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, 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 August 12, 1997 was 7,999,232 shares.
1
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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, 1997
ASSETS
June 30,
1997
-----------
(Unaudited)
CURRENT ASSETS:
Cash $ 181,126
Prepaid expenses 9,378
-----------
Total current assets 190,504
EQUIPMENT AND FURNITURE,
at cost, less accumulated
depreciation of $250,343 4,146
OTHER ASSETS 2,196
Total assets $ 196,846
============
See notes to condensed consolidated financial statements.
2
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Page 2 of 2
INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1997
LIABILITIES AND STOCKHOLDERS' DEFICIT
June 30,
1997
----------
(Unaudited)
CURRENT LIABILITIES:
Current portion of note
payable $ 50,000
Accrued Interest 850
Accounts payable 1,219
Accrued payroll 792
----------
Total current liabilities 52,861
NOTE PAYABLE, less
current portion 305,000
----------
STOCKHOLDERS' DEFICIT:
Common stock, $.001 par value;
20,000,000 shares authorized,
7,999,232 issued and outstanding 7,999
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 issued
and outstanding 114,102
Additional paid-in
capital 6,482,369
Accumulated deficit (6,765,485)
----------
Total stockholders'
deficit ( 161,015)
----------
Total liabilities and
stockholders' deficit $ 196,846
==========
See notes to condensed consolidated financial statements.
3
<PAGE>
Page 1 of 2
INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three For the Six
Months Ended Months Ended
--------------------- -----------------------
June 30, June 30,
1997 1996 1997 1996
--------- --------- --------- ----------
(Unaudited)(Unaudited) (Unaudited) (Unaudited)
ROYALTY REVENUES $ 108,000 $ 126,400 $ 108,000 $ 126,400
--------- ------- ------- ----------
OPERATING EXPENSES:
General and
administrative 59,875 75,698 107,715 112,414
Research and
development 43,382 42,764 75,065 64,793
------ ---------- ------- ----------
Total operating expenses 103,257 118,462 182,780 177,207
-------- ---------- ------- ----------
LOSS FROM OPERATIONS 4,743 7,938 (74,780) (50,807)
----- ------ ------- ----------
OTHER (EXPENSE) INCOME:
Interest income 134 30 140 30
Interest expense (Note B) (9,105) (14,398) (18,608) (29,352)
--------- ---------- ---------- -------
Total other expense (8,971) (14,368) (18,468) (29,322)
--------- ---------- ---------- --------
NET LOSS $ (4,228) $ (6,430) $(93,248) $(80,129)
PREFERRED STOCK DIVIDEND (2,282) (6,086) (4,564) (13,636)
---------- ---------- --------- ---------
NET LOSS APPLICABLE
TO COMMON SHARES $ (6,510) $ (12,516) $(97,812) $ (93,756)
========= ========= ======== ========
Net loss per common share $ (.001) $ (.002) $ (.012) $ (.012)
========= ======== ======= ========
Weighted average number
of common shares
outstanding 7,999,232 7,686,433 7,999,232 7,586,070
========= ========= ========= =========
See notes to condensed consolidated financial statements.
4
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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, 1997 June 30, 1996
------------- -------------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (93,248) $ (80,129)
Adjustments to reconcile net
loss to net cash provided
by operating activities-
Depreciation 582 445
Change in assets and liabilities-
Decrease in royalties receivable 209,280 227,520
Decrease in prepaid expenses 12,962 13,354
Increase (decrease) in accounts
payable 1,219 (3,143)
Increase (decrease) in accrued
payroll (7,829) 3,011
Decrease in interest payable (8,362) 0
Decrease in related party payable (39,000) (51,000)
--------- ------------
Net cash provided by
operating activities 75,604 110,058
-------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and furniture 0 (1,375)
---------- -----------
Net cash used in investing
activities 0 (1,375)
---------- -----------
See notes to condensed consolidated financial statements.
