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, 1997
-------------------------------------------------
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 10, 1997 was 8,549,279 shares.
1
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements
INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
September 30,
1997
--------------
(Unaudited)
CURRENT ASSETS:
Cash $ 157,778
Prepaid expenses 3,713
------------
Total current assets 161,491
EQUIPMENT AND FURNITURE,
at cost, less accumulated
depreciation of $250,634 3,855
OTHER ASSETS 2,196
Total assets $ 167,542
============
See notes to condensed consolidated financial statements.
2
INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET (continued)
LIABILITIES AND STOCKHOLDERS' DEFICIT
September 30,
1997
------------
(Unaudited)
CURRENT LIABILITIES:
Current portion of related-party
note payable $ 50,000
Accounts payable 14,481
Accrued interest 950
Accrued payroll 792
----------
Total current liabilities 66,223
RELATED-PARTY NOTE PAYABLE, net of
current portion 120,000
STOCKHOLDERS' DEFICIT:
Preferred stock, 10,000,000
shares authorized; Series A
preferred stock, cumulative
and convertible, $4.50 par
value; 1,000,000 shares
designated, 25,356 shares
outstanding 114,102
Common stock, $.001 par value;
20,000,000 shares authorized,
8,549,279 shares outstanding 8,549
Additional paid-in
capital 6,628,695
Accumulated deficit (6,770,027)
----------
Total stockholders'
deficit ( 18,681)
----------
Total liabilities and
stockholders' deficit $ 167,542
==========
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,
----------------------- -----------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
ROYALTY REVENUES $ 131,520 $ 210,080 $ 239,520 $ 336,480
--------- --------- --------- ---------
OPERATING EXPENSES:
General and administrative 81,867 76,734 189,582 189,148
Research and development 46,188 21,386 121,253 86,179
--------- --------- --------- ---------
Total operating expenses 128,055 98,120 310,835 275,327
--------- --------- --------- ---------
INCOME (LOSS) FROM OPERATIONS 3,465 111,960 (71,315) 61,153
--------- --------- --------- ---------
OTHER (EXPENSE) INCOME:
Interest income 633 489 773 519
Interest expense (6,358) (12,193) (24,966) (41,545)
------ ---------- --------- -------
Total other expense, net (5,725) (11,704) (24,193) (41,026)
------ --------- --------- -------
NET INCOME (LOSS) (2,260) 100,256 (95,508) 20,127
PREFERRED STOCK DIVIDENDS (2,282) (6,087) (6,846) (19,723)
--------- --------- --------- ----------
NET INCOME (LOSS) APPLICABLE
TO COMMON SHARES $ (4,542) $ 94,169 $(102,354) $ 404
========== ========= ========= =========
NET INCOME (LOSS) PER
COMMON SHARE $ (.00) $ .01 $ (.01) $ .00
========= ========= ========= =========
Weighted average number
of common shares outstanding 8,051,772 8,560,292 8,155,138 8,560,292
========= ========= ========= =========
See notes to condensed consolidated financial statements.
4
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, 1997 September 30, 1996
------------------ ------------------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (95,508) $ 20,127
Adjustments to reconcile net
income to net cash provided
by operating activities-
Non-cash consulting expense - 6,584
Depreciation 873 668
Change in assets and liabilities-
Decrease in royalties receivable 209,280 227,520
Decrease in prepaid expenses 18,627 20,461
Increase (decrease) in accounts
payable 14,481 (3,461)
(Decrease) increase in
accrued payroll (7,829) 573
Decrease in interest payable (8,262) -
Decrease in related-party
payable (39,000) (113,026)
----------- ------------
Net cash provided by
operating activities 92,662 159,446
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and furniture - (31,375)
------------ ------------
See notes to condensed consolidated financial statements.
5
INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
INCREASE (DECREASE) IN CASH
For the For the
Nine Months Nine Months
Ended Ended
September 30, 1997 September 30, 1996
------------------ ------------------
(Unaudited) (Unaudited)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on
convertible debentures $ - $ (22,768)
Preferred stock dividends paid (6,846) (19,723)
Proceeds from issuance of common
stock 146,876 -
Principal payments on note payable (252,500) (37,500)
----------- ----------
Net cash used in financing
activities (112,470) (79,991)
----------- ----------
NET (DECREASE) INCREASE IN CASH (19,808) 48,080
CASH AT BEGINNING OF THE PERIOD 177,586 113,732
----------- ----------
CASH AT END OF THE PERIOD $ 157,778 $ 161,812
=========== ==========
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, 1997
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1997. For further information, refer to the consolidated
financial statements included in the Company's Form 10-KSB for the year ended
December 31, 1996.
