U.S. SECURITIES AND EXCHANGE COMMISSION
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Washington, D.C. 20549
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Form 10 - QSB
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Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
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For the Quarterly Period Ended September 30, 1997
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Commission File No. 0-12968
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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
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(Address of principal executive offices)
Registrant's telephone number including area code (801) 521-9300
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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.
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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.
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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)
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Total liabilities and
stockholders' deficit $ 167,542
==========
See notes to condensed consolidated financial statements.
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<PAGE>
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.
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<PAGE>
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.
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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
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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.
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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
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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:
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
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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, Chief Executive
Officer
/s/ Richard Bruggeman
-----------------------------------
Date: November 13, 1997 By Richard Bruggeman, Chief
-- Financial Officer
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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) 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
Exhibit 1
HEMATOCRIT DEVELOPMENT AND OPTION AGREEMENT
An Agreement made as of the 29th day of August, 1997 by and between
InMedica Development Corporation, a Utah corporation doing business at 60 South
600 East, Suite 150, Salt Lake City, Utah 84102 (hereinafter called "InMedica")
and Medical Physics, Inc., a Utah corporation doing business at 825 North 300
West, Salt Lake City, Utah 84103 (hereinafter called "Medical Physics").
RECITALS
Whereas InMedica has previously engaged Medical Physics to conduct certain
work on its non-invasive hematocrit project; and
Whereas the parties now desire to formalize their relationship for further
work and to grant certain stock options to Medical Physics;
Now therefore, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Options. InMedica hereby grants to Medical Physics options to purchase
54,000 shares of the common stock of InMedica. The options are exercisable for
Seventy Three Cents ($.73) per share effective August 29, 1997 for a period of
three years. Further, InMedica hereby grants to Medical Physics options to
purchase 54,000 additional shares of common stock of InMedica at the option
price of $.73 per share which shall become exercisable for a period of three
years from the 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 all
ranges from 20 to 60. Medical Physics shall have the right to assign its options
to Dr. Justin Clark and Dr. Ke-shieng Yang, as it may determine.
2. Consulting Agreement. Medical Physics agrees to render the following
services to InMedica within nine months from the date hereof:
1- prepare and submit an application for a $100,000 Small Business Innovative
Research grant (the "Phase I Grant") (within 30 days from the date hereof or as
soon thereafter as possible). Research pursuant to the grant must be assignable
to InMedica and shall be assigned to InMedica by Medical Physics, upon request.
If a Phase I Grant is approved, InMedica agrees to match the SBIR funds with up
12
<PAGE>
to $100,000 to be used as additional funds for the research and development
project
2- conduct research and use its best efforts to develop a prototype hematocrit
measuring device capable of measuring human hematocrit with an accuracy of plus
or minus 3.5 hematocrit points through all ranges from 20 to 60 during the six
months following execution of this agreement. During such time period, Dr.
Justin Clark shall devote at least 50% of his time to the project and Dr.
Ke-shieng Yang shall devote at least 80% of his time to the project.
3- conduct clinical trials on the device, if warranted, during the final three
months of this agreement
4- cooperate with the Company's patent attorneys in filing for patent rights on
the technology developed including execution of assignments required to document
the Company's ownership of inventions resulting from the research and
development; copies of assignments as to certain technology developed to date
and which are being executed concurrently herewith are attached hereto as
Exhibit A
5- The parties agree that InMedica is authorized to use existing technology of
Medical Physics where such technology is incorporated into the hematocrit
device. However the rights to such technology is to be restricted to the domain
of InMedica's hematocrit device
6- make presentations regarding the technology to persons or entities approved
by InMedica
7- all technology developed under this agreement shall be the property of
InMedica
In consideration of the services rendered, InMedica agrees to pay Medical
Research $100,000 in nine equal payments of $11,111.11 beginning in September,
1997 and to reimburse Medical Research for its reasonable out of pocket research
and development expenses (excluding overhead) and, where approved in advance by
InMedica, its travel expenses.
4. Confidentiality. Medical Physics and its owners consultants and
employees agree to be bound by the Confidentiality and Non-competition agreement
a copy of which is attached hereto as Exhibit B
5. Term. This agreement shall continue for a period of nine months and
may be renewed thereafter by mutual agreement of the parties.
6. General. (a) This agreement contains the entire agreement between the
parties on the subject matter (including those agreements expressly incorporated
herein by reference) and can only be changed or modified by written agreement
between the parties.
13
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(b)Any notices or other communications under this agreement shall be in writing,
shall be deemed to have been legally given and delivered when sent certified
mail, return receipt requested to the addresses set forth above.
(c)In the event any provision or any part of any provision of this agreement
shall be held invalid, illegal or unenforceable, such holding shall not affect
any other provision or any part of the same provision which can be given effect
without the invalid provision or any part thereof.
(d)This agreement may be executed in one or more counterparts each of which
shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
(e)Any party hereto found by a court of competent jurisdiction to have breached
this agreement shall be liable to the prevailing party for costs and attorneys
fees.
IN WITNESS WHEREOF the parties have executed this agreement as of the date first
above written.
INMEDICA DEVELOPMENT CORPORATION
/s/ Larry E. Clark
-----------------------------------
By Larry E. Clark, President
MEDICAL PHYSICS, INC.
/s/ Justin S. Clark
-----------------------------------
Justin S. Clark, President
14
Exhibit 2
TO THE SHAREHOLDERS:
At the Company's annual shareholder meeting held August 29, 1997, Company
personnel advised the shareholders that they believed notice of meeting had been
inadequate due to inadvertent failure to mail notice to beneficial owners of
stock held in street name, although there appeared to be sufficient shares
present to constitute a quorum and ballots were accepted at the meeting. The
following week the Company mailed a letter to shareholders advising them that
the meeting would be rescheduled.
Following the mailing, a shareholder demanded through his attorney that the
Company disclose the results of the tallies of the August 29, 1997 ballots and
proxies under threat of litigation. The shareholder claimed that the meeting was
valid and that proper notice had been given. After reviewing the matter, the
Company has concluded that the request for disclosure is reasonable and reports
the following tallies:
Management's Nominees Votes in Favor
---------------------------------------
Larry E. Clark 2,138,168
John R. Merendino 2,119,414
David L. Dingman 2,119,414
Richard Bruggeman 2,158,168
"Write in" Names Votes in Favor
---------------------------------------
J. Lynn Smith 1,965,230
Jim Pingree 1,965,230
Not Voting "For" Any Person
---------------------------------------
390,300
Ratification of Appointment of Auditors
---------------------------------------
For 2,086,983
Against 0
Abstain 0
Based upon the foregoing, the Company concluded that the Board of Directors
was re-elected at the meeting and that the appointment of Arthur Andersen LLP
was ratified.
INMEDICA DEVELOPMENT CORPORATION
THE BOARD OF DIRECTORS
15
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<PERIOD-END> SEP-30-1997 SEP-30-1996
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<SECURITIES> 0 0
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114102 0
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