5
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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, 1997 June 30, 1996
------------- -------------
(Unaudited) (Unaudited)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on
convertible debentures 0 $ (22,768)
Preferred stock dividends paid (4,564) (13,636)
Principal payments on note payable (67,500) (25,000)
--------- ---------
Net cash used in
financing activities (72,064) (61,404)
NET INCREASE IN CASH $ 3,540 47,279
CASH AT BEGINNING OF PERIOD 177,586 113,732
--------- ----------
CASH AT END OF PERIOD 181,126 $ 161,011
========== ==========
See notes to condensed consolidated financial statements.
6
<PAGE>
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 six month periods ended June 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--Effective June 23, 1997, the Company entered into a revolving loan
arrangement with its Chief Executive Officer, Larry E. Clark, with a maximum
loan amount of $450,000, evidenced by a Line of Credit Loan Agreement (the
"Agreement"). Loans pursuant to the Agreement are to be upon terms not less
favorable than the terms of a loan obtained by Mr. Clark from Bank One
concurrently with the loan made to the Company; an initial advance was made to
the Company by Mr. Clark pursuant to the Agreement of $350,000. The proceeds of
the $350,000 loan from Mr. Clark were used to retire the outstanding debt of the
Company owing to Wells Fargo Bank (formerly First Interstate Bank) and to obtain
a release of all Collateral securing the debt, including the J & J Medical, Inc.
royalty contract dated June 15, 1995 and collateral which had been supplied by
Mr. Clark. The Company then granted to Mr. Clark a security interest in the J &
J Medical, Inc. royalty agreement as security for repayment of the loan from Mr.
Clark. The interest rate pursuant to the Agreement with Mr. Clark is less than
that previously paid by the Company on the Wells Fargo loan.
7
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
For the three months ended March 31, 1997, no operating revenues were
recognized due to the revenue recognition policy of the Company and the timing
of the receipt of revenues. Total revenues for the first six months of the year
were $108,000 or $18,400 less than during the same period of the prior year. The
Company's sole source of revenue is a royalty payment received from J & J
Medical, Inc., which is 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, 1996, 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 $(161,015) and an accumulated
deficit of $(6,765,485) as of June 30, 1997. 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 income is dependent upon the continued sales of the
product line by J & J Medical Inc. which includes the Company's base technology
and upon which the royalty is paid.
Results of Operations
See "Liquidity and Capital Resources" for an explanation as to the lack of
revenues during the quarter ended March 31, 1997. The net loss from operations
of $93,248 for the six months ended June 30, 1997 increased by $13,123 compared
to the comparable period of the prior year primarily because royalty revenues
declined by $18,400 compared to the prior year.
8
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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:
None
Item 5. Other Information: See Note B to the financial statements
for information as to a revolving loan agreement with the
Company's President.
Item 6. Exhibits and reports on Form 8-K:
Exhibits: (1) Loan Agreement between Larry E. Clark and
the InMedica Development Corporation dated June 23, 1997
(2) Financial Data Schedule
9
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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, Chairman
/s/ Richard Bruggeman
--------------------------------
Date: August 13, 1997 By Richard Bruggeman, Treasurer
--
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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) Loan Agreement between Larry E.
Clark and InMedica Development
Corporation dated June 23, 1997.
2 (27) Financial Data Schedule
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Exhibit 1
LINE OF CREDIT LOAN AGREEMENT
AND SECURITY AGREEMENT
In consideration of the covenants and conditions hereafter contained, Larry
E. Clark (hereafter "Clark") and InMedica Development Corporation (hereafter
"Borrower") agree as follows:
1. REPRESENTATIONS. Clark desires to lend to Borrower, on a revolving line
of credit basis, the amount set forth as the Line of Credit Limit above the
signatures to this Agreement, pursuant to the terms and conditions of this
Agreement ("Agreement" or "Line of Credit").
