U.S. SECURITIES AND EXCHANGE COMMISSION --------------------------------------- Washington, D.C. 20549 ----------------------- Form 10 - QSB -------------- Quarterly Report Under Section 13 or 15 (d) ------------------------------------------- of the Securities Exchange Act of 1934 -------------------------------------- For the Quarterly Period Ended June 30, 1995 -------------------------------------------- Commission File No. 0-12968 --------------------------- INMEDICA DEVELOPMENT CORPORATION -------------------------------- (Exact name of small business issuer as specified in its charter) ----------------------------------------------------------------- Utah 87-0397815 ------------------------------- ------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification incorporation of organization) Number) P.O. Box 27557, Salt Lake City Utah 84127 ------------------------------------------ (Address of principal executive offices) Registrant's telephone number including area code (801) 261-5657 ----------------------------------------------------------------- Check whether the issuer (1) filed all reports required to be filed by section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes X No --- --- The number of shares outstanding of the registrant's only class of common stock, par value $.001 per share, as of July 31, 1995 was 7,478,903 shares. -------------------------------------------------------------------------------- 1 PART I - FINANCIAL INFORMATION Page 1 of 2 ------------------------------ Item 1. Financial Statements INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 1995 ASSETS June 30, 1995 ----------- (Unaudited) CURRENT ASSETS: Cash $ 98,272 Accounts Receivable 30,765 Prepaid expenses 12,014 -------- Total current assets 141,051 IDLE EQUIPMENT AND FURNITURE, at cost, less accumulated depreciation of $237,462 18,288 OTHER ASSETS 2,197 -------- Total assets $161,536 ======== See notes to condensed consolidated financial statements. 2 Page 2 of 2 INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JUNE, 1, 1995 LIABILITIES AND STOCKHOLDERS' DEFICIT June 30, 1995 ----------- (Unaudited) CURRENT LIABILITIES: Convertible debentures $1,012,503 Convertible debenture due to related party 23,502 Accrued interest 43,104 Accrued payroll 12,667 Accounts payable 41,106 ---------- Total current liabilities 1,132,882 ---------- STOCKHOLDERS' DEFICIT: Common stock, $.001 par value; authorized 20,000,000 shares, issued and outstanding 7,478,903 at June 30, 1995 7,479 Additional paid-in capital 6,020,702 Accumulated deficit (6,999,527) ----------- Total stockholders' deficit (971,346) ----------- Total liabilities and stockholders' deficit $ 161,536 =========== See notes to condensed consolidated financial statements. 3 INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS For the Six Months Ended June 30, ------------------------------ 1995 1994 -------- -------- (Unaudited) (Unaudited) OPERATING REVENUE: Royalties $141,214 $249,250 Sales -0- -0- -------- -------- Total operating revenue 141,214 249,250 -------- -------- OPERATING EXPENSES: General and administrative 99,881 92,554 Research and development -0- -0- -------- -------- Total operating expenses 99,881 92,554 -------- -------- INCOME FROM OPERATIONS 41,333 156,696 -------- -------- OTHER INCOME (EXPENSES): Miscellaneous income - 1,510 Interest expense (Note B) (81,210) (95,775) -------- -------- Total other expense (81,210) (94,265) -------- -------- INCOME (LOSS) BEFORE EXTRAORDINARY GAIN $(39,877) 62,431 EXTRAORDINARY GAIN FROM DEBT EXTINGUISHMENT 169,553 - -------- -------- NET INCOME $129,676 62,431 ======== ======== NET INCOME PER COMMON SHARE: Income (loss) before extraordinary gain $ (.01) $ .01 Extraordinaray gain from debt extinguishment .02 - -------- -------- $ .01 $ .01 ======== ======== Weighted average number of common shares outstanding 7,475,194 7,581,338 ========= ========= See notes to condensed consolidated financial statements. 4 Page 1 of 2 INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS INCREASE (DECREASE) IN CASH For the For the Six Months Six Months Ended Ended June 30, 1995 June 30, 1994 ------------- ------------- (Unaudited) (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 129,676 $ 62,431 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation 13,331 14,050 Extraordinary gain from debt extinguishment (169,553) - Change in assets and liabilities- Decrease in accounts receivable 270,610 -0- Decrease in inventory -0- 1,200 Decrease in prepaid expenses 13,010 16,142 Increase in accounts payable 22,305 119 Decrease in accrued payroll (17,276) (23,939) Decrease in consulting fees payable (4,260) -0- Decrease in interest payable (101,930) (153,368) Decrease in royalties payable -0- (5,698) --------- --------- Net cash provided by (used in) operating activities 155,913 (89,063) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from royalty interests -0- -0- --------- --------- Net cash provided by investing activities -0- -0- --------- --------- See notes to condensed consolidated financial statements. 5 Page 2 of 2 INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the For the Six Months Six Months Ended Ended June 30, 1995 June 30, 1994 ------------- ------------- (Unaudited) (Unaudited) CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on convertible debentures (61,059) (1,746) Proceeds from issuance of common stock 338 27,905 -------- -------- Net cash provided by financing activities (60,721) 26,159 --------- -------- NET INCREASE (DECREASE) IN CASH $ 95,192 $(62,904) CASH AT BEGINNING OF PERIOD 3,080 81,669 --------- -------- CASH AT END OF PERIOD $ 98,272 $ 18,765 ========= ======== See notes to condensed consolidated financial statements. 6 INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note A--Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Item 310b of Regulation SB. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These consolidated statements include the accounts of InMedica Development Corporation and its wholly owned subsidiary, MicroCor, Inc. ("MicroCor"). All material intercompany accounts and transactions have been eliminated. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for fair presentation have been included. Operating results for the three-month period ended June 30, 1995 are not necessarily indicative of the results that may be expected for the year ending December 31, 1995. For further information, refer to the consolidated financial statements included in the Company's Form 10-KSB for the year ended December 31, 1994. Note B--Default on Payment of Convertible Debentures The Company sold $300,000 of Series A convertible debentures in 1990 and $800,000 of Series C convertible debentures in 1991. Upon maturity, the Company was required to redeem 100 percent of the original purchase amount of the debentures plus any unpaid accrued interest. These unsecured debentures bore an interest rate of ten percent through September 30, 1992. On March 3, 1993, the Board of Directors authorized an increase in the interest rate on the debentures to 15 percent effective October 1, 1992. The Series A debentures matured on December 31, 1993 and the Series C debentures matured on June 30, 1994. At June 30, 1995, the Company was in default in payment of an aggregate principal amount owing on the Series A and Series C debentures of $1,036,005. On December 11, 1992, certain debenture holders filed a complaint in the Third Judicial District Court in Salt Lake County, in the State of Utah, demanding unpaid principal and interest of $120,740 on the Series A debentures and $177,260 on the Series C debentures. On March 3, 1993 the Board of Directors of the Company passed a resolution that provides for 1) at least 50 percent of all future Critikon royalties to be paid to all debenture holders proportionate to the amount of debentures purchased, 2) an increase 7 in the interest rate on the debentures to 15 percent (effective October 1, 1992), 3) improved communications with debenture holders and 4) completion of an independent technical review of the Company's non-invasive hematocrit technology by July 1, 1993. The Board has completed all but the fourth item. Based on the Board's action, the debenture holders who filed the complaint stated their intention in writing not to proceed further with the litigation at that time. The Company understands that the complaint will be dismissed without prejudice, although it remains pending at this time. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital --------------------- For the six months ended June 30, 1995, operating revenues were generated solely from royalty income received from J & J Medical, Inc. (successor to Critikon). No operating revenues were recognized during the first quarter of 1995 due to the revenue recognition policy of the Company and the timing of the receipt of revenues. Consequently, revenues historically included in the first quarter, were included in the last quarter of 1994. Royalty revenues being received by the Company are insufficient to sustain research and development operations and are inadequate to retire debenture indebtedness which is now due. InMedica is presently committed to pay the debenture holders 50% of the J & J Medical revenues received to be applied to the payment of interest and principal owing. InMedica in unable to estimate whether royalty income would be adequate to retire principal and accrued interest, over time. InMedica intends to continue to look for other funding sources. InMedica has not achieved profitable operations for any period since its organization (except the last fiscal year due to expense reductions and the suspension of further research and development efforts) and has a shareholders' deficit of $971,346 as of June 30, 1995. In order for InMedica to continue its research and development activities, it must secure additional financing, for which it has no commitments. It is impossible to estimate the amount of the J & J Medical royalties which may be received in the future due to uncertainties regarding the future sales of the product being sold by J & J Medical upon which InMedica's royalty is based. InMedica holds a minor investment in another company, in the form of an equity position. Should this investment be liquidated, available cash generated for the use of InMedica's operations would be insignificant. 8 Results of Operations --------------------- See "Liquidity and Capital" for an explanation as to the absence of royalty revenues during the first quarter of 1995, which caused the Company's revenues for the six months ended June 30, 1995 to decline by $108,036 when compared to the revenues for the six months ended June 30, 1994. Significant operating revenues were derived only from royalty income during the six months ended June 30, 1995. Income from operations of $41,333 and the net income of $129,676 for the six month period ended June 30, 1995 resulted notwithstanding the decline in revenues for the period because the Company had an extraordinary gain during the second quarter of $169,533 as a result of the settlement of payroll and consulting fees for substantially less than face value. 9 PART II - OTHER INFORMATION --------------------------- Item 1. Legal Proceedings: None Item 2. Changes in Securities: None Item 3. Defaults Upon Senior Securities: See Note B to the Financial Statements for a description of events of default under the Company's Series A and Series C Convertible Debentures. Item 4. Submission of Matters to a Vote of Security Holders: The Company had an Annual Meeting of the Shareholders on June 16, 1995 which considered a proposal to adopt an amendment to the Company's articles of incorporation to allow the Company to issue up to 10,000,000 shares of preferred stock, the terms and conditions of which are to be determined by the board of directors. The shareholders approved the amendment by a vote of 4,242,920 in favor, 92,320 against and 8,000 abstaining. The shareholders also elected a board of directors consisting of Larry E. Clark, Henry A. Perry and John R. Merendino, each of whom received 4,342,740 votes at the meeting. The shareholders also considered and ratified the appointment of Arthur Andersen LLP to serve as the Company's independent public accountants by a vote of 4,342,240 for, 500 against and 500 abstaining. Item 5. Other Information: None Item 6. Exhibits and reports on Form 8-K: The Company filed a report on Form 8-K dated June 30, 1995 reporting the signing of an agreement with Johnson & Johnson Medical, Inc. (formerly Critikon, Inc.) and an Office Building Lease. Exhibit: (27) Financial Data Schedule 10 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. INMEDICA DEVELOPMENT CORPORATION By Larry E. Clark, Chairman Date: August 10, 1995 By Richard Bruggeman, Treasurer 11