Note B--Grant of Certain Stock Options and Research Contract
Effective August 29, 1997, the Board of Directors granted options to purchase
the common stock of the Company as follows: 40,000 options to an employee, 6,000
options to a consultant (associate with Medical Physics) and 54,000 options to
Medical Physics, Inc. (a consulting firm). The options are exercisable for three
years at $.73 per share. The Company also granted Medical Physics, Inc. options
to purchase an additional 54,000 shares for $.73 per share, exercisable for
three years from a date (not later than May 30, 1998) on which Medical Physics
demonstrates a hematocrit measuring device to InMedica which measures human
hematocrit with an accuracy of plus or minus 3.5 hematocrit points through
ranges from 20 to 60. The options were granted in connection with a research and
development contract entered into with Medical Physics, Inc. which obligates
InMedica to pay Medical Physics, Inc. a total of $100,000 in nine equal payments
of approximately $11,111 beginning in September 1997 and to reimburse Medical
Physics for its reasonable out-of-pocket research and development expenses
(excluding overhead) and, where approved in advance by InMedica, its travel
expenses.
7
NOTE C--Exercise of Certain Stock Options
Effective September 5, 1997, Larry E. Clark, Chief Executive Officer of the
Company, exercised options to purchase 450,000 shares of common stock of the
Company for $.30 per share. Following exercise of the options, Mr. Clark had
direct ownership of 1,593,000 shares, or approximately 18.9% of the common stock
of the Company. Another officer exercised options to purchase an aggregate of
101,667 shares for $11,876.
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,
1997, the Company recognized royalty revenues from two payments received from J
& J Medical, Inc. totalling $239,520, a decrease of $96,960 compared to the same
period in 1996. The decline in revenues was due to a decrease in sales of the
product by J & J Medical, Inc., however, the Company has no information as to
any trend for future sales. The Company's revenue recognition policy of
recording revenues only after the cash is assured of being received results in
the Company reporting royalty revenues one quarter in arrears during the first
three quarters of each year. The Company's principal source of liquidity 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. 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. Consequently, InMedica continues to look for funding
sources.
The Company received payments totalling $146,875 from two officers for the
exercise of options to purchase common stock during September 1997. The Company
used the proceeds to reduce long-term debt as it is presently funding research
and development and general and administrative expense from cash flows.
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. A net loss of $95,508 from operations was incurred due to
a decline in royalty revenues received for the nine months ended September 30,
1997 compared to the comparable period of 1996 and an increase in research and
development expenses during the first nine months of 1997. The increase in
research and development expenses resulted from continued work on the
non-invasive hematocrit project.
8
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings:
None
Item 2. Changes in Securities:
None
Item 3. Defaults Upon Senior Securities:
None
Item 4. Submission of Matters to a Vote of Security Holders:
See Exhibit 2 for a copy of a report on the results of a shareholder
meeting held August 29, 1997.
Item 5. Other Information:
See Note C to the condensed consolidated financial statements regarding
the exercise of certain stock options by the Chief Executive Officer of
the Company.
Item 6. Exhibits and reports on Form 8-K:
Exhibits:
(1) Hematocrit Development and Option Agreement between InMedica
Development Corporation and Medical Physics, dated August 29,
1997
(2) Report to Shareholders on Annual Meeting held August 29, 1997
(3) Financial Data Schedule
Form 8-K: None
9
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, Chief Executive
Officer
/s/ Richard Bruggeman
-----------------------------------
Date: November 13, 1997 By Richard Bruggeman, Chief
-- Financial Officer
10
EXHIBITS
Exhibits filed with the Form 10-QSB of InMedica Development Corporation, SEC
File No. 0-12968:
Exhibit No. SB Item No. Description
- -----------------------------------------------
1 (10) Hematocrit Development and Option Agreement
between InMedica Development Corporation and
Medical Physics, dated August 29, 1997
2 (22) Report to Shareholders on Annual Meeting of
August 29, 1997
3 (27) Financial Data Schedule
11