2. LINE OF CREDIT LIMIT. Clark shall not be required to advance to Borrower
at any one time under the provisions of this Agreement an amount in excess of
the Line of Credit Limit as shown above the signatures to this Agreement, or the
Borrowing Base, whichever is less. The Borrowing Base shall be equal to 80% of
the Market Value of the Collateral.
3. TERMS OF LINE OF CREDIT.
A. Clark agrees to lend to Borrower from the date hereof amounts which do
not exceed the Line of Credit Limit or the Borrowing Base, whichever is less.
Borrower agrees to repay all amounts borrowed and advanced in accordance with
the terms described herein. The Line of Credit Limit is the maximum amount Clark
is required to advance to Borrower under this Agreement.
B. The funds available under this Agreement may not be obtained by any
person or entity except an authorized agent of Borrower and Clark.
C. Borrower may obtain advances on the Line of Credit as follows: (1) Clark
will maintain a ledger which will reflect all advances, charges and payments
made on the Line of Credit. All funds available to Borrower under this Line of
Credit will be advanced on oral or written demand of Borrower, and Clark shall
not have the right to deny any such advance unless this Agreement has matured or
been terminated prior to an advance request.
(2) An initial disbursement from the Line of Credit in the amount of $350,000
has been made to Borrower as of June 23, 1997.
D. LOAN INTEREST RATE. Borrower shall pay to Clark interest on the
outstanding balance of all advances obtained under the Line of Credit, which
shall be identical to the interest paid by Clark on a loan from Bank One used to
fund this loan to Borrower. The interest rate shall be a variable interest rate
12
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which at all times shall be equal to the "prime rate" of interest for loans
charged and announced by Bank One, National Association, or its successors, (the
"Loan Index Rate") plus the additional percentage points set forth above the
signatures to this Agreement (the "Margin"). The Loan Index Rate will change on
the day the "prime rate" changes and the total interest payable on the
outstanding principal balance will fluctuate with changes in the Loan Index
Rate. Interest shall be computed daily on the basis of a 360 day year and
charged on the number of actual days advances are outstanding.
E. INTEREST PAYMENTS. Clark will notify Borrower quarterly of the interest
due for the preceding quarter on total outstanding advances from the Line of
Credit. Interest will be due in arrears and the interest due must be paid to
Clark on or before the due date of Clark's interest payments to his lender. If
payment is not received from Borrower on or before the due date, Clark may, but
shall not be required to charge the Line of Credit for the amount of the
interest due for the preceding quarter so long as such charge does not cause the
outstanding principal balance to exceed the Line of Credit limit.
F. PRINCIPAL PAYMENTS. Borrower shall make minimum principal payments of
$12,500 per quarter. Until Clark declares a termination of the Line of Credit or
otherwise notifies Borrower in writing, Borrower may make such additional
payments on the principal balance of the advances outstanding as Borrower, in
its sole discretion, determines. There shall be no pre-payment penalty.
G. OTHER FEES. Borrower shall pay a reasonable fee, including outside
attorney's fees to amend the Loan Agreement or any of the Loan Documents.
4. SECURITY. The security for all advances made to Borrower under the Line
of Credit and all accrued interest, costs and fees shall be as described in this
Security Agreement or other lien instrument executed in connection with this
Agreement (the "Collateral").
5. TERMINATION AND MATURITY.
A. TERMINATION BY BORROWER. Borrower may terminate this Agreement at any
time by furnishing Clark with a written notice that this Agreement is terminated
and coincidentally therewith paying all outstanding advances, accrued interest,
fees and charges.
B. TERMINATION BY CLARK. In the event of Borrower's default, and following
notice and failure by Borrower to cure as required herein, Clark may terminate
his obligation to make further advances under this Agreement.
13
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C. MATURITY. Notwithstanding the foregoing, this Line of Credit shall
mature and all outstanding advances, including accrued interest, fees and
charges, shall be due and payable in full June 22, 1998.
