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 September 30, 1996
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)
60 South 600 East, Suite 150, Salt Lake City
Utah 84102 (Address of principal executive offices)
Registrant's telephone number including area code (801) 521-9300
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 November 1, 1996 was 7,745,570 shares.
1
PART I - FINANCIAL INFORMATION Page 1 of 2
- ------------------------------
Item 1. Financial Statements
INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1996
ASSETS
September 30,
1996
(Unaudited)
CURRENT ASSETS:
Cash $ 161,812
Prepaid expenses 6,255
------------
Total current assets 168,067
EQUIPMENT AND FURNITURE,
at cost, less accumulated
depreciation of $249,713 34,777
OTHER ASSETS 2,196
Total assets $ 205,040
============
See notes to condensed consolidated financial statements.
2
Page 2 of 2
INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1996
LIABILITIES AND STOCKHOLDERS' DEFICIT
September 30,
1996
(Unaudited)
CURRENT LIABILITIES:
Current portion of note
payable $ 50,000
Accounts payable and
accrued interest 12,072
Related party notes
payable 25,500
Total current liabilities 87,572
NOTE PAYABLE, less
current portion 385,000
STOCKHOLDERS' DEFICIT:
Common stock, $.001 par value;
20,000,000 shares authorized,
7,745,570 shares outstanding 7,746
Preferred stock, 10,000,000
shares authorized; Series A
preferred stock, cumulative
and convertible, $4.50 par
value, 1,000,000 shares
designated, 67,633 shares
outstanding 304,349
Additional paid-in
capital 6,225,018
Accumulated deficit (6,804,645)
Total stockholders'
deficit ( 267,532)
Total liabilities and
stockholders' deficit $ 205,040
==========
See notes to condensed consolidated financial statements.
3
INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
1996 1995 1996 1995
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
ROYALTIES $ 210,080 179,840 $ 336,480 $ 321,054
----------- ----------- ----------- -----------
OPERATING EXPENSES:
General and
administrative 76,734 64,761 189,148 164,642
Research and
development 21,386 -0- 86,179 -0-
----------- ---------- ---------- ----------
Total operating expenses 98,120 64,761 275,327 164,642
----------- ----------- ----------- ----------
INCOME FROM OPERATIONS 111,960 115,079 61,153 156,412
----------- ----------- ----------- ----------
OTHER (EXPENSE) INCOME:
Interest and other income 489 16 519 16
Gain from sale of assets -0- 5,728 -0- 5,728
Interest expense (12,193) (38,311) (41,545) (119,521)
------------ ---------- ----------- --------
Total other expense, net (11,704) (32,567) (41,026) (113,777)
---------- ---------- ----------- --------
INCOME BEFORE
EXTRAORDINARY GAIN 109,256 82,512 20,127 42,635
EXTRAORDINARY GAIN FROM
DEBT EXTINGUISHMENT -0- 19,723 -0- 188,770
----------- ----------- ---------- -----------
NET INCOME 101,256 102,235 20,127 231,405
----------- ----------- ----------- ---------
Less preferred
stock dividends (6,087) -0- (19,723) -0-
----------- ----------- --------- --------
NET INCOME APPLICABLE
TO COMMON SHARES $ 94,169 $ 102,235 $ 404 $ 231,405
=========== ========= ========== ========
NET INCOME PER
COMMON SHARE:
Income before
extraordinary gain $ .01 $ .01 $ .00 $ .01
Extraordinary gain .00 .00 .00 .02
----------- ----------- ---------- ---------
Net income per common share $ .01 $ .01 $ .00 $ .03
=========== =========== ========== =========
Weighted average number
of common shares outstanding 8,560,292 7,475,919 8,560,292 7,475,919
=========== =========== =========== ===========
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
Nine Months Nine Months
Ended Ended
September 30, 1996 September 30, 1995
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 20,127 $ 231,405
Adjustments to reconcile net
income to net cash provided
by operating activities-
Non-cash consulting expense 6,584
Depreciation 668 24,517
Extraordinary gain from debt
extinguishment -0- (188,770)
Gain from sale of assets -0- (5,728)
Change in assets and liabilities-
Decrease in royalties receivable 227,520 301,375
Decrease in prepaid expenses 20,461 20,024
Decrease in accounts payable (3,461) (6,961)
Increase (decrease) in
accrued liabilities 573 (148,866)
Decrease in related party payable (113,026) -0-
Net cash provided by
operating activities 159,446 226,996
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets -0- 6,200
Purchase of equipment and furniture (31,375) (3,466)
Net cash (used in) provided
by investing activities (31,375) 2,734
------------ -------
See notes to condensed consolidated financial statements.
