 | 150,000 | David P. Martin | $ | 15,000 |
| October 6, 2006 | 95,000 | Julie P. Cheney | $ | 9,500 |
| October 6, 2006 | 95,000 | Lloyd A. Hardcastle | $ | 9,500 |
| October 6, 2006 | 10,000 | Michael L. Schwab | $ | 1,000 |
| May 2, 2005 | 715,500 | Chi Lin Technology Company, Ltd | $ | 71,550 |
| January 24, 2005 | 440,000 | Larry E. Clark | $ | 44,000 |
| January 19, 2005 | 101,000 | Richard Bruggeman | $ | 10,100 |
| January 11, 2005 | 125,000 | Dean Clark | $ | 12,500 |
| January 4, 2005 | 125,000 | Dave Martin | $ | 12,500 |
NOTE 5 - STOCK OPTIONS
Other Stock Options
During 1995 through 2000, non-qualified options were issued to employees and consultants for services. All options are exercisable upon granting. A summary of this stock option activity for 2007 was as follows:
| | | | | | Weighted | |
| | | | | | Average | |
| | | Option | | | Exercise | |
| | | Shares | | | Price | |
| Outstanding at January 1, 2006 | | $ | 37,500 | | | $ | 1.22 | |
| Granted | | | - | | | | - | |
| Forfeited or expired | | | (37,500 | ) | | | 1.22 | |
| | | | | | | | | |
| Outstanding at December 31, 2006 | | | - | | | | - | |
| Granted | | | - | | | | - | |
| Forfeited or expired | | | - | | | | - | |
| | | | | | | | | |
| Outstanding at December 31, 2007 | | $ | - | | | $ | - | |
| | | | | | | | | |
INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDING DECEMBER 31, 2007 AND 2006
NOTE 5 - STOCK OPTIONS (continued)
Other Stock Options (continued)
The following table summarizes information about stock options issued to employees outstanding at December 31, 2007:
| Options Outstanding | | Options Exercisable |
| | | | | Weighted | | | | | | |
| | | | | Average | | Weighted | | | | Weighted |
| Range of | | | | Contractual | | Average | | | | Average |
| Exercise | | Number | | Life | | Exercise | | Number | | Exercise |
| Prices | | Outstanding | | (in years) | | Price | | Exercisable | | Price |
| $ - | | - | | - | | $ - | | - | | - |
| | | | | | | | | | | |
The following table summarizes information about stock options issued to non-employees outstanding at December 31, 2007:
| Options Outstanding | | Options Exercisable |
| | | | | Weighted | | | | | | |
| | | | | Average | | Weighted | | | | Weighted |
| Range of | | | | Contractual | | Average | | | | Average |
| Exercise | | Number | | Life | | Exercise | | Number | | Exercise |
| Prices | | Outstanding | | (in years) | | Price | | Exercisable | | Price |
| $ - | | - | | - | | $ - | | - | | - |
| | | | | | | | | | | |
NOTE 6 - PREFERRED STOCK
The Company is authorized to issue 10,000,000 shares of preferred stock. The Company's board of directors designated 1,000,000 shares of this preferred stock as Series A Cumulative Convertible Preferred Stock ("Series A Preferred") with a par value of $4.50 per share. Holders of the Series A Preferred receive annual cumulative dividends of eight percent, payable quarterly, which dividends are required to be fully paid or set aside before any other dividend on any class or series of stock of the Company is paid. As of December 31, 2007, cumulative preferred stock dividends payable in the amount of $49,177, or $2.34 per share are due and payable. Holders of the Series A Preferred receive no voting rights but do receive a liquidation preference of $4.50 per share, plus accrued and unpaid dividends. Series A Preferred stockholders have the right to convert each share of Series A Preferred to the Company's common stock at a rate of 1.5 common shares to 1 preferred share.
INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDING DECEMBER 31, 2007 AND 2006
NOTE 7 – EARNINGS PER SHARE
The following data show the amounts used in computing earnings per share and the effect on income and the weighted average number of shares of dilutive potential common stock
| | | For the Years Ended | |
| | | December 31, | |
| | | 2007 | | | 2006 | |
| | | | | | | |
| Net Income (Loss) | | $ | (109,978 | ) | | $ | (116,404 | ) |
| Less: preferred dividends | | | (7,566 | ) | | | (7,566 | ) |
| | | | | | | | | |
| Income (Loss) available to common stockholders used in basic EPS | | $ | (117,544 | ) | | $ | (123,970 | ) |
| | | | | | | | | |
| Convertible preferred stock | | | 7,566 | | | | 7,566 | |
| Convertible notes payable | | | - | | | | - | |
| Income (Loss) available to common stockholders after assumed | | | | | | | | |
| Conversion of dilutive securities | | $ | (109,978 | ) | | $ | (116,404 | ) |
| | | | | | | | | |
| Weighted average number of common shares used in basic EPS | | | 18,629,493 | | | | 18,278,808 | |
| Effect of dilutive securities: | | | | | | | | |
| Convertible preferred stock | | | 31,524 | | | | 31,524 | |
| Convertible notes payable | | | - | | | | - | |
| Options | | | - | | | | - | |
| Weighted average number of common shares and dilutive potential | | | | | | | | |
| common stock used in diluted EPS | | | 18,661,017 | | | | 18,310,332 | |
NOTE 8 - RELATED PARTY TRANSACTIONS
The Company has a consulting arrangement with an entity owned by the Company's chairman whereby the Company agreed to pay $2,000 per month. Either party can terminate the arrangement at any time upon 30 days prior notice. Accrued but unpaid consulting fees do not bear interest. During 2006, $44,000 in accrued consulting was paid under this agreement. As of December 31, 2007, $78,000, was owed under the arrangement.