6. SECURITY INTEREST. Borrower does hereby grant to Clark a security
interest in the certain agreement dated June 15, 1995 between MicroCor, Inc., a
wholly owned subsidiary of Borrower and Johnson & Johnson Medical, Inc. and all
royalties paid pursuant thereto, which may be perfected by filing a UCC-1
financing statement. Clark may seek from J & J Medical, Inc. any consent of J &
J Medical, Inc. he deems necessary to the grant of the security interest either
before or after the date of the grant of the security interest to him. Clark may
execute on the Security Interest in the event of Borrower's default.
7. REPRESENTATIONS AND WARRANTIES OF BORROWER. As an inducement to Clark
to enter in to this Agreement to make the Line of Credit available as provided
for herein, Borrower represents and warrants to Clark as follows:
A. AUTHORITY. The execution, delivery and performance of this Agreement
and all other documents, instruments and agreements contemplated hereby to which
Borrower is a party, when executed and delivered by Borrower, will be legal,
valid and binding obligations of Borrower.
B. LITIGATION. Except as disclosed by Borrower to Clark in writing prior
to the date hereof, there are no actions, suits or proceedings (whether or not
purportedly on behalf of Borrower) pending or, to the knowledge of Borrower
after reasonable investigation, threatened against or affecting Borrower at law
or in equity by any person, which, if adversely determined, would have a
material adverse effect on the business, properties or financial condition of
Borrower.
8. AFFIRMATIVE COVENANTS OF BORROWER. Until payment is full of Borrower's
obligations hereunder and the termination of Clark's commitment to make the Line
of Credit available, Borrower agrees that:
A. COMPLIANCE WITH LAW, ETC. Borrower will comply in all material respects
with all applicable laws, rules, regulations and orders.
B. ORDINARY COURSE OF BUSINESS. Borrower will not sell, lease, transfer
or otherwise dispose of all or substantially all of its assets, except in the
ordinary course of business.
C. FINANCIAL REPORTING. Borrower will furnish financial statements to
Clark annually which shall include a balance sheet and income statement.
14
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Borrower shall also provide, annually, a copy of Borrower's prior year's federal
income tax return.
9. COLLATERAL MAINTENANCE.
A. The J & J Medical Agreement, (the "Contract") which serves as Collateral
to Clark on advances made hereunder, continues so long as J & J Medical, Inc.
sells Dinamap PLUS Monitors, but may be terminated upon the dissolution, winding
up, bankruptcy or material breach of contract of either party. Consequently, the
value of the Contract as security is totally dependant upon the volume of sales
and continued sales of the monitor, over which Borrower has no control. Further,
the Borrower may be unable to provide additional security in the event Clark
deemed himself to be insecure or the perceived value of the Contract were to
decline.
B. Should Clark be required to reduce the balance of his own bank loan due
to insufficient Collateral, which loan has been used to fund the advances to the
Borrower, the Borrower agrees to cooperate in good faith with Clark to attempt
to reduce the principal owing hereunder in sufficient amounts to permit Clark to
meet his obligations to his lender.
10. EVENTS OF DEFAULT; REMEDIES. If one or more of the following events
shall occur ("Events of Default" or an "Event of Default"):
A. Borrower shall default in the due and punctual payment of principal or
interest on the Line of Credit or any other of its obligations due to Clark,
when the same become due, whether at maturity or otherwise; or
B. Borrower shall fail to perform or observe any other of the terms,
provisions, covenants, restrictions, agreements or obligations to be performed
by it under this Agreement, or under agreements or instruments given under this
Agreement; or
C. Any representation or warranty made by Borrower herein or pursuant
hereto or otherwise in any report, certificate or other instrument furnished in
connection with this agreement shall prove to have been inaccurate or incomplete
in any material respect on the date which it was made; or
D. Borrower shall be adjudicated bankrupt or insolvent, or generally not
pay its debts as they become due, or make an assignment for the benefit of
creditors; or Borrower shall apply for or consent to the appointment of a
custodian, receiver, trustee, or similar officer for it or for all or
substantially all of its property.