5
Page 2 of 2
INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
For the For the
Nine Months Nine Months
Ended Ended
September 30, 1996 September 30, 1995
(Unaudited) (Unaudited)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on
convertible debentures $ (22,768) $ (233,453)
Preferred stock dividends paid (19,723) -0-
Principal payments on note payable (37,500) -0-
Proceeds from bank loan -0- 150,000
Proceeds from issuance of common stock -0- 338
Net cash used in financing
activities (79,991) (83,115)
---------- ---------
NET INCREASE IN CASH 48,080 146,615
CASH AT BEGINNING OF PERIOD 113,732 3,080
--------- --------
CASH AT END OF PERIOD $ 161,812 $149,695
========= ========
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 and nine month periods ended September 30, 1996
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1996. For further information, refer to the consolidated
financial statements included in the Company's Form 10-KSB for the year ended
December 31, 1995.
Note B--Reduction and Grant of Certain Stock Options
During the period October 1995 through April 1996, the Company granted
stock options to officers, directors and consultants aggregating 1,100,000
shares. At a board meeting held July 31, 1996, the Company reduced these options
by 25% effective August 1, 1996, reducing the total options granted and
outstanding to 825,000.
Effective September 3, 1996, the Company entered into a consulting contract
with Ruben Engineering, Paul Ruben and Calvin Ruben for engineering consulting
services relating to the development of the Company's hematocrit technology. The
contract grants the Rubens options to purchase a total of 300,000 shares of the
common stock of the Company for $1.16 per share. A block of 200,000 options
become exercisable and vest 25,000 per quarter beginning December 1, 1996. An
additional 100,000 options become exercisable and non-forfeitable only upon the
date satisfactory clinical trials have been completed on the hematocrit
technology. All options are immediately exercisable and non-forfeitable if the
FDA approves the Company's hematocrit technology or if InMedica is sold or
acquired or the non-invasive hematocrit technology is sold or acquired. In
connection with the granting of these options the Company has recognized
$178,000 of consulting expenses of which
7
$171,416 has been deferred until the services have been provided.
Effective September 17, 1996, Dr. Allan Kaminsky severed his employment
relationship with the Company resulting in the cancellation of his options to
purchase 435,000 shares of the Company's common stock.
NOTE C--Extension of Preferred Stock Conversion Exercise Period
Effective September 30, 1996, the Company extended from October 1, 1996 through
November 1, 1996, the period during which the preferred stockholders of the
Company are entitled to convert shares of the Series A preferred stock to common
stock of the Company at the rate of six shares of common for each share of
preferred.
NOTE D--Subsequent Event
During October 1996, eight of the Company's Series A preferred stockholders
converted an aggregate of 42,277 shares of par value $4.50 Series A Convertible
preferred stock to an aggregate of 253,662 shares of common stock of the
Company. The conversion rate was six shares of common stock for each share of
preferred. The Company presently has five remaining preferred stockholders.
Total aggregate dividends payable on the remaining preferred stock outstanding
is $9,128 per year.
8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
During the nine months ended September 30, 1996, the Company recognized
royalty revenues from two payments received from J & J Medical, Inc. totalling
$336,480, up slightly from the same period in 1995. The Company's revenue
recognition policy of recording revenues only after the cash is received results
in the Company reporting royalty revenues one quarter in arrears during the
first three quarters of each year. The Company's sole source of revenue is
royalty payments received from J & J Medical, Inc., which are paid to the
Company on a quarterly basis. Royalty revenues being received by the Company may
be insufficient to sustain research and development costs, fund operations and
retire indebtedness when it comes due. InMedica consequently continues to look
for funding sources.