Wescor has loaned to MicroCor sufficient funds to enable Microcor to pay one half of the minimum royalty owing to InMedica under the Joint Development Agreement. Funds from the minimum royalty are used by InMedica to fund administrative expenses of the Company. Repayment of the loan to Wescor by MicroCor is secured by a 20% security interest in any future revenues from the sale of the hematocrit technology by MicroCor, until the loan is repaid in full.
INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDING DECEMBER 31, 2007 AND 2006
NOTE 9 - JOINT DEVELOPMENT AGREEMENT
Effective September 7, 2004, InMedica and MicroCor entered into the Joint Development Agreement pursuant to which Wescor, a Utah medical technology company ("Wescor") assumed responsibility for the day to day operation of MicroCor and the conduct of research and development of the Hematocrit Technology. The Agreement provides that in the event Wescor is successful in producing a working prototype using the hematocrit technology, capable of meeting FDA GMP requirements suitable for conducting clinical trials (Phase1), MicroCor will issue 500,000 additional restricted shares of MicroCor stock to Wescor. Thereafter if Wescor completes clinical trials and obtains the FDA's clearance to market such products (Phase 2), 500,000 additional restricted shares of MicroCor stock will be issued to Wescor by MicroCor. Then, upon manufacturing and initial introduction into the US market of such products (Phase 3), MicroCor will issue to Wescor an additional 700,000 restricted shares of its stock, giving Wescor a total of 49% of the issued and outstanding stock of MicroCor. These additional shares to be issued to Wescor will be in consideration of each Phase of development work by Wescor. The determination of Wescor's completion of the above three Phases will be made by MicroCor's board which is controlled by InMedica. In the event of a disagreement between the parties as to fulfillment of the above standards, the parties intend to negotiate in good faith to resolve the matter.
The number of shares to be issued by MicroCor to Wescor for services has been determined during a process of arms length negotiation between InMedica and Wescor. During such negotiations, the board of directors of InMedica considered the need for funding to continue development of the hematocrit technology, the Company's present financial condition (ie. lack of cash flow, limited capital assets and limited borrowing capacity), the lack of interest expressed by the larger companies contacted by the board of directors (in the absence of an FDA cleared prototype), the lack of present capacity of the smaller companies contacted by the board (other than Wescor) and the reputation and experience of Wescor in development of medical technology. Based on these considerations, the board concluded that, in its judgment, the Agreement should be pursued. The initial 500,000 restricted shares of MicroCor were issued to Wescor during the third quarter of 2005.
INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDING DECEMBER 31, 2007 AND 2006
NOTE 9 - JOINT DEVELOPMENT AGREEMENT (Continued)
Upon completion of Phase 2, and again upon completion of Phase 3, Wescor will have the option to purchase all (but not less than all) the remaining stock of MicroCor from InMedica and Chi Lin, for 90 days. The buyout price to Wescor for the remaining MicroCor shares will be 90% of an appraised value or a value suggested by Wescor. Wescor will choose the appraiser subject to the right of InMedica and Chi Lin to object to the selection. In the case of an objection Wescor will make another selection until the parties are in agreement. Following receipt of Wescor's notice of appraised value or suggested value, InMedica and Chi Lin will have the right to obtain a fairness opinion at their expense, before acting on Wescor's offer. The fairness opinion of the value of the MircoCor stock will be obtained from a business valuation expert, chosen by InMedica and Chi Lin, as to which Wescor has no reasonable objection. If the fairness opinion reports that Wescor's appraised or suggested value is not within a fair range, Wescor's option to purchase the balance of the MicroCor stock from Chi Lin and InMedica will terminate. However, if Wescor's appraised or suggested value is determined by the fairness opinion to be within a fair range, InMedica and Chi Lin will still have the opportunity to acquire the complete ownership of MicroCor through a "trump" option allowing them to offer to purchase all of the shares of MicroCor owned by Wescor at 110% of Wescor's appraised value or suggested value. In such case, Wescor may chose to sell its ownership of MicroCor to InMedica and Chi Lin or may revive its first option by a notice to InMedica and Chi Lin increasing the purchase price so as to be based on at least 110% of the valuation used as the trump option value by InMedica and Chi Lin. This option procedure, essentially bidding for the right to purchase all of the MicroCor stock, may be repeated as many times as is necessary until a purchaser has been determined. If Wescor is ultimately the purchaser, the Agreement will terminate except for the royalty rights of InMedica and Chi Lin. Wescor has also been granted a right of first refusal in the event of a bona fide third party offer to acquire MicroCor.
INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDING DECEMBER 31, 2007 AND 2006
NOTE 10 - ROYALTY RIGHTS
In connection with the Joint Development Agreement, MicroCor has granted certain revenue royalty rights to InMedica and Chi Lin under the Agreement based on future annual revenues from the hematocrit technology and calculated as follows: Annual royalties will equal the sum of four percent (4%) of the first $5,000,000 in sales and licensing revenues, three percent (3%) of sales and licensing revenues in amounts exceeding $5,000,000 but not exceeding $20,000,000, and two percent (2%) of sales and licensing revenues in amounts exceeding $20,000,000; plus (ii) twenty five percent (25%) of all royalty revenues (revenues from licensing of the hematocrit technology to others). The total royalties are split between InMedica and Chi Lin with InMedica receiving a percentage of total royalties equal to a fraction, the numerator of which is the total world revenues from sales of the hematocrit technology, less the revenues from sales in Asia; and the denominator of which is the total world revenues from sales. The Chi Lin royalty is a percentage of total royalties equal to a fraction, the numerator of which is revenue from sales in Asia; and the denominator of which is the total world revenues from sales. Asia is defined to mean Australia, New Zealand and the countries of Asia (including without limitation, Indonesia, Malaysia and the island countries of the Western Pacific Rim; but excluding Russia, Turkey and the countries of the Middle East from Iran and to the west). Further, a minimum royalty of $200,000 per year begins 18 months after the effective date and is payable by MicroCor to InMedica and Chi Lin on an 80%-20% basis without regard to whether actual sales have been made. However in the event that any party (including Wescor) or a third party acquires eighty percent control of MicroCor, the new control party has the right to buy out the royalty rights from InMedica and Chi Lin for $1,000,000 or 100% of five times the sum of the minimum royalty payments for the immediately preceding 12 months, whichever is greater. The buyout proceeds would be shared 80%-20% by InMedica and Chi Lin. At the present time, MicroCor is paying 50% of the minimum royalty to InMedica and Chi Lin is deferring its minimum royalty amounts.
NOTE 11 – UNCERTAIN TAX POSITIONS
Effective January 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The adoption of the provisions of FIN 48 did not have a material impact on the company’s condensed consolidated financial position and results of operations. At January 1, 2007, the company had no liability for unrecognized tax benefits and no accrual for the payment of related interest.
INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDING DECEMBER 31, 2007 AND 2006
NOTE 11 – UNCERTAIN TAX POSITIONS (continued)
Interest costs related to unrecognized tax benefits are classified as “Interest expense, net” in the accompanying consolidated statements of operations. Penalties, if any, would be recognized as a component of “Selling, general and administrative expenses”. The Company recognized $0 of interest expense related to unrecognized tax benefits for the year ended December 31, 2007. In many cases the company’s uncertain tax positions are related to tax years that remain subject to examination by relevant tax authorities. With few exceptions, the company is generally no longer subject to U.S. federal, state, local or non-U.S. income tax examinations by tax authorities for years before 2004. The following describes the open tax years, by major tax jurisdiction, as of January 1, 2007:
| United States (a) | | 2004 – Present |
| | | |
| (a) Includes federal as well as state or similar local jurisdictions, as applicable. |
NOTE 12 – SUBSEQUENT EVENT.
Wescor recently advised the Company and Chi Lin that its parent corporation is interested in shifting Wescor’s resources presently dedicated to the research and development of the Hematocrit Technology to other projects. As a result, Wescor may be interested in bringing on a new partner to conduct research and development or perhaps selling its interest in the Technology, although Wescor continues to fund research and development at this time under the terms of the Joint Development Agreement. The Company is presently discussing the matter with Wescor. No present plans or commitments for other alternatives have been made.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
INMEDICA DEVELOPMENT CORPORATION
| Date: March 26, 2008 | By | /s/ Ralph Henson |
| | | RALPH HENSON, |
| | | President & Chief Executive Officer |
| | | |
| | By | /s/ Richard Bruggeman |
| | | RICHARD BRUGGEMAN |
| | | Chief Financial Officer |
In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| /s/ Larry E. Clark | DATE: March 28, 2008 |
| LARRY E. CLARK, Director | |
| | |
| | |
| /s/ Richard Bruggeman | DATE: March 26, 2008 |
| RICHARD BRUGGEMAN, Director | |
| | |
| | |
/s/ Ralph Henson | DATE: March 26, 2008 |
| RALPH HENSON, Director | |
| | |
| | |
| /s/ Sheng Jung Chiang | DATE: March 31, 2008 |
| SHENG JUNG CHIANG, Director | |
| | |
| | |
| /s/ Mao-Song Lee | DATE March 31, 2008 |
| Mao-Song Lee, Director | |
EXHIBIT INDEX – INMEDICA DEVELOPMENT CORPORATION
FORM 10-K – FOR THE YEAR ENDED DECEMBER 31, 2007
| Exhibit 31.1 | CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 – Ralph Henson |
| Exhibit 31.2 | CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 – Richard Bruggeman |
| Exhibit 32.1 | CERTIFICATE PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 |