Then, Clark, upon the occurrence of any Event(s) of Default, may terminate this
Agreement and, in addition, without presentment, demand, protest or notice of
any kind, all of which are hereby
15
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expressly waived by Borrower: (a) declare the unpaid principal balance, and all
interest thereon and all other amounts payable under this Agreement immediately
due and payable. (b) immediately, without expiration of any further period of
grace, enforce payment of all obligations of Borrower under this Agreement and
under agreements executed in connection herewith and may exercise any and all
other remedies granted to Clark at law, in equity or otherwise. (c) Exercise all
of Clark's rights under the terms of any security agreement, assignment, trust
deed, pledge or other lien document executed in connection herewith.
E. Borrower agrees that after the exercise by Clark of the remedies
specified above and both before and after judgment, the obligations due
hereunder shall accrue interest until paid at the rate of eighteen percent (18%)
per annum.
F. After default, Borrower agrees to pay all reasonable expenses and fees
including reasonable attorney's fees and court costs incurred in the collection
of the obligations and/or incurred in any bankruptcy or insolvency proceedings
or arbitration proceedings.
11. MISCELLANEOUS
A. ENTIRE AGREEMENT. This Agreement embodies the entire and exclusive
agreement and understanding between the parties hereto and supersedes all prior
agreements and understandings relating to the subject matter hereof. Clark's
failure to insist upon strict compliance with any term or provision of this
Agreement shall not be deemed a waiver of Clark's right to insist on strict
performance by Borrower at a later time.
B. SURVIVAL. All representations, warranties and agreements herein
contained on the part of Borrower shall survive the execution of this Agreement.
C. INDEMNITY. The Borrower hereby agrees to defend, indemnify and hold
Clark harmless from and against any and all claims, damages, judgments,
penalties, costs and expenses (including attorneys fees and court costs now or
hereafter arising from the aforesaid enforcement of this clause) arising
directly or indirectly from the activities of the Borrower and its Subsidiaries,
its predecessors in interest, or third parties with whom it has a contractual
relationship, or arising directly or indirectly from the violation of any
environmental protection, health, or safety law, whether such claims are
asserted by any governmental agency or other person. This indemnity shall
survive termination of this Agreement.
D. NOTICES. Except as otherwise provided herein, all notices, requests,
consents and demands hereunder shall be in writing and shall be effective upon
16
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receipt or three (3) business days after being duly deposited in the mail, first
class, postage prepaid, or delivered to the respective parties at the address
set forth below the signatures to this Agreement. Any party may change the
address to which notices are to be sent by notice of such change given to the
other parties as provided herein.
E. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of Borrower, Clark and their prospective successors and assigns;
provided, however, that Borrower may not transfer its rights to borrow under
this Agreement without the prior written consent of Clark.
F. CHOICE OF LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Utah.
G. AMENDMENT AND WAIVER. Neither this Agreement nor any provisions hereof
may be changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against whom enforcement of the
change, waiver, discharge or termination is sought. This Agreement is a final
expression of the agreement between the Borrower and Clark and this written
agreement may not be contradicted by evidence of any alleged oral agreement.
H. LINE OF CREDIT LIMIT: $450,000.
I. MARGIN: The additional percentage points ("Margin") to be added to the
Loan Index Rate are .25 percentage points. The initial interest rate payable on
advances made under the Line of Credit is 8.75% per annum.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by authority duly given as of this 23rd day of June, 1997.
CLARK: InMedica Development Corporation
/s/ Larry E. Clark /s/ Richard Bruggeman
- -------------------------- -----------------------------
Larry E. Clark Richard Bruggeman, Treasurer
1036 Oak Hills Way 60 South 600 East, Suite 150
Salt Lake City, Utah 84108 Salt Lake City, Utah 84102
17
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<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-END> JUN-30-1997 JUN-30-1997
<CASH> 181126 0
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
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<CURRENT-ASSETS> 190504 0
<PP&E> 254489 0
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0 0
114102 0
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<FN>
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</FN>
</TABLE>