InMedica achieved profitable operations during the fiscal years ended
December 31, 1995 and 1994. Profitable operations resulted from increased
royalty receipts coupled with expense reductions and the suspension of research
and development efforts in 1994, and an extraordinary gain in 1995. However, the
Company has a total stockholders' deficit of $267,532 and an accumulated deficit
of $6,804,645 as of September 30, 1996. In order for InMedica to continue its
research and development activities and meet its obligations, it must secure
additional financing, for which it has no commitments. It is impossible to
estimate the amount of the J & J Medical, Inc. royalties which may be received
in the future. Such royalty revenue is dependent upon the continued sales of a
certain product line by J & J Medical Inc. which includes the Company's base
technology upon which the royalty is paid.
Results of Operations
See "Liquidity and Capital Resources" for an explanation as to the
reporting of two quarters of revenue receipts during the first three quarters of
the year. The net income from operations decreased to $20,127 for the nine
months ended September 30, 1996 compared to $42,635 for the comparable nine
months of the prior year due to an increase in general and administrative
expenses and research and development expenses.
9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings:
None
Item 2. Changes in Securities: See Note C to the financial statements for
information on a change in the exercise period for certain conversion
rights of the preferred stockholders.
Item 3. Defaults Upon Senior Securities:
None
Item 4. Submission of Matters to a Vote of Security Holders:
None
Item 5. Other Information:
During August 1996, Dr. Allan Kaminsky (a former President, Chief Executive
Officer, Director and key employee of the Company) orally advised a member of
the Company's board of directors that he would no longer pursue obtaining
control of the Company by a proxy contest or litigation. Dr. Kaminsky
subsequently sent a letter dated September 6, 1996 to Mr. Larry E. Clark
offering his continued efforts on behalf of the Company, without cash
compensation, in exchange for certain commitments by the Company, which included
a right exercisable by Dr. Kaminsky to appoint five persons to the Board of
Directors (in the event he was able to develop a device which could measure
hematocrit within certain ranges) and rights for Dr. Kaminsky to purchase one
million or more shares of stock in the Company at 50% of market value (in the
event the Company achieved the ability to fabricate a marketable product or
executed a merger/acquisition). The letter advised the Company that if Dr.
Kaminsky did not receive a reply from the Company by September 16, 1996 that he
would "irreversibly" sever any association with the Company (employment,
consulting and advisory). After considering Dr. Kaminsky's proposal, the Company
determined to make no response to the letter and considers its association with
Dr. Kaminsky to be terminated and that his 435,000 options have expired. On
September 17, 1996, Dr. Kaminsky advised the Company that his offer to negotiate
had expired, that he had no association (employment, consulting, advisory) with
InMedica/MicroCor, other than being a passive shareholder and that his action
was permanent and irreversible. Dr. Kaminsky continues to be a principal
shareholder of the Company; see Form 10-KSB for the year ended 1995, "Principal
Shareholders".
10
Item 6. Exhibits and reports on Form 8-K:
Exhibits:
(1) Agreement dated September 3, 1996 between InMedica Development Corporation
and Paul Ruben dba Ruben Engineering and Calvin Ruben, incorporated by reference
to the Exhibits to Form 8-K dated September 20, 1996.
(2) Form of conversion agreement executed by eight Preferred stockholders during
October 1996 to convert Series A preferred to common stock of the Company.
(3) Financial Data Schedule
Form 8-K:
The Company filed a Form 8-K dated September 20, 1996.
11
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
/s/ Larry E. Clark
By Larry E. Clark, CEO
/s/ Richard Bruggeman
Date: November 18, 1996 By Richard Bruggeman, Treasurer
12
EXHIBITS
Exhibits filed with the Form 10-QSB of InMedica Development
Corporation, SEC File No. 0-12968:
Exhibit No. SB Item No. Description
(10) Agreement dated September 3, 1996 between
InMedica Development Corporation and Paul
Ruben dba Ruben Engineering and Calvin Ruben,
incorporated by reference to the Exhibits to
Form 8-K dated September 20, 1996.
1 (10) Form of conversion agreement
executed by eight preferred stockholders during
October 1996 to convert Series A preferred to
common stock of the Company.
2 (27) Financial Data Schedule
13